“Bidenomics” in the International Context

Part I: US/China Competition and the Challenges of “De-risking”

Thomas Hummel

March 4, 2024

Author’s introduction to this series.

We are currently living through an attempt by the ruling class to engineer a change in the world economy on a scale not seen since the “neoliberal revolution” of the 1980s. A qualitative shift is occurring in global governance models in their long path from a world defined by the uni-polar dominance of the US to a multi-polar world once again defined by great power rivalries. In the past, that rivalry has been between Britain and Germany, or the US and the USSR. Today, world politics are increasingly defined by the escalating conflict between the US and China. This global shift is encapsulated in a word that emerged from nowhere to become ubiquitous in the current political theory of the ruling class: “de-risking.”

The economist Adam Tooze recently summed up the current US-China relationship in the following way:

We are in a dangerous and open-ended sparring match. Neither side is looking for the knock out punch, but both sides are probing each other, delivering blows serious enough to force a reaction, opening up the range of possibilities with escalatory talk. Removing inhibitions and old assumptions whilst at the same time, seeking to manage what are increasingly serious risks. The entire process is driven by powerful forces on both sides. It is open-ended and has no obvious landing place.¹

While history has no exact parallel to help us determine the “landing place” that Tooze mentions, it does offer a close one in the period before the First World War.² In the early twentieth century, a rapidly expanding Germany was becoming a major capitalist power in a world that had already been carved up by Britain and France. Germany needed to extend its domination around the globe in order to maintain the health of its economy, just as China is compelled to do today. The result of the British-German rivalry was the worst calamity the world had ever seen, with seventeen million dead.

Resolving this rivalry required a second calamity twenty-one years later that cost seventy million more lives. While the exact mode of conflict is not determined in advance, we need to recognize with full sobriety that the logic of the China-US rivalry brings the world closer to this level of catastrophe again today. It’s up to us, the global working class, to pull the emergency brake while we still can, to build a new and better path forward.

This is the first of a series of articles that will provide a snapshot of the geopolitical moment from a Marxist perspective. It will analyze this shift and examine the possible outcomes in terms of the global balance of power, the possibilities or difficulties for working class organizing, and the chances of inter-imperialist war. Finally, it will examine whether this shift is likely to be the basis of a new regime of accumulation or a short blip on the radar, that is, an attempt to engineer something for which there is no material basis in reality.

Part I will examine how the original model of what we call “Bidenomics” emerged from China and how heightened competition, following the financial crisis of 2008, forced the US increasingly to copy China’s state-centered methods in order to compete and maintain stability. This tendency built up, until the global system qualitatively shifted during the Biden administration, to take on a fundamentally different character than during the neoliberal period. This qualitative shift coincided with the adoption of the concept of “de-risking.” Finally, this installment will examine the first steps taken by the US and China after this qualitative shift.

Part II will look at the international elements of this competition. Part III will attempt to chart likely outcomes based upon the current state of US-China competition.

This series of articles will argue that competition with China is central to understanding Bidenomics. Most of the Left’s analysis of Bidenomics, for example the recent debate in New Left Review following the publication of Dylan Riley and Robert Brenner’s “Seven Theses on American Politics,” has largely ignored or marginalized this international component. This series will consider the element of interimperialist competition as the prime motivator of Bidenomics, with domestic political considerations only playing a small secondary role in driving this shift.

This series will also explore Bidenomics’s emergence on the world scene as an attempt to manage a moment of general weakness. In this moment, the state is being forced by the logic of capital to deepen and expand its activity at the exact time it is already dramatically overstretched. The gamble that US policy makers have made is that the expansion of state activities will ensure that the US is at the forefront of a new labor saving technology, artificial intelligence, which will dramatically boost productivity and revive economic health. Yet this situation is in stark contrast with the favorable conditions for capital of post-war Keynesianism that Bidenomics superficially resembles. Unlike Bidenomics, post-war Keynesianism was introduced during a moment of strength for capital with historically high levels of profitability.

Setting the stage: the rise of China and the post-2008 world

China’s rise in the past twenty years has been nothing short of monumental. While the US share of global GDP fell from 30 percent in 2000 to 25 percent in 2020, China’s more than quadrupled in the same period, rising from 4 percent to 17 percent. This increase amounted to an expansion of China’s GDP by a multiple of roughly twelve and a quarter, from $1.2 trillion in 2000 to $14.7 in 2020.³. ⁴ In the decade before 2008, exports from China to the developed world rose at an average rate of seventeen percent.⁵ According to information provided by the IMF, in 2000, 80 percent of countries traded more with the United States than they did with China. By 2018 that situation had nearly reversed, with 70 percent of countries trading more with China than with the US.⁶ By the mid-2010s, China was producing 50 percent of the world’s major industrial goods.⁷

China has been at the center of a greater global shift in economic power toward Asia. Thirty years ago, inter-Asian trade accounted for only 46 percent of total Asian trade. Today, it accounts for 58 percent, much closer to the 69 percent of Europe’s total inter-European trade.⁸

The relationship between the US and China in the post-Cold War era has been determined at each step by the opinion of the representatives of capital. After initial worries about a potential rivalry with China after the end of the Cold War, US corporations, hungry for profits from Chinese markets, influenced Washington to grant China “Permanent Normal Trade Relation” status to China in 2000. This paved the way for China to join the World Trade Organization in 2001. The Chinese state even played a part in rallying US corporations to lobby Washington for this cause. The US and China entered into a more or less “harmonious” relationship in which China provided cheap exports to the US and recycled their earnings back into US debt, helping to finance the US fiscal deficit and keeping interest rates low.⁹ In 2022, trade with China accounted for $690 billion in goods.¹⁰ Today China owns an estimated $859.4 billion in US debt.¹¹ The ties between the US and China grew more or less amicably between the late-Nineties and the financial crisis of 2008.

It’s important to note that, even before the financial crisis, China’s economic model already bore hallmarks of the type of state activity that would flower more completely in later years. At its core, the economy remains state-directed. We can see this in everything from the manipulation of its currency to export subsidies, credits, and tax rebates from the Chinese state pre-2008, as well as in the artificial suppression of the cost of Chinese labor power to well below the world market rate (in most countries workers earn around 70 percent of the value they produce, in China, it’s closer to 40 percent).¹² In the early 2000s, China launched several industrial plans with the goal of incentivizing the expansion of its domestic technology sphere.¹³ Despite the liberalization of the economy under Deng Xiaoping, the Chinese state never released control over key sectors, which they still dominate today in the form of State-Owned Enterprises (SOEs). Of the one hundred and twenty-four Chinese companies on the Global Fortune 500 list today, ninety-one of them are State-Owned Enterprises (SOEs). Many Chinese private companies also have extremely close ties to the CCP, with party committees in the companies and connections to factions within the party-state.

The financial crisis of the late 2000s changed everything. We can trace the shift in the US-China relationship to the fallout from the banking collapse. The US and Chinese states started to take on new types of roles that would later fully flower into Bidenomics.

In the aftermath of the crisis, only the swift intervention of states to save unprofitable sections of capital prevented a second Great Depression. There was a 15 percent difference between the peak of world output in 1929 and its trough in 1932. For the crisis of 2008, this difference was less than 1 percent.¹⁴

While this may appear to be an enormous success, it came at a cost. Without the “natural” destruction of unprofitable sections of capital, there could be no substantial recovery—hence the weak recovery and stagnation of the post-crisis period.

We see a qualitative change in the management style of the state after 2008. The state has had to step in to safeguard continued accumulation, mobilizing public resources to ensure market stability. Without a high level of growth, the state’s efforts to maintain the system can only lead to enormous deficits. Though state debt was growing before the crisis, it took off in a new way afterwards. In Q4 of 2007, US total public debt stood at $9.2 trillion. In Q3 of 2023 it stood at $33.2 trillion. As a percentage of GDP, it rose in the same period from 62.7 percent to 120.1 percent.¹⁵ The same is true for China. In 2008, Chinese state debt as a percentage of GDP stood at 148 percent. In Q4 of 2023, it stood at 286.1 percent.¹⁶ In the rich world, state debt as a share of GDP is higher than at any time since the Napoleonic wars.¹⁷

The crisis hit global demand for Chinese exports hard, and the state drove an initial strong recovery through debt-financed fixed-asset investment. Due to low profit rates across the board this strategy led to the surge in state-debt. Since the crisis, China’s Purchasing Managers Index (PMI), which measures trends in manufacturing, has stayed around the stagnation line of 50 percent.¹⁸ Increasingly, the real estate sector has been the driver of growth, with local governments launching vast debt-financed house building programs. In this manner, as a way to prop up the stagnation in manufacturing, real estate rose to account for an estimated 30 percent of Chinese economic output.¹⁹

Since the crisis was not followed by a strong recovery, we are in the midst of a sustained period of increased competition between the US and China for the remaining profits. The state’s propping up of sections of Chinese capital came at the expense of foreign capital. After 2009–10, more and more US corporations were being squeezed by their Chinese competitors, who were often aided by state regulators and subsidized by low-cost loans from state banks. US corporations started to lean on the US state to do something about the barriers that the Chinese state was erecting to protect its own companies from foreign market access.

The overaccumulation resulting from the crisis of the late 2000s also pushed the Chinese state to expand its global influence in order to create markets and new projects for Chinese firms. Hence we saw the implementation of the Belt and Road initiative in 2013, a massive foreign investment project, which, over the ten years of its life, has come to include one hundred and forty countries, with north of $1 trillion in total investment.²⁰ This further heightened the tension between the United States and China, since the creation of a Chinese sphere of influence meant that US corporations started to lose markets.

Finally, the limits to the Chinese state’s expansion of exports forced it to realize that it would need to move up the value-added chain in order to expand. This meant less dependence on foreign technology. The US is a world technological leader, with about a $70 billion surplus in 2019’s intellectual property balance of payment. By contrast, Beijng had about a $36 billion deficit.²¹ This is an especially acute problem, since the wildly profitable technology sector has propped up profitability since the 2008 crisis.²² The Chinese state has engaged in intellectual property theft to try to make up for this deficit, with US corporations increasingly complaining of having to hand over trade secrets in return for market access. Technology has become a key sector of competition between the two superpowers. The “Made in China 2025” initiative of 2015 made this ambition explicit, and in many ways it looked like a precursor to Biden’s policies of 2022, with huge state subsidies to direct industrial production in technology.²³

In response to increased competition from Chinese business and state policy, US corporations began to began to lean on the US state to move against China. This explains Obama’s “shift to Asia” in his second term, and his attempts to push through policies like the Trans Pacific Partnership (TPP), a regional free trade agreement that would exclude China.

European Commission president, Ursula von der Leyen, insisted that the West needs to “de-risk—not decouple” from China.

What is “de-risking”?

The election of Trump marked a qualitative shift in US policy toward China. This shift parallels the “Reaganomics” revolution of the early 1980s in interesting ways. Just as Reagan would fully and coherently implement policies initiated by Carter, Biden carried through a shift in US economic policy that Trump began in a piecemeal and confused fashion.²⁴Mike Konczal, ““Bidenomics” vs. “Reaganomics,” The Nation, July 21, 2023, https://www.thenation.com/article/economy/bidenomics-reaganomics/.

Obama’s plan to counter China through pushing the Trans-Pacific Partnership is significant. Despite his anti-China stance, recognizing the popularity that taking an anti-free trade position gave him with American voters, Trump removed the US from the TPP on his first day in office. It was Trump that began implementing adifferent strategy to contain China with a more activist and protectionist state. Although his administration would never acknowledge this, Biden has continued these policies, which were begun by Trump and determined by the logic of capital, in a much more consistent way.

The Trump administration began to speak about “decoupling” from China. Suggesting outright separation, “decoupling” was the word his administration used when it first inflicted the initial blows of the trade war against China in 2018.²⁵Keith Bradsher, “One Trump Victory: Companies Rethink China,” The New York Times, April 5, 2019, https://www.nytimes.com/2019/04/05/business/china-trade-trump-jobs-decoupling.html. Trump imposed 25 percent tariffs on $300 billion worth of Chinese goods. The Biden administration has kept these tariffs in place.²⁶Graham Allison, “Trump Is Already Reshaping Geopolitics,” Foreign Affairs, January 16, 2024, https://www.foreignaffairs.com/united-states/trump-already-reshaping-geopolitics. 

By contrast, the Biden administration defined its China policy as “de-risking.” The use of this term coincides with a moment of rupture in the global system when quantity becomes quality: that is, a moment when a tendency that had been steadily building within the old neoliberal world becomes so dominant that the system as a whole qualitatively shifts. Given its centrality, it’s worth taking a second to examine the concept of “de-risking.” 

The first time the term was used was in a speech in late March of 2023 by European Commission president, Ursula von der Leyen, in which she insisted that the West needs to “de-risk—not decouple”²⁷“Speech by President von der Leyen on EU-China relations to the Mercator Institute for China Studies and the European Policy Centre,” European Commission, March 30, 2023, https://ec.europa.eu/commission/presscorner/detail/en/speech_23_2063. from China. Accordingly, the G7 joint communiqué in May of 2023 called for “de-risking, not decoupling.”²⁸“G7 Hiroshima Leaders’ Communiqué,” The White House, May 20, 2023, https://www.whitehouse.gov/briefing-room/statements-releases/2023/05/20/g7-hiroshima-leaders-communique/. Major US policy makers have also come to prefer the term, with even the hawkish Jake Sullivan adopting it in late April of 2023.²⁹“Remarks by National Security Advisor Jake Sullivan on Renewing American Economic Leadership at the Brookings Institution,” The White House, April 27, 2023, https://www.whitehouse.gov/briefing-room/speeches-remarks/2023/04/27/remarks-by-national-security-advisor-jake-sullivan-on-renewing-american-economic-leadership-at-the-brookings-institution/. 

There are three reasons for this shift. The first is that outright de-coupling is simply impossible in any meaningful timeframe without huge consequences. China and the West are wrapped up with each other economically in all sorts of different ways. It is impossible to disentangle these economies without enormous consequences for each country and the global economy as a whole. The second reason is the contradiction between its inability to disentangle from China and the need to gain leverage against them has led the West to a strategy that attempts to manage tensions so that it can contain China with the fewest consequences to itself. Third, US and European exposure to China is unequal, with a much larger section of Europe’s economy dependent on economic intercourse with China.³⁰Europe can’t decide how to unplug from China,” The Economist, May 15th 2023, https://www.economist.com/international/2023/05/15/europe-cant-decide-how-to-unplug-from-china. It is significant that de-risking emerged from Europe.

While de-risking suggests a defensive posture on the part of the West, in reality it is a part of a general offensive strategy to contain the new emerging superpower. 

Chinese economist Yu Yongding succinctly explains de-risking as a whole by describing the new two-part strategy of the Chinese state: “the spare wheel” and “the body lock.” The “spare wheel” means having alternatives for critical inputs such as natural resources, components, and critical technology, in case global rivals should cut supplies. The “body lock” is a metaphor that comes from wrestling. It means forcing companies from the rival state into greater dependence upon one’s own country, making de-risking more difficult and costly.³¹Mark Leonard, “China Is Ready for a World of Disorder,” Foreign Affairs, June 20, 2023, https://www.foreignaffairs.com/united-states/china-ready-world-disorder. Given their different positions, the US and its allies are more focused on the former part of de-risking, while China has been forced to focus equally on both elements. 

On the part of the US (and its sometimes enthusiastic, sometimes reluctant allies), de-risking is an attempt to reorganize production and distribution to contain the rise of China. For China, de-risking is about countering the western economic offensive by flexing its economic might in order to continue to expand its global influence against the relative decline of the West. For the US, much of the strategy revolves around locking China out of the supply lines for the most advanced microchips. For China, it revolves around leveraging its control of the rapidly expanding renewables industry and the mining and processing of minerals essential to the global economy. 

De-risking is the major part of a change in global strategy that National Security Advisor Jake Sullivan has coined the “New Washington Consensus.”³²“Remarks by National Security Advisor Jake Sullivan on Renewing American Economic Leadership at the Brookings Institution,” The White House, April 27, 2023, https://www.whitehouse.gov/briefing-room/speeches-remarks/2023/04/27/remarks-by-national-security-advisor-jake-sullivan-on-renewing-american-economic-leadership-at-the-brookings-institution. Janet Yellen has dubbed the new paradigm of the economic component of this new strategy “Modern Supply-Side Economics.”³³“Remarks by Secretary of the Treasury Janet L. Yellen at Stanford Institute for Economic Policy Research’s 2022 Economic Summit,” U.S. Department of the Treasury, March 4, 2022, https://home.treasury.gov/news/press-releases/jy0632. The Economist has called it “homeland economics” in a recent “special report.”³⁴“Homeland Economics,” The Economist, October 7, 2023, https://www.economist.com/special-report/2023-10-07. This increased protectionism and an activist industrial policy shifts the paradigm away from the free trade that has defined the neoliberalism of the last forty years.. 

Michael Roberts describes this new paradigm as follows:

Free trade and capital flows and no government intervention is to be replaced with an ‘industrial strategy’ where governments intervene to subsidise and tax capitalist companies so that national objectives are met. There will be more trade and capital controls, more public investment and more taxation of the rich.³⁵

Modern Supply-Side Economics (MSSE) has also gone by the term “Bidenomics.” Its recent policies have been the Inflation Reduction Act and the CHIPS and Science Act, as well as the underreported, but massively consequential export controls of October 7, 2022 and October 2023 and the investment controls of August 9, 2023. All are meant to destroy China’s ability to produce and access high-end computer chips.³⁶Thomas Hummel, “We need better than the Inflation Reduction Act,” Tempest, August 24, 2022, https://www.tempestmag.org/2022/08/we-need-better-than-the-inflation-reduction-act/; “Public Information on Export Controls Imposed on Advanced Computing and Semiconductor Manufacturing Items to the People’s Republic of China (PRC) in 2022 and 2023,” Bureau of Industry and Security, November 6, 2023, https://www.bis.doc.gov/index.php/about-bis/newsroom/2082;“Are America’s allies the holes in its export-control fence?” The Economist, Oct 16th 2023, https://www.economist.com/business/2023/10/16/are-americas-allies-the-holes-in-its-export-control-fence; “Biden orders restrictions on U.S. investments in Chinese technology,” National Public Radio, August 9, 2023, https://www.npr.org/2023/08/09/1193013362/biden-executive-order-restricts-investments-china-tech.  These chips have accurately been described as “the new oil,” due to their consequential geostrategic significance.³⁷Larry Diamond, Jim Ellis, and Orville Schell, “The Treacherous Silicon Triangle,” Foreign Affairs, July 17, 2023, https://www.foreignaffairs.com/united-states/semiconductor-supply-taiwan-treacherous-silicon-triangle. 

It’s important to note the economic scale of this shift coming from the White House. Trump and Biden’s post-Covid fiscal stimuli alone amounted to a quarter of GDP at $5 trillion, five times more than the state fiscal response from 2008. The Inflation Reduction (IRA), Science and CHIPS Act, and the Infrastructure bill amounted to an additional $2 trillion of state expenditure. The Economist recently estimated that in the first quarter of 2023, the governments of the “rich world” doled out about 40 percent more cash in subsidies than the norm before the pandemic. The US spent $25 billion on subsidies in the second quarter, and $400 billion in subsidies are earmarked for the semiconductor industry alone within the G7. This level of state expenditure has no equivalent since at least the days of LBJ.    

The IRA and the CHIPS and Science Act provide large incentives for companies to bring production back to the United States. Part of their justification is worries about the instability of supply lines created by the pandemic of 2020 and the war in Ukraine. The “just-in-time” system of production depended upon a degree of reliability that is no longer assured in the face of turbulent international rivalry and the new biological and environmental threats of the Anthropocene. These policies are also meant to act (or at least appear to act as a means by which the political center can reverse its hollowing out in favor of varieties of populism, which they identify as a symptom of domestic de-industrialization. 

While “Bidenomics” is often presented as a reversion to New Deal type economics, in reality, as MSSE’s name suggests, it is a fusion of neoliberal Reaganomics with activist government policy. Where the New Deal relied upon direct state investment, MSSE relies upon subsidies to private industry. “Bidenomics” is thus an evolution from neoliberalism due to changing economic and political conditions, rather than a reversion to the Keynesianism of the post-war poeriod. The result is something altogether new in the history of capitalism.  

With this shift in global political economy, each state is stepping into one of its key historic roles by acting as the “meta-conscience” of capital. The role of the state here is to act in the interest of its national capitals as a whole, even when it comes at the expense of individual capitals. We have seen the chief executive of NVIDIA complain about the “enormous damage” the new technology export controls are likely to inflict on his company, with estimates that the recent trade controls will cut its quarterly revenue by 6 percent.³⁸Demetri Sevastopulo, “US weighs tougher restrictions on AI chip exports to China,” Financial Times, June 28, 2023, https://www.ft.com/content/a6c6b769-349e-440f-a55b-c92371d00dd9. LAM Research and Applied Materials, two manufacturers of chipmaking tools, claimed they suffered a 10 percent hit to sales in 2023.³⁹“Apple is only the latest casualty of the Sino-American tech war,” The Economist, September 24, 2023, https://www.economist.com/business/2023/09/14/apple-is-only-the-latest-casualty-of-the-sino-american-tech-war. Four major US tech companies, Qualcomm, Intel, Tesla, and Apple, claim they depend on China for 62 percent, 27 percent, 22 percent, and 18 percent of their profits.⁴⁰John Thornhill, “Tech remains central in ‘hot peace’ between China and US,” Financial Times, September 21, 2023, https://www.ft.com/content/4dda44db-1795-4c1c-8e77-bd7fcaba3a71. The same holds for innumerable other companies that depend upon Chinese markets, minerals, and technology for production. But insofar as the new policy is concerned with maintaining American power to protect the long term health of the capitals under its control as a whole, the state is compelled to carry it out at the expense of individual capitals. During the neoliberal revolution that marked the last major shift in global political economy, the state performed an identical function with a very different technique by disciplining sections of unprofitable capital through high interest rates for the sake of the long-term health of the entire economy.

The US is trying to maximize its ability to strike out at China.

Preparing for battle: Biden mobilizes the homefront

The trade war with China has already started to have a noticeable impact. The share of imported Chinese goods as a percentage of total US imports fell from 21.6 percent in 2017 (the year before the beginning of the trade war) to 16.6 percent in 2022. In the same period the value of US goods exported to China as a total of US exports fell from 8.4 percent to 7.3 percent.⁴¹Brendan Murray and Ramsey Al-Rikabi, “Why Prospect of US-China ‘Decoupling’ Is Getting Serious,” The Washington Post, June 22, 2023, https://www.washingtonpost.com/business/2023/06/22/what-is-us-china-decoupling-and-how-is-it-happening/dc16bc76-10d9-11ee-8d22-5f65b2e2f6ad_story.html.

The passage of industrial legislation in August of 2022 marked a significant change in domestic manufacturing policy. The IRA laid out $385 billion in subsidies, much of it for new domestic renewables manufacturing. At the same time, the $280 billion CHIPS and Science Act offered $39 billion in funding to stimulate semiconductor manufacturing and $24 billion in tax credits.⁴²Amanda Chu and Oliver Roeder, “US manufacturing commitments double after Biden subsidies launched,” Financial Times, April 16, 2023, https://www.ft.com/content/b1079606-5543-4fc5-acae-2c6c84b3a49f.

The legislation has already produced significant results, with total real manufacturing investment nearly doubling between the time the IRA came into effect and April 2023.⁴³“Unpacking the Boom in U.S. Construction of Manufacturing Facilities,” U.S. Department of the Treasury, June 27, 2023, https://home.treasury.gov/news/featured-stories/unpacking-the-boom-in-us-construction-of-manufacturing-facilities. The US took in 22 percent of global foreign direct investment last year, making it the world’s largest recipient.⁴⁴Ed Ballard, Jason Douglas, and Jon Emont, “The Economic Losers in the New World Order,” The Wall Street Journal, August 14, 2023, https://www.wsj.com/articles/global-economy-economic-losers-fba30b53. Companies have committed well over $200 billion in US manufacturing projects since the legislation was passed last year.⁴⁵Amanda Chu and Oliver Roeder, “Inside the $220bn American cleantech project boom,” Financial Times, August 16, 2023, https://www.ft.com/content/3b19c51d-462b-43fa-9e0e-3445640aabb5. Spending on manufacturing construction rose 76 percent by May 2023 compared to a year earlier.⁴⁶Ed Ballard, Jason Douglas, and Jon Emont, “The Economic Losers in the New World Order,” The Wall Street Journal, August 14, 2023, https://www.wsj.com/articles/global-economy-economic-losers-fba30b53. 

While manufacturing has ticked up slightly in other areas, the vast majority of this investment has been in computer, electronic, and electrical manufacturing, which has also nearly doubled since the passage of the IRA and the CHIPS and Science Act. Total investment is roughly twenty times the amount of investment in the same areas in 2019.⁴⁷Amanda Chu and Oliver Roeder, “US manufacturing commitments double after Biden subsidies launched,” Financial Times, April 16, 2023, https://www.ft.com/content/b1079606-5543-4fc5-acae-2c6c84b3a49f. According to a study by Deutsche Bank, eighteen new chipmaking factories have started construction between 2021 and 2023 and over fifty new semiconductor ecosystem projects have been announced since the passage of the CHIPS Act.⁴⁸“Unpacking the Boom in U.S. Construction of Manufacturing Facilities,” U.S. Department of the Treasury, June 27, 2023, https://home.treasury.gov/news/featured-stories/unpacking-the-boom-in-us-construction-of-manufacturing-facilities. While the Financial Times tracked only forty projects worth at least $1 billion in semiconductor and clean technology manufacturing in 2019, they found thirty-one after the passage of the three acts in August 2022.⁴⁹Amanda Chu and Oliver Roeder, “US manufacturing commitments double after Biden subsidies launched,” Financial Times, April 16, 2023, https://www.ft.com/content/b1079606-5543-4fc5-acae-2c6c84b3a49f. By the end of 2022, companies had announced $210 billion of investments in EV production in the US, compared to $51 billion in 2020.⁵⁰Will the auto workers’ strike jeopardise Joe Biden’s manufacturing boom?” The Economist, September 24, 2023, https://www.economist.com/business/2023/09/24/will-the-auto-workers-strike-jeopardise-joe-bidens-manufacturing-boom. Crucially, to get benefits such as the $7,500 credit per EV from the IRA, companies are required to source a share of both the minerals processed and batteries produced either in the US or from countries that the US has a free trade agreement with other than China.⁵¹“A battery supply chain that excludes China looks impossible,” The Economist, July 17, 2023, https://www.economist.com/asia/2023/07/17/a-battery-supply-chain-that-excludes-china-looks-impossible. The same paper expects this investment to result in the creation of eighty-two thousand jobs. The Financial Times has recently put that number at one hundred thousand.⁵²Amanda Chu and Oliver Roeder, “Inside the $220bn American cleantech project boom,” Financial Times, August 16, 2023, https://www.ft.com/content/3b19c51d-462b-43fa-9e0e-3445640aabb5.

It may be tempting to see the massive flow of money toward renewables as evidence that the Biden administration takes the climate crisis seriously. However, this starts to look like an especially ridiculous assertion when we consider that the US has become the world’s largest gas exporter under Biden, with approvals for oil and gas drilling permits outpacing Trump.⁵³Brad Plumer and Nadja Popovich, “How the U.S. Became the World’s Biggest Gas Supplier, The New York Times, February 3, 2024, https://nytimes.com/interactive/2024/02/03/climate/us-lng-natural-gas-leader.html. In reality, the administration’s objectives are, first, to gain a share in an enormous new market dominated by China that the US recognizes as an objective fact. Second, increasing US energy independence via renewables will allow the US to export an increased quantity of gas to its allies in order to maintain the balance of its alliances. We saw the way in which the war in Ukraine set Washington scrambling around, frantically trying to maintain the balance of power by securing the energy needed by its allies.⁵⁴Thomas Hummel, “Europe’s energy addiction,” Tempest, June 6, 2022, https://www.tempestmag.org/2022/06/europes-energy-addiction/. America’s European allies were spared the worst impacts of being cut off from Russian oil by a mild winter. However, with Russia potentially looking to further tighten its grip on the Russian energy flowing to Europe, this is still a major concern for the west.⁵⁵David Sheppard, “The west must prepare for Vladimir Putin to weaponise energy again,” Financial Times, July 19, 2023, https://www.ft.com/content/8bff8ed4-7fa6-460b-b394-2d752121b293. Concern about the environment is a mere afterthought in comparison to these two much larger interests. 

Given the two main terrains upon which the trade war is being currently fought are key minerals and renewables on the one hand, and semiconductors on the other, it should not be surprising that subsidies for domestic manufacturing have mostly focused on those areas. The US is trying to maximize its ability to strike out at China through its supremacy in microchips, while minimizing its exposure to Chinese counterattacks on the minerals and renewables front.

We are likely to see stricter screening of Chinese investment into western countries.

Opening salvos: America goes on the economic attack

Much of the attack on China has been based around keeping them away from the most advanced microchips. The Biden administration has referred to its strategy as protecting strategic technologies with a “small yard and a high fence.”⁵⁶Martin Wolf, “America is feeling buyer’s remorse at the world it built,” Financial Times, June 27, 2023, https://www.ft.com/content/77faa249-0f88-4700-95d2-ecd7e9e745f9. 

The market for these computer microchips is currently valued at five hundred and seventy billion dollars, though it is expected to grow to as much as $1.3 trillion by 2032.⁵⁷“America’s commercial sanctions on China could get much worse,” The Economist, March 30, 2023, https://www.economist.com/briefing/2023/03/30/americas-commercial-sanctions-on-china-could-get-much-worse; Andy Bounds, “EU offers battery makers €3bn to jump start electric vehicle industry,” Financial Times, December 6, 2023, https://www.ft.com/content/7afd030d-5097-445e-b111-bf78763f57c8.  This purely monetary measurement does not accurately represent of just the importance of these tiny chips to the economy and geopolitical power. As Ashley Smith says, they are

as important to global capitalism today as oil. They are indispensable components of everything from mobile phones to cars, PCs, government computers, satellites, surveillance systems, tanks, warplanes and missiles.⁵⁸

These chips are also essential for harnessing and further developing the latest round of artificial intelligence, which may have enormous economic, security, and military applications. Destroying China’s ability to take advantage of this new technology is central to the strategy here. The recent “revolution” in AI presents enormous possibilities, and it’s important for the US to act now to ensure that they retain a monopoly on the next round of tech dependent upon these advancements. Keeping China away from the most advanced versions of this technology guarantees their economic and military inferiority for the foreseeable future. China is deeply dependent upon external supplies of these chips. In 2020, domestic suppliers provided just 15.9 percent of China’s demand for chips. In April of this year, China spent more money importing semiconductors than it spent on oil.⁵⁹

The biggest attack in this regard has been the export controls of October 2022. These export controls were issued by the United States Bureau of Industry and Security. The New York Times reported that the scale of these controls “amounted to a declaration of economic war on China,” which essentially sought “to eradicate, root and branch, China’s entire ecosystem of advanced technology” and “could handicap China for a generation.”⁶⁰ The export controls were both intended to prevent further development of Chinese technology and to force a reversal of China’s progress. They were meant to prevent China from purchasing or creating anything smaller than a sixteen-nanometer chip, which was cutting edge in 2014.⁶¹ To provide some context, TSMC, the largest Taiwanese chip company, is on the verge of making a breakthrough on 2-nanometer chips.⁶² China was not only cut off from importing the most advanced chips, but from

acquiring the inputs to develop its own advanced semiconductors and supercomputers, and even from the U.S.-origin components, technology and software that could be used to produce semiconductor-manufacturing equipment to eventually build their own fabs to make their own chips.⁶³

These export controls have been created using “foreign direct product rules” that are issued by the Department of Commerce. According to The Economist these function to

restrict the sale not just of goods made in America but also of any item made anywhere using American intellectual property. Firms that break the rules risk prosecution if they do business in America and crippling sanctions even if they do not.⁶⁴

The export controls also prohibit American engineers, as well as Chinese nationals with American green cards, from working for Chinese chip companies. 

The metric that determines which chips are targeted is based upon their processing power and the speed at which they communicate with other chips. In addition to the chips themselves, these controls also target both the software to design and the tools to manufacture them.⁶⁵“Are America’s allies the holes in its export-control fence?” The Economist, October 16, 2023, https://www.economist.com/business/2023/10/16/are-americas-allies-the-holes-in-its-export-control-fence. 

Until recently, China and the US were neck and neck in the race to create the most advanced computers. The US share of global semiconductor manufacturing has fallen from 37 percent in 1999 to just 12 percent today.⁶⁶Larry Diamond, Jim Ellis, and Orville Schell, “The Treacherous Silicon Triangle,” Foreign Affairs, July 17, 2023, https://www.foreignaffairs.com/united-states/semiconductor-supply-taiwan-treacherous-silicon-triangle. This trend belies a crucial fact: almost all of the chips powering China’s most advanced projects are completely tied up with US owned technology. As The New York Times reports

Three firms, all located in the U.S., dominate the market for chip-design software, which is used to arrange the billions of transistors that fit on a new chip. The market for advanced chip-manufacturing tools is similarly concentrated, with a handful of companies able to claim effective monopolies over essential machines or processes—and nearly all of these companies are American or dependent on American components. At every step, the supply chain runs through the U.S., U.S. treaty allies or Taiwan, all of them operating in a U.S.-dominated ecosystem.⁶⁷

The next attack came on outgoing investments. On August 9, Biden signed an executive order restricting US investment in Chinese high-tech. The order was meant to complement the export controls of 2022, as well as an amendment from the National Defense Authorization Act from July that limited export of capital to “countries of concern.” The US Treasury Department will be in charge of both implementing these August 9 controls and proposing a set of rules that will be approved after a period of public comment. The order has been received enthusiastic bipartisan support in the US.⁶⁸“Biden orders restrictions on U.S. investments in Chinese technology,” National Public Radio, August 9, 2023, https://www.npr.org/2023/08/09/1193013362/biden-executive-order-restricts-investments-china-tech.

These initial investment controls were quite modest, looking in particular at investments that could fund military innovation. This restricted focus is due because of intense private-sector lobbying that sought to limit the impact these controls would have upon their business in China, rather than to the will of the Biden administration. The restrictions will also be the subject of further lobbying during the public-comment period. A previous version of the controls also included green tech and biopharmaceuticals before it was reigned in to just chips, AI, and quantum computing. Unlike the export controls, these were given with an abundance of prior warning.⁶⁹Kevin Klyman, “Biden Takes Measured Approach on China Investment Controls,” Foreign Policy, August 19. 2023, https://foreignpolicy.com/2023/08/19/biden-approach-china-economy-investment-control/. Even before this announcement, the influx of western private equity capital into China had plummeted 80 percent at the beginning of the trade war from 2017 to 2022. 

Whether China will be able to replace this capital is an open question, and such measures could impact American pension funds that have come to highly value these investments.⁷⁰“America’s plan to vet investments into China,” The Economist, June 22, 2023, https://www.economist.com/business/2023/06/22/americas-plan-to-vet-investments-into-china. It will also be extraordinarily difficult to enforce these rules, as doing so would require watching every fund based in Hong Kong or in offshore havens such as the Cayman Islands. Effective enforcement is likely beyond the capacity of state regulatory agencies.⁷¹“America’s commercial sanctions on China could get much worse,” The Economist, March 30, 2023, https://www.economist.com/briefing/2023/03/30/americas-commercial-sanctions-on-china-could-get-much-worse. 

Advanced semiconductors, artificial intelligence and quantum computing represent only a fraction of the total western investment into China. But like the export controls, they are meant to limit China’s ability to achieve anything resembling independence in these fields. The US needs to implement these controls with care, since it's hard to guarantee that controls targeting one sector will not impact another. To give just one example, attempts by the US to prevent China from gaining access to military technology could impact the production of washing machines, which contain chips also found in missiles.⁷²Brendan Murray and Ramsey Al-Rikabi, “Why Prospect of US-China ‘Decoupling’ Is Getting Serious,” The Washington Post, June 22, 2023, https://www.washingtonpost.com/business/2023/06/22/what-is-us-china-decoupling-and-how-is-it-happening/dc16bc76-10d9-11ee-8d22-5f65b2e2f6ad_story.html. 

On October 17th of 2023, the US further expanded their export controls. This expansion sought to halt the flow of semiconductors going to Chinese data centers where they could be used to develop artificial intelligence. They also attempted to plug the holes through which US microchips could travel to China by way of subsidiaries of Chinese companies in other countries. In response to the export controls of 2022, NVIDIA had designed new chips, the A800 and the H800 for China’s market. The new export controls will restrict the sale of these chips now too.⁷³Ana Swanson, “U.S. Tightens China’s Access to Advanced Chips for Artificial Intelligence,” The New York Times, October 17, 2023, https://www.nytimes.com/2023/10/17/business/economy/ai-chips-china-restrictions.html.

The controls may be extended to industries such as biotech and agriculture. Chinese biopharmaceuticals are projected to be worth more than $100 billion and are deeply dependent upon American intellectual property. The Department of Agriculture has also announced that it would be looking into promoting fair trade competition in the seed industry.⁷⁴“America’s commercial sanctions on China could get much worse,” The Economist, March 30, 2023, https://www.economist.com/briefing/2023/03/30/americas-commercial-sanctions-on-china-could-get-much-worse.

We are also likely to eventually see stricter screening of Chinese investment into western countries. As China responds, the “high fence” is likely to get progressively higher and the “small yard” steadily larger.

Our solidarity should not lie with either state as they engage in maneuvers to expand their power, but with the international working class, which alone has the power to put an end to this system.

China hits back

Roughly speaking, what the US is to chips, China is to minerals and renewables production. As the US has begun to try to edge China away from access to the most advanced chips, China has begun to flex its might as a minerals and renewables giant. One of its main targets is the booming renewables industry, estimated in 2022 to be worth about $1 trillion and expected to grow to about $2 trillion by 2030.⁷⁵ The Chinese state has subsidized EV production to the tune of $125 billion between 2009 and 2021.⁷⁶ Similarly, the EV market, which in 2022 was valued at $193.55 billion (with over ten million units being sold in 2022), is projected to rise to $693.70 billion by 2030.⁷⁷ To meet this demand requires that the supply of the minerals required to make EVs must grow by a third every year until 2030.⁷⁸ China dominates every step of the production of electric cars, with 54 percent of these vehicles currently being produced there.⁷⁹ Chinese firms also dominate the production of parts for EV batteries.⁸⁰ Battery production capacity reached an estimated fifteen hundred gigawatt hours in 2023, enough for twenty-two million EVs.⁸¹ Chinese battery companies CATL and BYD are also trying to dominate battery-adjacent industries such as charging networks and battery energy storage systems. China creates half of the total components used in battery cells and in some categories its share is as high as 70 percent.⁸² China is also far ahead in the development of a battery that depends on sodium, which may eventually replace the lithium battery.⁸³ Its capacity to produce renewables is immense, with its exports of solar panels tripling over the past three years, reaching about $5 billion per month.⁸⁴ China exported 86.6GW of solar panels to Europe in 2022, a 112 percent increase over 2021.⁸⁵ Chinese investments into renewables reached an estimated $545 billion in 2022.⁸⁶ China currently produces the majority of anodes, cathodes, and batteries, as well as offshore and onshore wind blades, nacelles, and towers. As one author in The New York Times put it, “countries that can make batteries for electric cars will reap decades of economic and geopolitical advantages… The only winner so far is China.”⁸⁷

China’s thirteenth five-year plan, which ran from 2016 to 2020, explicitly highlighted how its dominance over these industries could give the Chinese state a competitive edge over the US. The current five-year plan identifies these industries as key to China becoming a “science and technology powerhouse.”⁸⁸ There are deep connections between the state and the EV and renewables industries, with enormous subsidies being rolled out for Chinese companies in these industries over the past decade.

In relation to just one extremely important set of minerals, rare earths, Deng Xiaoping famously said in 1992, “the Middle East has oil, China has rare earths.” But the truth goes deeper than China’s ability to mine these resources. Even more importantly, China dominates the next steps in the process, turning rare earths into metals and metals into new products. As The Economist relates, to extend “Mr Deng’s comparison, it is as if the Middle East not only sat on most of the world’s oil but also, almost exclusively, refined it and then made products out of it.” This is true of both the mining and processing of rare earths and of many other minerals.⁸⁹

China currently controls 41 percent of the mining of cobalt, 28 percent for lithium, and 78 percent for graphite. Crucially, it also controls 95 percent of processing for manganese, 73 percent for cobalt, 70 percent for graphite, 67 percent for lithium, and 63 percent of nickel processing.⁹⁰ In 2022, China was responsible for three-fifths of the rare-earth elements mined and ninety percent of its processing.⁹¹

In total, the world currently depends upon China for eighty percent of the processing of its minerals.⁹² The EU depends on China for 98 percent of its rare-earth supply, 93 percent of its magnesium and 97 percent of its lithium.⁹³ The EU also relies on China for 65 precent of its supply of five other key minerals: bismuth, cobalt ore, magnesium, manganese, and strontium.⁹⁴ The US relies on China for 80 percent of its rare-earths supply.⁹⁵ While the Pentagon would likely be able to get all the rare earth it needs if China shut off its tap, US businesses would take a resulting big hit.⁹⁶ China also supplies roughly 80 percent of the world’s gallium and germanium and the US depends on China for roughly 50 percent of its germanium. China produces 98 percent of the world’s raw gallium.⁹⁷ The US also depends on China for 97 percent of its antibiotics and 80 percent of its pharmaceutical ingredients.⁹⁸

Dependence upon critical metals and fine minerals will only increase as the market for renewables expands. The World Economic Forum estimates three billion tons of these materials are needed if the world is to decarbonize by 2050. With demand growing at least fivefold over the next thirty years, this represents something like a $10 trillion opportunity.⁹⁹

China’s position in the trade war has always been reactive. China would very much like to continue with the economic status quo and would likely continue to benefit from it. It has been forced to engage in a tit-for-tat battle with the US and its allies in an attempt to keep up with the aggressive maneuvers of the United States. We should not think of the Chinese state as just another victim of US imperialism, however. China is also an imperial power. If the situation were reversed, the logic of capital would force China to carry out actions identical to those the United States is currently engaged in. Our solidarity should not lie with either state as they engage in maneuvers to expand their power, but with the international working class, which alone has the power to put an end to this system.

During the preparatory Trump phase of the trade war, China responded in kind to tariffs placed upon its exports. These eventually reached tariffs on a little over twenty percent of exports from each country when Biden took office in January of 2020. As an author writing in The Economist relates, between

2009 and 2020 the number of Chinese export controls on the books ballooned nine-fold, according to the OECD, a club of mostly rich countries. Yet these restrictions were haphazard, informal and aimed at narrow targets—random warning shots rather than a strategic offensive.¹⁰⁰

While China’s response to the Biden sanctions has been limited, the Chinese state has promised that its counter-offensive will increase in intensity. Implementing these trade attacks has to be done with extreme caution given the deep interdependence between both economies, and doing so takes time. Attacks need to be calculated so that they maximize damage to the opposing bloc while limiting damage to the attacking country. To give just one example, since China reimports many of the finished products made with the rare earths they export, they have to be careful about how they impose restrictions. Starting in 2020, China has passed a flurry of laws to aid in a counter-attack. The same author writing in The Economist relates,

[t]he list of recent laws is long. An “unreliable entities” list, created in 2020, punishes any company undermining China’s interests. An export-control law from the same year created a legal basis for an export-licensing regime. In 2021 an anti-sanctions law enabled retaliation against organisations and individuals who carried out the sanctions of other countries. A sweeping foreign-relations law enacted this year, and prompted by Western sanctions against Russia over its invasion of Ukraine, permits countermeasures against a wide range of economic and national-security threats facing the country. It came into effect on July 1st.

China has also passed laws allowing the state to restrict the export of a broad range of minerals and components. These new rules have already been used. In February of this year, Lockheed Martin and Raytheon were both added to the “unreliable entities” list for shipping weapons to Taiwan. In May, China banned Chinese infrastructure operators from purchasing chips from the US company Micron, based out of Idaho.¹⁰¹Demetri Sevastopulo, “US weighs tougher restrictions on AI chip exports to China,” Financial Times, June 28, 2023, https://www.ft.com/content/a6c6b769-349e-440f-a55b-c92371d00dd9. On July 3rd, in its most substantial attack yet, the Chinese state placed export controls on gallium and germanium, two key minerals used in high-end semi-conductors.¹⁰² “In its tech war with America, China brings out the big guns,” The Economist, July 4, 2023, https://www.economist.com/business/2023/07/04/in-its-tech-war-with-america-china-brings-out-the-big-guns. This could have a large impact on the chip industry as well as on the production of screens, fiber-optic gear, and solar panels. As mentioned above, China supplies roughly 80 percent of the world’s gallium and germanium and the US depends on China for roughly 50 percent of its germanium. 

The mineral is also essential for the next generation of missile defense and radar systems.¹⁰³“China hits back against Western sanctions,” The Economist, July 23, 2023, https://www.economist.com/business/2023/07/23/china-hits-back-against-western-sanctions. A compound based on gallium, gallium nitride, may also be essential for the next generation of high-performance semiconductors. Gallium is a critical enough mineral that it’s been estimated that a cut of 30 percent of the mineral available to US companies would knock a full 2 percent off its GDP.¹⁰⁴Agathe Demarais, “China’s Threat to Ban Critical Minerals Exports Is a Bluff,” Foreign Policy, July 27, 2023, https://foreignpolicy.com/2023/07/27/china-critical-minerals-metals-embargo-russia-sanctions-energy-natural-resources/.  

On October 20th, likely in response to the US export controls announced three days before, the Chinese state announced export controls on graphite. Graphite is the most common mineral used in the anode side of a lithium-ion EV battery. Graphite is one of the critical minerals that China has the greatest stranglehold over. Between January and September of 2023, the US imported $745.3 million worth of the mineral from China.¹⁰⁵Edward White, William Langley, and Harry Dempsey, “China imposes export curbs on graphite,” Financial Times, October 20, 2023, https://www.ft.com/content/8af8c05c-8e54-40e9-9051-5a0b2b036c32. 

Chinese officials have suggested that these attacks are just the beginning. Each extension of US export controls must be met with a response. The resulting tensions between the two countries will become more and more difficult to manage as the logic of the competition leads to deepening economic attacks. Increasingly, the world will be split between American and Chinese blocs. Though these blocs will be much more fluid and porous than during the Cold War, this competition will increasingly impact the rest of the world. The position of other states in this new world will be the subject of the next installment in this series.

“Bidenomics” in the International Context

Part I: US/China Competition and the Challenges of “De-risking”

Thomas Hummel

Author’s introduction to this series.

Setting the stage: the rise of China and the post-2008 world

What is “de-risking”?

Preparing for battle: Biden mobilizes the homefront

Opening salvos: America goes on the economic attack

China hits back

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Prelude to a New Imperial Order?

On Economic Compulsion

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“Bidenomics” in the International Context

Part I: US/China Competition and the Challenges of “De-risking”

Thomas Hummel

Author’s introduction to this series.

Setting the stage: the rise of China and the post-2008 world

What is “de-risking”?

Preparing for battle: Biden mobilizes the homefront

Opening salvos: America goes on the economic attack

China hits back

SHARE

Prelude to a New Imperial Order?

On Economic Compulsion

Lessons from the Rutgers Strike

HELLO, COMRADE

NEED TO UPDATE YOUR DETAILS?

Support our Work

Gift Subscriptions, Renewals, and More