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Biden Takes on China

Donald Trump talked about taking on China, but all he did was raise prices for Americans by putting tariffs on goods made in China. This really didn't hurt China at all. Joe Biden is actively and consciously doing things that will actually hurt China badly. They are all kind of low-key and technical, but they will have a vastly bigger impact than anything Trump did.

OK, two of them aren't so low-key. The CHIPS Act Biden pushed for and signed provides $280 billion for domestic research and manufacturing of high-end semiconductors. Aided by money from the CHIPS Act, Intel is planning to build the world's biggest and most modern semiconductor manufacturing plant on a 1,000-acre campus (twice the size of Disneyland) just outside Columbus, OH. The first two of the eight factories planned will hire 3,000 workers at an average salary of $135,000. Biden might just mention this a couple of times when he campaigns in Ohio in 2024. What he probably won't mention, though, is that to get one of those jobs one will need a degree in computer science or mechanical engineering with a specialization in robotics. Unemployed high-school dropouts need not apply. The site was chosen in part because it is just a few miles from the enormous Ohio State University, which has 60,000 students, and will be a continuous source of engineers for Intel.

The Intel plant is not the only one that will strengthen American semiconductor manufacturing. The Taiwan Semiconductor Manufacturing Company is planning to build A $40 billion manufacturing plant in (swing state) Arizona. When these plants are all running at full capacity, the U.S. will be self-sufficient in chips and will not have to import any chips from China, except possibly very simple chips where price is everything. Apple may still assemble iPhones in China (due to low labor costs), but the most important (and most expensive) parts will be made in America. This is a sea change from letting China to continue to own the chip market and to make the chips more expensive for American companies due to tariffs.

A long article in Politico points out that Biden has much more planned on the China front. He will soon sign executive orders cutting off China's ability to make advanced chips, since they depend in part of American parts, know-how, and software. Biden is also pressuring ASML, a Dutch company that has a virtual monopoly on the $200 million EUV lithography machines that make advanced chips. Conceivably, he could offer to have the U.S. government pre-order the next five years' worth of production so there is nothing left for China to buy. The machines would then be resold to chip manufacturers with factories in the U.S. Biden will also create a federal agency to regulate American investments in China. He will sign another EO forbidding Chinese apps (like TikTok) from collecting data on Americans. Goodbye free market, hello industrial policy.

This is a monumental change from the past administrations, which favored working with China. Biden's goal is to use U.S. power to cripple China's high-tech industries. It won't be universally popular. Old-style free-trade Republicans don't like the use of government power to help certain industries (except if they are in the fossil fuel business). Others want to go further than Biden and reduce all trade with China because the profits they make on everything from t-shirts to solar panels helps pay for the build-up of the Chinese military. Biden is against that. Instead he will focus on choke points within critical sectors. For example, Chinese tech giant Huawei took a tremendous hit when the U.S. banned its equipment in 5G cellular networks for fear it would record and steal all traffic over the network.

Politically, getting tough with China is likely to sell well. Biden can point to a resurgence of U.S. manufacturing (although most new factories are going to have robots on the production line). It will also weaken China economically and militarily. Biden will be able to contrast his approach with Trump's, which didn't weaken China at all, but just made Chinese products more expensive for American companies and consumers (although in all fairness to Trump, tariffs do raise revenue for the U.S. government).

It will be difficult for the Republicans to come up with a plausible response when Biden points to his very real efforts to rebuild American industry and weaken China in the process. Will the red team try to outflank the blue team and say they would do more? The likely response is going to be: "from Jan. 2017 to Jan. 2019, Republicans controlled the whole government—and did nothing. Why should anyone believe it will be different if you get the trifecta again?"

If you are interested in trade as a weapon and the next cold war, the Politico article linked to above is a good place to start. You can also try to figure out what the hell is going on with the graphic/animation they put together for the top of the article. (V)

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