Maintaining Supply Chains with China is an Olive Branch - America's Future

May 4, 2021

Policy

Maintaining Supply Chains with China is an Olive Branch

By: Connor O'Keeffe

Biden intends to review the integrity of U.S. supply chains. The Administration wants to “secure” supply chains from China in the name of national security. 

Supply chains may seem like a silly focus, but there is a real concern about rare earth metals mined and processed in China. As it so happens that these elements are found in our weapons. To remedy this vulnerability, an effort is underway to change suppliers and bankroll a domestic mining and processing industry. While this may seem reasonable on its face, reducing economic interdependence between the United States and China is not the best way forward.

One of the most critical insights of the public choice school of political economy is that there is no “national interest.” There are only individual interests.  

Dividing over a billion people into two groups, Chinese and American, and then assuming each group shares a single common set of objectives is a big mainstream assumption. Yet, it’s a poor form of analysis that will, at best, lead to overly simplistic policy prescriptions.

Within those two large groups there are some who are tasked with winning wars. These are the military leaders, defense bureaucrats, and politicians. Being reliant on an enemy for the same materials needed to fight them is indeed a concern.

But to project that onto every other American is a mistake. The concerns of most Americans lie not with China but with their careers, their families, and local communities. Their interests lie more in avoiding war than in winning one not worth fighting.

There’s a quote often attributed to Frederic Bastiat that says, “When goods don’t cross borders, soldiers will.” In other words, increased economic interaction between populations dramatically increases the cost of a conflict between those populations.

An enormous amount of trade occurs between China and the United States. Even in 2020, a year marred by an economic downturn, over $560 billion worth of economic exchanges took place between the two.

From that, we can gather that many of the goods Americans use in their everyday lives are produced in China. And a sizeable share of Chinese civilians rely on American customers to make a living. If war breaks out between the two, these exchanges will stop, making the conflict extremely costly, and fatal, to both sides.

Conversely, open trade between the two has a diplomatic effect. Allowing mutually beneficial exchanges to occur can be interpreted as an act of goodwill on the part of the U.S., and any step in the opposite direction carries the risk of provoking China. 

For those of us not aspiring for dominance in global power games, this is a very positive state of affairs, especially since both sides face vulnerabilities.

To many, this may seem like a naïve perspective in the face of a global existential threat. 

On the contrary, nothing is more naïve than the idea that clearing an easier path to war between two nuclear-armed countries will end well. The best path forward is to focus on repairing relations with China. Any policy that makes war more likely is a mistake.