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Countering Chinese Industrial Policy Is Counterproductive

The United States’ real business-related challenge vis-à-vis China is the tradeoff between national security and the benefits of economic exchange, not China’s support for state-owned firms or its industrial subsidies. And the worst thing America could do is to enact industrial policies of its own.

CHICAGO – US political leaders have long tried to counter Chinese industrial policy. And now they seem to have decided that the best way to do that is to emulate it. But their agenda betrays a profound lack of understanding of the unique challenge posed by China’s coupling of an authoritarian political regime with a dynamic market economy.

Millions of Chinese firms, including some of the world’s most innovative, are occasionally asked to serve the regime’s political objectives – an unprecedented marriage of pioneering private companies and a Leninist one-party state. Western countries cannot match it, and should not begin to try. But much of the US economic policy response to China is misdirected.

For example, the United States wants to curtail China’s support for state-owned firms, despite the overwhelming evidence that such assistance starves private Chinese businesses of resources. The real challenge to America comes from private companies such as Huawei and Alibaba, which produce goods that US consumers eagerly buy. It does not come from state-owned firms like aircraft manufacturer COMAC, which has never made a profit and, more important, has prevented the emergence of a private-sector Chinese equivalent of Boeing.