Clashing Civilizations

Evidently, the public conversation about foreign policy and especially about America’s position in the world is lathered with self-serving platitudes. We are the greatest. We are the best. We are winning everywhere, regardless of how things appear. 

We are destroying Russia and China. We will emerge victorious in the new Cold War and will always  be the greatest. 

Unfortunately, none of this cheerleading has any real relationship with reality. For a clear headed and rational look at the world today I often turn to one David Goldman. It is always a good thing to cast the cold light of reason on our problems.

Naturally, Goldman has a rather contrary temperament. He does not buy the conventional wisdom and does not even drool over the unconventional wisdom. 

Nowadays our foreign policy mavens have gone all-in on a war against Russia and China. We are using our Ukrainian proxies to fight Russia and we are trying to destroy China through tariffs and sanctions.

Whether it was right for America to go abroad seeking monsters to destroy in Moscow and Beijing, the way we went about it was abominably stupid. “If an injury has to be done to a man it should be so severe that his vengeance need not be feared,” Machiavelli advised. Washington has wounded Russia and China but not disabled them, setting in motion a tragic sequence of responses that in the worst case will lead to war, but more likely will leave the United States with vastly diminished strategic standing.

Goldman emphasizes our efforts to defend Ukraine by destroying the Russian economy, to say nothing of the Russian currency:

The rise of China and the resilience of Russia have persisted through serried waves of tech restrictions, $125 billion of NATO support for Ukraine, and an unprecedented sanctions regime against Russia, including the seizure of $300 billion in reserves, among other measures.

How has that one been working out? As a rule, the less you hear about it, the worse things are.

The Biden Administration believed the Russian economy would collapse under U.S. sanctions. In March 2022 President Biden declared, “The Russian economy is on track to be cut in half.” Russia’s economy is not only larger today than it was two years ago, but has increased production of weapons up to tenfold, producing seven times more artillery shells than the combined West, by Estonian Intelligence estimates. Some 70 percent of casualties are inflicted by artillery, and Russia has an overwhelming advantage, as well as superior tactical air support and offensive missiles and drones. Russia also produces 100 main battle tanks a month, while Germany produces 50 per year. With five times Ukraine’s population, Russia will win a war of attrition barring some catastrophic blunder.

And then there is China? As we await Donald Trump’s new round of punishing tariffs-- tariffs that we will be paying-- China has been advancing its manufacturing and industrial capacity:

China now buys more oil from Russia than from Saudi Arabia, and has nearly tripled exports to Russia by official count (and probably much more through third parties), but it has stayed on the sidelines, allowing Russia to do the bleeding. With three times more manufacturing capacity than the United States, and a significant lead in automated manufacturing, China has made itself a fortress bristling with thousands of satellite-guided anti-ship missiles, perhaps a thousand modern aircraft, formidable electronic warfare capabilities, and other means of dominating its home theater. 

Our foreign policy mavens believe that China is preparing to invade Taiwan, the better to take over the global semiconductor industry. After all,it now has a serious real estate crisis and does not seem to have found a way to mitigate its fallout. 

The prevailing narrative in the Blob is that China is likely to attack Taiwan because of Xi Jinping’s obsession with personal prestige, and because it would distract from China’s internal economic problems.

How is China addressing its problems?

With a declining workforce, China needs to raise productivity through automation, and export its labor-intensive industries to countries with younger populations. It has to shift the focus of investment from property (required to absorb the mass migration from the countryside) to industry, and it has to upgrade its industry. One might say that China is in crisis, but China has always been in crisis. Uniquely among the world’s nations, its economy, built on a flood plain of the Yellow and Yangtze Rivers, has always required enormous investment in water management for irrigation, flood control, and transport.

Importantly, China is hard at work getting around the sanctions we have placed on advanced technology. It has learned that it is a bad idea to depend on the West. 

Today China has marshaled its resources in a massive effort to overcome Washington’s efforts to limit its access to advanced technology. The cost of achieving semiconductor independence in the face of U.S. sanctions is substantial. China is building 22 chip fabrication plants and expanding others, at a cost of perhaps $50 billion, roughly equivalent to the annual CapEx of the CSI 300 Index (roughly comparable to America’s S&P 500 Index). Although Beijing subsidizes chip production heavily, the cost of duplicating large parts of the semiconductor industry in China will challenge the bottom lines of the companies involved.

We have, Goldman suggests, damaged the Chinese economy. This is not the way to make friends and influence people. It is a way to tell China that they cannot rely on us as a trading partner. So much for Adam Smith’s free trade.

America’s tech war with China has succeeded in imposing significant costs on China’s economy, cutting off in my guesstimate somewhere between 0.5 percent and 1 percent of its annual GDP growth. But this has only slowed China’s juggernaut, not stopped it. Despite the costs, China leapfrogged Japan and Germany to become the world’s largest exporter of autos. It dominates the production of telecommunications infrastructure and solar panels, as well as steel and other industries. Its enormous investment in semiconductor fabrication will likely give China a dominant position in so-called legacy chips, which comprise 95 percent of the world market.

And,

 America’s attempts to restrict its access to high-end semiconductors, the building blocks of the Fourth Industrial Revolution, constitutes an effort to destroy China, not to restrict its access to military technology, in China’s view. By injuring China without disabling it, Washington has given China an incentive to undermine American interests wherever convenient.

Goldman’s solution is clear. Fewer sanctions and tariffs; more industrial production. We can win by competing effectively, not by punishing countries who do not like us. To some extent our government seems to have gotten the message. To a larger extent it has discovered that talk is a lot easier than actions, especially when we do not have the human capital needed to do the job.

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