Time for a Hard Break From China | Opinion

For a fleeting moment in early 2023, the United States appeared to be getting serious about China. The Biden administration had imposed unprecedented export controls on semiconductor equipment, designed to curb China's supercomputing capabilities and artificial intelligence development. An executive order regulating American investment into China was imminent. There was even a bipartisan push to ban TikTok.

A few months later, that momentum has dissolved into traditional Washington platitudes about international harmony, even as Beijing further strengthens its confrontational posture. The administration has extended the once-temporary exemptions it granted TSMC and Samsung to continue expanding chip production in China. The executive order on outbound investment controls has stalled indefinitely. Only Montana is taking action on TikTok.

In April, Secretary of the Treasury Janet Yellen delivered a perplexingly anachronistic speech at Johns Hopkins University, in which she envisioned "a growing China that plays by international rules" and fosters "rising demand for U.S. products and services and more dynamic U.S. industries." One week later, National Security Advisor Jake Sullivan took the stage at the Brookings Institution to announce the administration's strategy of "de-risking and diversifying, not decoupling," in which a "small yard and high fence" would safeguard a narrow set of critical military technologies while otherwise permitting commerce to flourish.

This focus on a narrow set of national security concerns is inadequate and doomed to failure. The China challenge is not only, or even primarily, a question of national security. The fundamental problem is that America's free-market economy is incompatible with China's state-controlled one, just as American liberty and democracy are incompatible with the Chinese Communist Party's (CCP) authoritarianism. Only a hard break with the People's Republic of China (PRC) can protect America's market from subversion. Separating our economies will be costly. But the alternative—accepting foreign control of assets and investments, dominance and supply chains, and influence over our institutions—will cost far more.

A new report from American Compass, "A Hard Break From China," explains how economic integration with China undermines America's liberty and prosperity across three critical dimensions: investment, supply chains, and institutions. When it comes to investment, American capital flowing into China implicates American investors in the PRC's human rights abuses, subsidizes development of its military capabilities, and subjects retirees and other savers to the risks of a poorly regulated and CCP-dominated market. When American firms invest directly in China, typically through state-mandated and -subsidized joint ventures, they transfer jobs and technology across the Pacific. In both cases, the PRC actively distorts market incentives to attract investment and then uses its leverage over the investors to force support for CCP priorities and propaganda. Flowing in the other direction, China-based capital is taking control of American corporations and real estate, establishing a foothold in the American market that current U.S. law is incapable of managing.

Beijing is pursuing an explicit economic agenda to establish technological superiority and dominate global supply chains through government subsidies, market access restrictions, and intellectual property theft. It complements this approach by suppressing worker power and consumer demand in its own market, generating an enormous trade surplus with the United States. The result has been to hollow out American productive capacity, transfer trillions of dollars in American assets into China, and leave us dependent on PRC-based production of everything from electronics to pharmaceuticals to solar panels.

The CCP uses its economic leverage in financial markets and supply chains to corrupt American institutions and undermine democratic norms. Capitalism encourages whatever activities will produce the greatest profit and, in America's current relationship with China, the pursuit of profit often calls for kowtowing to the CCP. As a result, American movie studios and sports leagues self-censor in keeping with the CCP's preferences, American universities partner with affiliates of the Chinese military, and American business leaders fall over themselves apologizing for any possible slight. Preventing such subversion in a free society is not easy. But policymakers should interdict the influence directly where they can.

Across all these dimensions, American policymakers must embrace bold, broad measures. U.S. law should prohibit PRC-based entities from acquiring and operating in the American market, American investors from funding PRC-based firms, and American firms from forming joint ventures in or transferring technology to China. Trade with China must be rebalanced by revoking its Most Favored Nation status and imposing tariffs. To protect American institutions, policymakers should prohibit flows of funds to and from PRC-based ones, including limiting PRC-based tuition revenue to universities. The logic of export controls should be extended to America's cultural products: Hollywood studios should not be allowed to sell their moves in the Chinese market; singers should not be allowed to perform concerts there; athletes should not be allowed to market their sneakers.

For policymakers and analysts catechized in the tradition of globalization and conditioned to fear any inefficient overstepping in the market, a hard break from China may seem implausible. But where America's very sovereignty is at stake, the goal must not be to ensure that the market continues working as well as possible but to dissolve one that does not work at all. A commitment to free markets entails doing whatever is necessary to ensure that the American market remains free.

Gabriela Rodriguez is a policy advisor at American Compass.

The views expressed in this article are the writer's own.