On “China Shock 2.0” and the Green Industrial Wars
The China-focused battle over electric vehicle subsidies and production is an intellectual dead end that might actually end in a shooting war.
The reasoning behind US economic policy is a moving target that mostly makes sense as a bid to permanently weaken China. Some rich countries are trying to ride whatever waves America kicks up, oblivious that:
There is no stable (economic) concept underpinning US moves in political economy,
Blindly following US moves will not yield the benefits they hope for, and
Reverting to economic nationalism can only end badly for those who seek peace in this world.
2018-2021: Critical Consciousness About Neoliberalism
It all started with left-progressive criticisms of neoliberalism during the Trump years.
I was part of early conversations involving Biden-aligned policymakers where the view among some of us (including Jake Sullivan) became that globalization and “free trade” allowed Chinese power to grow, and Chinese power was the central military challenge facing the US.
This was also the time when the “China shock” thesis got popularized in my/Jake Sullivan’s circles. The reason wasn’t because we had a firm grasp on the underlying data, but rather because the China-shock thesis told a story that linked the threat-growth of China to the depletion of US jobs (this story is not quite correct, but it was the belief that became en vogue).
And after the failure of the Obama administration to get the Trans-Pacific Partnership ratified, a conventional wisdom started to congeal that I heard reiterated twice during my recent trip to Washington: globalization and free trade are unpopular, whereas tariffs have pretty much always been popular (there’s some truth to this, but what you do with it is what matters).
Democratic policy-wonk thinking in these years was a not-fully-coherent patchwork of crude understandings about: political popularity; leftist critiques of globalization; how the balance of military power had been shifting; and the character of the CCP itself. By crude I mean only partially correct, and conveniently unaware of the blind spots in our own thinking. We harbored pretensions of following serious analysis but we cherry-picked it and were mostly dining out on elite- and media-driven narratives anyway.
The through line that emerged from this intellectual stew was opposition to neoliberalism—understood narrowly1—on the grounds that China was “eating our lunch.”
2021-2023: “Macho Dudes in Electric Vehicles”
My favorite critical quip from this era, from Waleed Shahid, was that Biden’s agenda was: ‘“Great power rivalry with China while also decarbonizing the economy, led by macho dudes in electric vehicles.”
Once Bidenomics started going in this direction—which, again, was an improvisation derived from the earlier intellectual hodge-podge—I got off the train. It stopped being my project and I started becoming very critical of US economic statecraft.
Why? Well, I was reading a lot more about the world-systems view for one thing, and was beginning to situate my analysis of political economy in a global context rather than a domestic one. It was also becoming clear that “decarbonizing the economy” was not a priority for Biden, and in hindsight was never on offer—gestures toward it were a way of bringing the climate movement into a legislative coalition that would empower green capital and amplify the China threat.
Most importantly, I was aware of our dark, China-blame-shifting trajectory. The “new Cold War” wasn’t just a background condition—it was the end toward which every policy initiative aimed. Embracing a militarized, whole-of-society struggle with China was avoidable, filled with unacknowledged perils, and not well reasoned.
Biden’s most influential foreign policy hands were leaning into the tough-guy spirit of the old Cold War liberals, but they weren’t macho—these were people who had no relationship to violence, and had never served in the military. And yet they were opportunistically grafting anti-China policies on to normal public policy. At least part of the subtext was that in so doing, they were showing that Democrats are tough and macho and whatever.
I found this troubling.
The sharpest break between me and my old friends was in the year after the George Floyd protests in 2020. I witnessed the Trump administration’s vilification of China directly causing a spike in anti-Asian (not just anti-China) hate crimes. Democrats were condemning the racism but stoking the key source of the racism. They didn’t care about that contradiction because they were not making the connection in their minds, but also because their larger wager was that great-power competition itself would somehow be a boon for democracy.2
It was also during this period that I began to see just how crude our earlier understandings were (about everything from what neoliberalism was to the nature of the China problem).
In 2023, Jake Sullivan announced his supposedly “new Washington consensus” around an industrial policy that kneecaps China, purifies supply chains, expands Trump-era tariffs on China, and tries to rebuild manufacturing in the US. There were some good things in this package, but I came out openly critical of it, in part because it was based on half-way analysis of the economy and a misrepresentation of the China threat.
But it was also obvious to those of us who knew foreign policy that the economic story Sullivan was trying to sell was happening within (and advancing) a grand strategy of primacy.
Biden’s foreign policy became more explicitly about military competition and taking steps to contain China’s economic and military power (the strategy was the same as prior presidencies but the requirements of the strategy ratcheted up—see the one-minute explainer video below).
There was still another problem with Bidenomics/the new Washington consensus—it was rightly critical of neoliberalism, but it involved literally no steps to free most of the world from the constraints of or exposure to neoliberal politics.
US economic statecraft—guided by a strategy of primacy—sought only to free the US of neoliberal constraints, but at the expense of others. Such a divisible, world-sacrificing approach to political economy was only justifiable if your larger project was effectively one of containment and domination.
And yet, some progressives and heterodox economic institutions who had long been on the outside of presidential power found themselves becoming administration insiders. They were so happy to be getting any traction with industrial policy that they never worried about whether 1) it was to the benefit of the working majority, or 2) it increased the likelihood of war.
And I can count on one hand the number of people in Biden’s economic coalition who had actual foreign policy experience. So when Sullivan moved to securitize the economy and basically subordinate industrial policy to a misguided US grand strategy, nobody on the econ or climate side of the policy world was in a position to push back. This was how a lot of smart left-ish voices got co-opted into supporting great-power rivalry.3
2024: China Shock 2.0, Strategic Encirclement of China
In the past six months, we’re seeing still another evolution in the Biden administration’s economic narrative-making.
The new revisionism is to create a whole intellectual mythology about Bidenomics that tries to justify the more punitive aspects of US industrial policy as if it were about Chinese “imbalances” this whole time. What journalists now sometimes call “China Shock 2.0” is about Chinese economic imbalances, one aspect of which is the overcapacity of its production in certain economic sectors (especially EV manufacturing).
Treasury Secretary Janet Yellen warned recently of tariffs on China for “clean energy dumping”—that is, providing EVs in foreign/US markets at too cheap of a price point. The irony of such a warning is that the price of EVs is currently far too high for the average person to afford them—cheaper EVs would speed a green transition.
So the US is depicting as threatening something that’s not only not a threat; in different circumstances, Chinese EV production could be a global public good. Moreover, if we’re following the reasoning that villainizes “clean energy dumping,” what could China have possibly produced at scale that would not be seen as a threat? Certainly not steel:
If you’re the CCP and trying to make strategic investments of a non-threatening nature the past decade, wouldn’t renewable energy technology have been the most reasonable thing imaginable? Especially because it responds to global demand?
Last month there was a revealing interview with Brian Deese (who had been Biden’s top economic adviser) in which he suggested that Matthew Klein and Michael Pettis’s book, Trade Wars Are Class Wars, was the organizing paradigm for US economic statecraft. People in the administration do like the book, but the claim that it’s the basis for Bidenomics is not true.
How do we know? Well, Trade Wars Are Class Wars came out in summer 2020, by which time the Biden administration’s economic braintrust had already publicly described the outlines of its post-neoliberal, anti-China economic imagination. But also none of the earlier Biden administration economic thought prioritized Chinese overcapacity.4 And I’ve struggled to find any Sullivan-Raimondo-Yellen comments about China during their first year in office where they depict Chineses imbalances as a threat.
This is a new obsession.
What’s going on now is that we’re moving into a new phase of outrage toward China, which justifies expanding the gradual decoupling of the great powers even though many of the actions taken (eg, banning TikTok) do not affect the military balance of power that originally rationalized restrictive economic moves.
We’re in this weird moment where the stated rationale for US policies is proving very slippery. Depending on the day of the week, US industrial policy claims to be about economic growth, the “middle class,” a green energy transition, reclaiming a higher share of global manufacturing, a small yard/high fence meant to constrain China’s military power, US dominance in future-oriented economic industries, reducing vulnerability to Chinese economic coercion, or preparation for war over Taiwan. It cannot be all of these things. It cannot even be most of these things.
The through line: America is trying to preserve and expand what remains of its share of global primacy. The economic component serves the military component. Sometimes the likes of Sullivan, Raimondo, and Yellen are very plainspoken about the logic of dominance that runs through US policy…but only sometimes.
Putting the Green Industrial Wars in Context
This entire project is a game that isn’t worth the candle. There’s a basic tension that nobody wants to confront between US dollar supremacy and a manufacturing-oriented economy. Optimizing for one undermines the other, assuming you can have either (which is not obvious longer term).
More generally, I’m becoming sympathetic to the view that everything that isn’t serious action on climate change is just chauvinism.
The US is pairing subsidies for EV manufacturing in the US with expanding tariffs and restrictions on Chinese production. This is problematic insofar as it heightens the forces of geopolitical rivalry, which is bad for the world, but it’s also bullheaded considering: 1) China controls crucial critical minerals that power the US focus on EV production, 2) it invites Chinese retaliation against the US that will be villainized as “competition” progresses to a new phase, and 3) only a Sino-US collaboration on green tech can reduce global carbon emissions on a timeline that matters.
The emerging subsidy wars in green tech will benefit a handful of well-positioned companies within well-positioned nations short-term while leading to massive overproduction of EVs mid-term. Because the global South has been erased from the picture, there will be no demand there to sop up that overcapacity.
The world we’re making is a world that’s good for the politics of nationalism and oligarchy but bad for the politics of peace and economic democracy. Who benefits from that? Not workers.
A narrow, stylized understanding of neoliberalism portrays it as fiscal austerity, privatization of public assets, and deregulation. But what neoliberalism actually entailed—and what those policies actually did—was using the power of the state to serve the interests of capital over workers, even at the expense of cannibalizing the social order that reproduced capitalism itself. In this latter, clear-eyed sense, the US has not moved past neoliberalism—industrial policy and tax credits still serve the interests of capital over workers and the social order does not look more sustainable today than it did a decade ago. What Bidenomics presents as “post-neoliberalism” is an economic nationalism that uses the state to strengthen a different (militarized) set of capital interests over workers.
I was so angered by this nonsense that it found expression in a Foreign Affairs piece I ended up writing with Mike Brenes, which in turn led to The Rivalry Peril book (coming soon).
I have to make an exception for the actual authors of the Inflation Reduction Act and earlier Build Back Better Act legislation. There were a handful of people, like Tim Sahay and Ted Fertik, who were conscious about the labor component of the legislation and wary of the anti-China dimension of it.
Chinese imbalances are a thing, but because China is embedded in the global economy, its imbalances are the other side of our imbalances. We siphoned up the exports that propelled China’s economic strategy, and we ran deficits to finance military expansion that attracted Chinese surplus capital. So impugning any single country over “imbalances” is a necessarily blinkered (nationalist) view of economics.
I would like to see you debate or discuss these issues with Matt Stoller. His take on the TikTok divestment bill is pretty awful (he approves, not because of his open animus towards China, but because he considers the forced divestment to be much-needed government regulation of social media); I imagine he is strongly in favor of preventing the importation of Chinese EV's because of the 'unfair competition' argument.
Interestingly, I've never seen him factor climate change into any of his arguments: indeed, he's written approvingly several times recently about Texas petroleum & fracking companies. I don't know if this is simply a blind spot or if he simply doesn't consider climate change an important issue.
What do you make of the argument that tariffs on green energy are necessary to get buy-in domestically for the green transition, especially in the politically important upper Midwestern states?