Jul 27, 2023 - World

The U.S. and China build their economic arsenals

Illustration of two toy soldiers pointing guns at each other. One soldier casts a shadow in the shape of a dollar symbol while the other casts a shadow in the shape of the yuan symbol.

Illustration: Shoshana Gordon/Axios

For the next decade, U.S.-China rivalry will likely be characterized not by military struggle but by economic statecraft — using economic means to achieve geopolitical outcomes, Axios China reporter Bethany Allen-Ebrahimian writes in her new book Beijing Rules.

Why it matters: That could create an economic arms race, with both sides struggling to create ever sharper and more innovative economic tools, and to rally ever more allies into their respective economic spheres of influence.

What's happening: The U.S. and China are rolling out targeted measures to wall off key industries and products from each other, and to punish behaviors they don't approve of.

  • Most recently, China placed export restrictions on rare earth minerals key to the production of advanced computer chips, after the U.S. and several allies restricted the sale of such chips to China.

Details: Both governments have created new mechanisms to pressure the other side.

  • China's anti-foreign sanctions law, implemented in 2021, expanded the legal toolkit available to authorities if Chinese companies are targeted by foreign sanctions.
  • The U.S. implemented the Uyghur Force Labor Prevention Act last year, which bans all imports of products from China's Xinjiang region unless importers can prove their supply chains aren't tainted by forced labor.
  • The Biden administration is considering an executive order that would, for the first time, screen outbound U.S. investments for security concerns.

The big picture: The U.S. hopes to prevent China's dominance in key emerging industries and technologies. U.S. leaders fear that if Beijing gained those footholds, it would leverage that power to push for an illiberal world order.

  • The U.S. also has a growing list of sanctions on Chinese entities and individuals for human rights violations.
  • China's leaders, meanwhile, have strengthened their control over the gateways to the country's economy, selectively cutting off access — and thus profits — to companies, people, or governments who say or do things Beijing perceives as not sufficiently aligned with its most important interests.
  • China's leaders hope that U.S. companies negatively affected by trade restrictions will lobby Washington to ease its policies.

Between the lines: Economic pressure is viewed in both Washington and Beijing as less costly than military conflict.

  • There's little appetite in the U.S. to get embroiled in yet another long war on the other side of the planet.
  • And memories of Cold War-era nuclear fears run deep in the U.S.; it's widely acknowledged that direct military confrontation between two nuclear-armed superpowers could bring disaster.
  • Leaders in Beijing, meanwhile, don't want a kinetic war with the U.S., the world's strongest military power, before the People's Liberation Army is sufficiently prepared.
  • Chinese President Xi Jinping has set 2027 as the deadline for China's military to be ready to "fight and win," and 2049 as the year when China should "[lead] the world in terms of composite national strength and international influence."

What to watch: Both sides are trying to rally friends and partners to join their respective sides, though the U.S., with its many strong alliances, has made more progress.

  • China's close partnership with Russia, despite Putin's invasion of Ukraine, is intended in part as a strategic bulwark against future western sanctions.
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