🎙️ Voice is AI-generated. Inconsistencies may occur.
In 1990, as China opened itself to a more prominent role in global economic and political affairs, Deng Xiaoping famously admonished the country's leadership to "hide your strength, bide your time." On the eve of China's 20th National Congress, the U.S. would be well advised to take Deng's advice and shore up its own economic posture before taking a more aggressive stance toward China.
The National Congress will be more than a simple coronation of Premier Xi Jinping, who is expected to receive an unprecedented third term in office. China is suffering from an extended economic downturn with a weakened yuan and the apparent bursting of the country's real estate bubble. These domestic crises will serve to temper China's regional and global ambitions unless Beijing perceives a fundamental threat to its economic or territorial security.
China already senses such threats brewing, and with good reason. The dollar's strength against the yuan reflects both China's economic weakness and the Federal Reserve's desire to curb inflation. Taiwan's diplomatic status received fresh attention when Russia invaded Ukraine, and hawks from both sides of the aisle have sought to harden America's stance against what many in the West perceive as Chinese expansionism and what many in China perceive as long-overdue reunification.
The time may come for a more open confrontation with China over economic and security issues. For a host of reasons, that time is not now.
We cannot risk a confrontation with China that impacts our industrial base. Current U.S. policy seeks to continue a relationship with China predicated on the cheap importation of raw materials and finished goods ranging from manufactured items to pharmaceuticals. The dynamics informing this policy are not entirely under our control. In late September, China announced a major dollar-selling initiative designed to strengthen the yuan. While the two countries remain too mutually dependent for China to risk triggering a crisis in the dollar's valuation, a stronger yuan will increase costs for U.S. importers while supporting the value of goods exported from the U.S. To take advantage, the U.S. must continue to rebuild its own industrial base.
Our external supply chains are just as strategically important. For example, China seeks to build on its dominant position in the rare earths market by asserting itself as a major player in the production of semiconductors. The U.S. has already formed a bulwark against such a development, supporting semiconductor research and production at home through the CHIPS Act and holding talks with Japan, Taiwan, and South Korea—the world's largest chipmakers—about establishing alliances that frustrate China's attempts at becoming a world leader in a strategically critical field. Our other supply chains should pursue similar initiatives, both as a hedge against China's ambitions and as a way of developing resilience to the consequences of a more pointed economic confrontation with China.
Russia's invasion of Ukraine raised the prospect of similar Chinese action on Taiwan. President Joe Biden recently broke with tradition by affirming Washington's support of Taipei, but for all practical purposes, the U.S. position on the matter remains one of strategic ambiguity. That remains the most prudent approach to a notoriously prickly diplomatic issue. In the meantime, our policy toward Taiwan must answer to the simple fact that we would be hard-pressed to defend Taipei from either a blockade or an outright invasion. Taiwan has joined other countries near China in stepping up its purchase of weapons from the U.S., though delivery of those weapons has been delayed due to persistent, systemic backlogs. Facilitating those deliveries would substantially improve Taiwan's defenses without involving a direct clash with China.
Finally, China faces problems at home and abroad that threaten its ability to project economic and military power. Its population is aging rapidly, and its per capita GDP ranks below those of Romania and Panama. Meanwhile, its highly touted Road and Belt Initiative has failed, sometimes spectacularly, in many parts of the world, and with it China's ability to project soft power. The shock of Beijing's response to the 2019 Hong Kong protests, handling of the COVID-19 pandemic, and growing reputation as a bully in the cybersecurity sphere have also greatly damaged China's reputation.
Another leader may have captured the current situation just as well as Deng. "When the enemy is making a false movement," Napoleon is alleged to have said, "we must take good care not to interrupt him."
Todd J. Stein is a principal of Braeside Capital, L.P., a Dallas-based private investment partnership.
The views expressed in this article are the writer's own.
