Much of the push today from both the political right and the political left for industrial policy—and also for general protectionism—has to do with helping Americans better ‘compete’ with China. Arguably, China is a bad actor in part because, being communist, its government has no problem using large-scale public enterprises to promote China’s role on the world stage and boost the Chinese economy by directing resources toward Chinese producers, innovators. , exporters.
The result of these actions by the CCP is allegedly helping China gain global economic dominance, allowing them to kick us American butt.
The biggest of these initiatives that American politicians and pundits love to fear is the Belt and Road Initiative (BRI). Senator Marco Rubio (R-FL) is one of those hyper-vigilant politicians who has been tirelessly warning us about the dangers of this Chinese policy. He titled “Made in China 2025 and the Future of American Industry” outlined “the challenges posed by China’s statewide industrial plan to American prosperity and productivity, including the jobs and wages of American workers.” He also offers a list of policy ideas to challenge Chinese central planning with our own central planning.
I pick Senator Rubio, but he’s far from alone. The CHIPS Act, which was enacted by Congress a few weeks ago and signed into law by the president, is about using more subsidies and other protectionist measures to “compete with China.” While I appreciate that there are some legitimate national-security concerns related to China, I don’t buy the claim that to compete economically with a communist regime we must emulate that regime’s anti-market policies. To be sure, the Chinese government gets an A in spending a ton of its people’s money on subsidies and stuff. However, the assumption that this prosperity, economic growth, and innovation depends on who wins the subsidy war is laughable if you understand anything about the incentives that plague government decisions to spend money on special interests—not to mention that thousands of us There are examples. Crony investments fail to achieve their goals.
Furthermore, good arguments and evidence abound that industrial policy, narrowly or broadly defined, has always been, and still is, a source of bad economics and cronyism.
Speaking of failure… A few days ago, the The Wall Street Journal Its chief China correspondent Lingling Wei had a great piece on how China is working on an overhaul of its Belt and Road Initiative. The reason? After a decade and nearly $1 trillion in BRI “investments” in 150 countries, most of them in severe financial crisis, most of what it has to show for it is high default rates on its loans and failure to deliver. A tidbit:
Chinese President Xi Jinping once called the initiative “a project of the century,” but the overhaul has unraveled. His vision is limited per Reorganize the global order. ..
According to economists Sebastian Horn, Carmen Reinhardt and Christoph Trebesch, who wrote on international debt….
The process could force Chinese banks to accept losses, which they have long resisted. Over the years, Beijing has preferred Extension of troubled loans, a practice known in the finance industry as “stretch and pretend”. This strategy risks prolonging rather than correcting countries’ debt problems.
Beijing has also dialed back its rhetoric in state media. …
By 2017, Chinese banking executives were complaining to Beijing that they were being asked to finance projects that had low returns, according to executives involved in the negotiations. Some lenders threatened to stop backing some projects unless regulators made it clear to them that those loans were “policy-driven,” executives said, so banks would not be held liable for defaults.
You can read the whole story here.
It’s not like that which one The initiative worked. as Journal Report:
For all its problems, the initiative has succeeded in drawing more countries into Beijing’s orbit over the past decade, with many recipient countries voting alongside China at the United Nations.
But while BRI reforms and more prudent lending programs may limit the damage, bad incentives, bureaucracy, mismanagement and more will still be in place.
Industrial policies, loan guarantees and subsidies do not pave the way to prosperity. Shouldn’t we learn this lesson now?
Veronique de Rugy is a senior research fellow at the Mercatus Center and a syndicated columnist for Creators.