By Jeffrey D. Sachs
China’s economy is slowing down. Current forecasts put China’s GDP growth in 2023 at less than 5%, far below the high growth rates that China enjoyed until the late 2010s. The Western press is filled with China’s supposed misdeeds: a financial crisis in the real-estate market, a general overhang of debt, and other ills. Yet much of the slowdown results from US policies that aim to slow China’s growth.
The anti-China policies come out of a familiar playbook of US policy-making. The aim is to prevent economic and technological competition from a major rival. The first and most obvious application of this playbook was the technology blockade that the US imposed on the Soviet Union during the Cold War.
The second application of the playbook is less obvious, and in fact, is generally overlooked even by knowledgeable observers. At the end of the 1980s and early 1990s, the US deliberately sought to slow Japan’s economic growth. Japanese firms were outcompeting US firms in key sectors, including semiconductors, consumer electronics, and automobiles.
In the mid-to-late 1980s, US politicians limited US markets to Japan’s exports (via so-called “voluntary” limits agreed with Japan), and pushed Japan to overvalue its currency. Japan went into a slump as export growth collapsed. As growth slowed markedly, many Japanese companies fell into financial distress, leading to a financial bust in the early 1990s.
In the mid-1990s, I asked one of Japan’s most powerful government officials why Japan didn’t devalue the currency to re-establish growth. His answer was that the US wouldn’t allow it.
Now the US has taken aim at China. Starting around 2015, US policy-makers came to view China as a threat rather than a trade partner. China’s economic rise really began to alarm US strategists when China announced in 2015 a “Made in China 2025” policy to promote China’s advancement to the cutting edge of robotics, information technology, renewable energy, and other advanced technologies. Around the same time, China announc-ed its Belt and Road Initiative to help build modern infrastructure throughout Asia, Africa and other regions, largely using Chinese finance, companies, and technologies.
The US dusted off the old playbook to slow China’s surging growth. President Barack Obama first proposed to create a new trading group with Asian countries that would exclude China, but presidential candidate Donald Trump went further, promising outright protectionism against China. After winning the 2016 election on an anti-China platform, Trump imposed unilateral tariffs on China that clearly violated World Trade Organization (WTO) rules.
When President Joe Biden came to office, many (including me) expected Biden to reverse or ease Trump’s anti-China policies. The opposite happened. Biden doubled down, not only maintaining Trump’s tariffs on China but also signing new executive orders to limit China’s access to advanced semiconductor technologies and US investments.
The results of US policies are seen in the reversal of China’s exports to the US. In the month that Trump came into office, January 2017, China accounted for 22 percent of US merchandise imports. By the time that Biden came into office in January 2021, China’s share of US imports had dropped to 19 percent. As of June 2023, China’s share of US imports had plummeted to 13 percent. Between June 2022 and June 2023, US imports from China fell by 29 percent.
Of course, the dynamics of China’s economy are complex and hardly driven by China-US trade alone. Perhaps China’s exports to the US will partly rebound. Yet Biden seems unlikely to ease trade barriers with China in the lead-up to the 2024 election.
Unlike Japan in the 1990s, which was dependent on the US for its security, and so followed US demands, China has more room for maneuver in the face of US protectionism. Most importantly, I believe, China can substantially increase its exports to the rest of Asia, Africa, and Latin America, through policies such as expanding the Belt and Road Initia-tive. My assessment is that the US attempt to contain China is not only wrongheaded in principle, but destined to fail in practice. China will find partners throughout the world economy to support a continued expansion of trade and technological advance.
