Transcription
We want to be working in concert with our commercial allies to figure out how we address China in a unified and therefore more powerful way. But we're not doing that. What we're doing is putting import tariffs on all of those countries, beating them up a bit, and diverting ourselves from the real task at hand, which is taking on China.
(pensive music)
China shock 1.0 refers to this incredible moment in history where China joined the global community of trading nations, lowering barriers to goods that could come into China from the rest of the world, and the rest of the world reciprocated by allowing China to send its exports abroad. This happened so fast and China was so big that it disrupted global markets in a major way. If you were producing goods that China was also producing, it was a major competitive threat that led to job loss, wage declines, and prolonged economic distress. If you were producing things that China wanted to buy, all of that in reverse. Boom times, expanding employment, rising incomes.
Second China shock is going to be about contesting U.S. global technology leadership, which will have implications for our geopolitical standing in the world and for our role as kind of the dominant economic superpower. The Chinese state is investing massively in new technologies. Solar panels, electric vehicles, with EV batteries, AI. With quantum, aerospace, and transportation. Drones, nuclear submarines.
China has wanted to push its economy into new productive directions, but it's done so in a way that involves a lot of experimentation. Having regions compete with each other to attract industry, having firms compete with each other, and then letting the market sort stuff out. It's an unusual combination of lots of state intervention in particular sectors and in particular types of technology but also leveraging market forces to make sure that the national champions that emerge are ones that really have the capacity to dominate globally. That doesn't mean the money's necessarily been well-spent. We have no idea what the return on investment is for China. But for the rest of the world, and for the U.S. in particular, that's not really the point. The point is, is China going to succeed in becoming a leader in many of the emerging technologies? And the answer thus far seems to be, oh yeah.
China shock 1.0 was born with a built-in lifespan because it was about this kind of once-in-an-epoch transition of China from a Maoist centrally-planned economy to a market-oriented one. And once that transition was complete, the disruption that China had unleashed on the rest of the world via it becoming a market economy was kind of done. Now what we're living through is China's second phase of industrial development, in which the state, the Chinese state, is investing massively in new technologies. But it's doing this in a way that is allowing China to grab substantial market share in those technologies rather than just wasting money, as often happens with episodes of industrial policy.
One national security dimension is, if you're getting really good at all of these technologies, you're going to get really good at the defense technologies that utilize these technologies as inputs. The greater threat might be just in the space of AI and the ability of China to now mount an even more threatening cybersecurity apparatus that can be directed at the United States, can be directed at individual companies. Because if you're good at AI, you're good at trying to break down systems and manipulate them and take them over.
All the issues the United States is facing are the same as the issues being faced by our commercial allies. By the European Union, by Canada, Mexico, Australia, Japan, Korea. We want to be working in concert with them to figure out how we address China in a unified and therefore more powerful way. But we're not doing that. What we're doing is putting import tariffs on all of those countries, beating them up a bit, and diverting ourselves from the real task at hand, which is taking on China.
The second thing we want to be thinking about is fostering that sort of dynamic competition and much more aggressive innovation that we have accomplished at different moments in our history. And in many of those moments, the federal government was directly involved. In the beginning of the Industrial Revolution, we needed to spread the mechanized agriculture and new forms of industrial machinery around the country. We did that by creating land grant colleges, which are today some of America's finest public universities. And that was in kind of 1870s to to 1920s.
During World War II, we had to develop a whole bunch of technologies really fast. Jet propulsion, mass-produced penicillin, radar, radio communications, and the like. And the federal government basically worked with private industry, and what became federally-funded R&D labs to put that innovation cycle souped up speed. That whole process was mirrored with the way in which we developed the COVID-19 vaccine. Government working with industry, working with basic researchers to get the job done. And in between those two events, it's kind of what got us to the moon and back. So we have ample experience in this area. We just aren't thinking of the current moment as one that demands that sort of attention. And the argument that David Autor and I make is, no, this really is one of those moments.
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