Rubio’s pragmatic thinking on China

We are starting to see the first signs of an important sea change in the Washington policy establishment’s view of America’s economic relationship with China. Where once there was an ironclad consensus that U.S. interests are best served by embracing China and welcoming it into the global trading system in order to open up its vast market to American exports, there is now a stark realization, shared by a growing number of experts across the ideological spectrum, that China is not interested in a warm embrace or even in playing by the basic rules of global trade. It intends to compete and win by any means necessary, particularly in advanced industries driven by high technology and innovation, so America must respond accordingly.

An important new report from Sen. Marco Rubio (R-Fla.) provides a comprehensive analysis of China’s strategy and its implications, and it should serve as a broader rallying cry. The report, “Made in China 2025 and the Future of American Industry,” makes three key points. First, the Washington establishment turned a blind eye to the China challenge for far too long, so now it’s time for decisive action. Second, the choice should not be between rolling back China’s notorious practice of innovation mercantilism or spurring more innovation and productivity at home. America must do both if its economy is to thrive.{mosads}

Third, and perhaps most important, the report argues it’s a mistake to posit that the only two choices for domestic policy are laissez faire, free-market capitalism or heavy-handed “industrial policy.” That was always a false dichotomy, but never more so than now. For U.S. governments (local, state, or federal), helping companies compete globally, particularly in advanced industries, does not mean engaging in “inappropriate industrial policy,” as some on the right claim, nor does it constitute wasteful “corporate welfare,” as some on the left would argue.

The reality, as every governor of either party knows, is that jurisdictions are in intense competition for advanced industries, and governments have to play a supportive role or risk losing those industries and the good jobs that come with them. Prioritizing these high-wage, globally traded industries of the 21st century, as the Rubio report calls for, is not some kind of statist misallocation of resources, but rather needs to be a core component of modern statecraft. 

Unfortunately, this pragmatic framing has elicited ideologically-based pushback from some on the libertarian right. Case in point, a recent op-ed by George Mason University research fellow Veronique de Rugy. Bludgeoning anyone with the temerity to embrace the idea of more robust national competitiveness policies, de Rugy plays the “state planning” card — conflating any and all such policies, no matter how market-friendly, with some kind of Soviet-style Gosplan initiative. As she puts it, America’s choice is between “China’s command-and-control playbook” and “markets,” and anything that doesn’t hew the libertarian line is, by definition, following the Chinese model.

Whether this is an intentional misreading of the Rubio report or a rhetorical device to impose a radical free-market straightjacket on any apostates who dare to argue that government can have some legitimate role is not the point. Either way, it distorts what needs to be the central most important economic debate of our times.{mossecondads}

Let’s clarify the record: The Rubio report does not call for Chinese-style industrial policy in the United States, unless you believe that any and all activities of government are akin to communist party planning. Nor does it call for protecting American companies from foreign competition. It says two main things. First, policy should, where appropriate, do more to support “traded sector” industries. Our airlines, car dealers, and pharmacies are not threatened by unfair Chinese industrial policies, but our aviation, auto, and pharmaceutical companies are. Without vibrant traded sectors — industries that both sell in global markets and produce for U.S. demand at home — American imports would skyrocket and exports would tank. Not only would this create a multi-trillion-dollar trade debt that future generations would have to pay by consuming less, it would lead to an extreme devaluation of the dollar. (Forget that long-planned vacation to Ireland.) This is not to mention implications for national security. Do we really want our Defense Department buying tanks, ships, and jets from China? If we lose advanced manufacturing, then we lose our ability to produce those things. But for puritanical free-market advocates, what a nation makes is irrelevant; they would be content to have U.S. workers be “hewers of wood and drawers of water.”

Second, Rubio does not call for emulating China’s heavy-handed industrial policies. To the contrary, his report calls for using government wisely and judiciously to support private sector growth. Since when did it become industrial policy to allow companies to expense for tax purposes their investments in new equipment? Since when did stopping China’s state-backed acquisition of valuable U.S. technology companies constitute protectionism? Since when did requiring the Chinese to end currency manipulation become distortionary? And since when did helping entrepreneurs better access discoveries made by U.S. universities represent state planning? These are all measured, effective, and necessary policy changes needed to ensure American prosperity and national security. 

New times require new thinking, and that is what Sen. Rubio and an increasing number of Republican members of Congress are providing. Rather than attempt to squelch it with ideologically constrained thinking, scholars, pundits, and advocates should embrace it and engage in pragmatic policy discussions to make these proposals even better.

Robert D. Atkinson (@RobAtkinsonITIF) is president of the Information Technology and Innovation Foundation.