Deng Xiaoping, who led China from 1978-89, famously described his effort to integrate limited, free market capitalism into China’s communist system as “socialism with Chinese characteristics.” Taking that step helped China become an economic powerhouse and the world’s second largest economy.
Chinese President Xi Jinping has been steadily undoing Deng’s reforms by imposing top-down, command-and-control policies, and China is suffering for it both economically and politically. Ironically, President Joe Biden has been abandoning the U.S. version of free market capitalism that Deng admired and increasingly embracing variations of Xi’s policies. Call it Xinomics with American characteristics. Here are some examples.
Industrial policy. The International Monetary Fund (IMF) says, “‘Industrial policy’ refers to government efforts to shape the economy by targeting specific industries, firms, or economic activities.” The IMF explains that “In the US, industrial policy is no longer a taboo subject.” Indeed, it is one of Biden’s chief strategies, and has also been key to Xinomics.
According to the IMF, industrial policy’s goal is “(i) enhancing national security by promoting self-sufficiency in key industries, (ii) supporting job-rich and inclusive growth, (iii) revitalizing left-behind communities….” You will find references to all three in Biden’s CHIPS Act (promoting semiconductor manufacturing), his infrastructure bill and the Inflation Reduction Act, which showers money on various green energy projects.
As National Public Radio reported last April, “Biden is making the case for his brand of industrial policy — using taxes, subsidies and regulations to systematically shape the economy.”
How is that different from Xi Jinping’s policies? Xi uses taxes, subsidies and regulations to shape China’s economy the way he wants it, not the way Chinese consumers want it. Xi may use a heavier hand in imposing his industrial policies, but that’s a matter of degree, not substance.
And don’t think our allies and major trading partners haven’t noticed. The Financial Times writes that Biden’s industrial policies have “drawn fire from European and Asian allies, who claim their deep subsidies and made-in-America requirements amount to protectionism.” Those same criticisms are leveled at China.
Bypassing democracy. For all of Biden’s bellyaching about the rising threats to democracy, his administration regularly bypasses the democratic process by imposing major policy changes and regulations without a vote in Congress.
On his first day in office, Biden released a presidential memorandum (like an executive order) titled “Modernizing Regulatory Review.” He says, “These recommendations should provide concrete suggestions on how the regulatory review process can promote public health and safety, economic growth, social welfare, racial justice, environmental stewardship, human dignity, equity, and the interests of future generations.”
In essence, he is urging hundreds of regulatory bodies and agencies to aggressively implement the Biden economic and social vision. If Biden could get his agenda passed by Congress, he would. But he can’t. If states, companies or individuals successfully sue the agencies to stop their regulatory overreach, those agencies just try again with a different approach.
Thankfully, U.S. courts are one big difference between Xi and Biden. The Chinese Communist Party and the courts rubber-stamp Xi’s policies. In the United States, the courts are still independent. They are one of the few obstacles to Biden’s agenda, which is why so many Democrats are intent on reforming the U.S. Supreme Court.
Government-mandated boondoggles. Xi has a real estate problem on his hands. He pushed for a massive increase in commercial buildings and residential housing that no one wanted. Now, there are ghost-cities covered with empty high-rise buildings.
Biden, by contrast, has a green energy boondoggle on his hands. He has poured subsidies and tax breaks on a whole host of green energy projects, and many, if not most, of those efforts are now failing.
Electric Vehicles (EVs) are backing up on car lots — sort like Xi’s empty buildings — and the car makers are slashing prices to try and move them. Car makers are dramatically scaling back their grossly ambitious EV production estimates. In addition, rising interest rates have forced other types of green energy companies — e.g., offshore wind farms — to postpone or abandon their projects.
To be very clear, all of these green energy efforts were the result of government policies, mandates and taxpayer subsidies — like China’s failed building boom.
One big difference. There is one way in which Biden is not following Xi’s lead: the military buildup. China has embarked on the largest military buildup since 1930s Germany. China now has the largest navy and standing army. And the country is beginning to use that power to expand its territory and influence.
By contrast, Biden has been scaling back military spending as a percent of GDP. That may come back to haunt him — and the country — if China or Russia or Iran, or all three, become more belligerent.
The irony in Biden’s embrace of Xinomics is that it is free markets and capitalism that created U.S. prosperity. Even China benefited greatly from its more limited free market experiment. Xi’s top-down malinvestment policies are slowly undermining China’s economy by redirecting capital from where it’s most productive. Having inherited one of the strongest economies the world has ever known, Biden’s embrace of Xinomics and malinvestment will take the U.S. down the same slow-growth path.
Merrill Matthews is a resident scholar with the Institute for Policy Innovation in Dallas, Texas. Follow him on X@MerrillMatthews.