Do We Need to Have a Cold War with China?

March 31, 2024

I usually see things pretty much the same way as Paul Krugman, but I seriously disagree with his column “Bidenomics is making China angry. That’s okay.” Krugman makes some reasonable points in the piece. Protecting our electric car industry and other green technologies is probably a good idea in order to give them some breathing space to grow and compete. It also makes sense to have productive capacity for advanced semi-conductors, so as not to be dependent on Taiwan in the event of a military conflict.

But it really is not okay that our policies are making China angry. We have to pursue policies that are in the U.S. national interest, but we should not be looking to gratuitously put it in China’s face. It will not be to our advantage, or the world’s, to have a Cold War with China similar to the one we had with the Soviet Union.

For those who are too young or too old to remember, we spent a huge amount of money on the military during the Cold War. In the 1970s and 1980s, when we were not in hot wars, military spending averaged over 7.0 percent of GDP.[1] When we were in hot wars like Korea and Vietnam, the tab came to well over 10.0 percent of GDP, with peaks in the early fifties of more than 15 percent of GDP. By contrast, last year we spent 3.6 percent of GDP on the military.

Apart from the lives lost in our wars (far more for the host countries than for us), this is also an enormous amount of money. If we increased our spending from last year’s 3.6 percent of GDP to 7.0 percent of GDP, the difference of 3.4 percent of GDP would translate into almost $1 trillion a year in our current economy (more than $8,000 per family). Double that if you want to have another Vietnam or Korea-type war.

And, if we’re talking about an arms race with China, these numbers would likely be very conservative. At its peak the Soviet economy was around 60 percent of the size of the U.S. economy. China’s economy is 25 percent larger than the U.S. economy and growing far more rapidly. It would require Trumpian levels of delusional thinking to believe that we could spend China into the ground, as we arguably did with the Soviet Union.

A Cooperative Alternative

We should not have illusions about China’s government. It is hardly anyone’s ideal of a liberal democracy. China’s president, Xi Jinping, is an authoritarian ruler who imprisons critics and is willing to use force to suppress political opposition. But that hardly distinguishes Xi from any number of leaders with whom the United States regularly does business.

Even if we go back to the Cold War with the Soviet Union, our foreign policy often looked to areas for possible cooperation. First and foremost, we had a number of arms control agreements designed to limit spending and the risks of accidental war. But we also looked to cooperate in other areas, most visibly space travel.

We can take a similar tack in our dealings with China. We can look to cooperate in areas that are mutually beneficial. Two obvious areas that stand out are climate and health. There could be enormous gains for both the U.S. and the world if we freely shared technologies needed to reduce greenhouse gas emissions, as well as technologies to prevent disease and improve health.

This would mean that our scientists and engineers would be collaborating with Chinese scientists in these areas, freely sharing their latest research findings. That means scientists from both countries could build on successes and learn from failures. It also would mean that once a technology is developed it can be freely employed, without having to worry about patent monopolies or other bureaucratic obstacles.

In the case of climate, we would likely benefit from getting access to China’s latest battery technology, where they appear to be well ahead of the United States. The U.S. also has innovations in many areas, such as geothermal energy, that would be valuable to China.

In the case of health, both countries have extensive networks of research in a wide range of areas. While it is common to tout the rapid development of Covid vaccines in the United States as a result of Operation Warp Speed, China developed its own vaccines in a comparable timeframe. These vaccines also proved to be very effective in preventing serious illness and death.

There would have been tremendous gains to the world if these technologies had been freely shared so that anyone anywhere in the world with the necessary manufacturing facilities could have begun producing the vaccines as soon as they were in the clinical testing phase. (The cost of throwing out a hundred million vaccines that proved ineffective is trivial compared to the benefit of having a hundred million vaccines in storage waiting to be distributed once they are shown to be effective.)

We are not going to get from where we are now to a massive sharing of technology in these two huge sectors overnight, but we can begin a process. We can pick limited areas where the gains are likely to be greatest, for example vaccines against infectious diseases. We would have to set ground rules for committing funding and the openness of research. Ideally, we would pull the rest of the world into this sort of collaboration since everyone would be in a position to benefit from having access to open research.

This sort of sharing would mean a different mechanism for supporting research and innovation. Instead of relying on government-granted patent monopolies, we would have to pay for the research upfront, as we did with the development of the Moderna vaccine. Paying directly for research is not an alien concept, we currently spend over $50 billion a year on biomedical research through the NIH.

In principle, there is no reason that we couldn’t replace the research now funded by government-granted patent monopolies with publicly funded research, but it is likely to mean fewer big paydays for those at the top. Successful researchers should get generous paychecks, and these could even be supplemented by prizes like the Nobel Prize. But in a system of direct funding, we probably would see fewer Moderna billionaires and others getting super-rich in these areas.

That is likely the biggest obstacle to pursuing this sort of cooperative path towards relations with China. There are people with big dollars at stake who are happy to keep the status quo and are just fine if we go the route of a Cold War with China.

It’s worth remembering that the first Cold War was often as much about corporate profits as confronting the Soviet Union. That is obviously true in the case of the big military contractors like Lockheed and McDonnell Douglas. But there were also plenty of cases where powerful corporations got the U.S. military to do its bidding to support their operations around the world. The concern of these companies is their profits, not the well-being of the United States or the future of democracy and the planet.

And we should recognize that if we go the full Cold War route, it is likely the future of the planet is at stake. We are having a hard enough time garnering political support for measures to limit global warming now. What would the situation look like if we are coughing up another $1 to $2 trillion a year to compete in an arms race with China?

There’s one other point worth noting about the route of increased cooperation, it may help to lead to a liberalization of China’s regime. I don’t mean to get pollyannish, there were many people who argued for admitting China to the WTO on the idea that increased trade would somehow turn the country into a liberal democracy. That one proved to be seriously wrong.

But as a practical matter, the Chinese engineers and scientists who are collaborating with their counterparts in the U.S. are likely to be children, siblings, and parents of the party officials who are calling the shots in China. If these people develop an appreciation for liberal values, it’s hard to believe that some of that doesn’t rub off on their family members.

I wouldn’t push that line with any great confidence, social psychology is not my terrain. But I will say that it offers more hope than the idea that shoe manufacturers getting rich off of cheap labor will somehow become great proponents of liberal democracy.   

If Bidenomics Makes China Angry, That’s not Okay

The basic point here is that we should care a lot about our relations with China. That doesn’t mean we should structure our economy to make its leaders happy. We need to implement policies that support the prosperity and well-being of people in the United States. But we also need to try to find ways to cooperate with China in areas where it is mutually beneficial, and we certainly should not be looking for ways to put a finger in their eye.

[1] These figures use the definition of military spending in the National Income and Product Accounts. This is somewhat different than the measure used in the budget, primarily because it includes depreciation of capital equipment. The patterns of spending are similar in the two series.


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