China isn't going to change. It's time to break some of our economic ties

There is a general and bipartisan consensus that the engagement approach to China has come to a dead end.

Engagement was the bipartisan paradigm that guided U.S. relations with China since the market reforms of Chinese leader Deng Xiaoping in the 1980s. The belief was that the benefits of trade would give China a stake in, and thus engender its support for, a U.S.-led, rules-based international order.

And there was a hope, even an expectation, that rising prosperity would lead to internal political liberalization in China.

Irrespective of how realistic the engagement policy ever was, its inapplicability to strongman Xi Jinping’s China is pretty much plain to all. Whatever the goals of Xi’s China are, being part of a U.S.-led, rules-based international order isn’t among them.

And far from liberalizing, Xi is tightening the grip of the Communist Party on every aspect of Chinese life.

So, what should replace engagement? There has been a lot of general talk about decoupling the U.S. from China, particularly economically. But few specifics.

Commission offers a useful start

I don’t know that the U.S.-China Economic and Security Review Commission would describe what it recommends in its latest report as decoupling. But it provides a raft of specific steps that could fairly be placed under that rubric.

The commission is a bipartisan group of experts set up to advise Congress on China relations. Support for, and interest in, its work is also bipartisan in Congress. It’s one of the few remaining oases of bipartisanship in Washington.

On economics, the commission is mostly worried about the outflow of capital from the United States to China. It cites the blurring in China between the state and private business, and between business and the military.

Because of this, there can be no certainty that private U.S. investment in China won’t be used to underwrite enhancements to China’s military and industrial capabilities that threatens U.S. interests. The commission recommends various hurdles and disclosure requirements for such investments.

Our goal should be to protect the U.S. economy

I think this puts the emphasis in the wrong place. Instead, the emphasis should be to insulate the domestic U.S. economy from China to the maximum extent possible. For both capital and consumer markets.

The commission recommends that publicly traded U.S. companies be required to disclose if there are Communist Party committees in their Chinese operations. That’s increasingly a requirement of doing business in China, even for foreign-owned enterprises.

The disclosure requirement should go further. Given the lack of a rule of law to protect property rights in China, all Chinese operations should be treated as a risk factor, subject to reporting disclosure and analysis.

Stock index funds increasingly include Chinese companies. The commission recommends additional regulation of what corporate forms are included.

Instead, index funds offered in the United States should exclude, by law, any Chinese company. Small investors seeking safety shouldn’t unwittingly be making investments in China, which are intrinsically at greater risk.

Tariffs should be set to move supply chains

The commission recommends new legislation giving the president authority to take action to protect critical supply chains, including requiring the development of alternative providers to Chinese ones.

However, the president already has way too much unilateral authority on trade. And dividing supply chains between the critical and the noncritical is a Talmudic task.

A broader approach is in order.

The Biden administration has kept the Trump administration’s tariffs on Chinese goods, which average around 20%. That hasn’t been enough to make a major dent in the flow of Chinese goods into the United States.

China, because of its size and inimical system of state capitalism, should be a singular exception to free trade. Tariffs should be set at whatever level actually moves supply chains elsewhere.

The future doesn't belong to China

There’s a tendency in the United States to regard China as much more economically advanced than it really is. China’s GDP per capita is a third that of the United States. It is less than Mexico’s.

Xi’s approach of state economic control and repressing more than a billion people in perpetuity won’t work. The future does not belong to China.

In the present, insulating the American domestic economy from China should be the priority. The decoupling discussion and policy development needs to accelerate.

Reach Robb at robert.robb@arizonarepublic.com.

This article originally appeared on Arizona Republic: China won't change. It's time to decouple our economies