China Will Lose, Unless We Help Them Win

I worked in the People’s Republic of China in the late 1980’s, just as they were attempting to liberalize their economy.  It seemed a time of great promise.  The Soviet Union was falling and China seemed determined to avoid the same fate and so sought a soft landing away from communism.  It seemed to be working for a while.  Sure the government remained quite centralized, but the economy was liberalizing rapidly.  But it was a shell game, three-card monte, a trick.  A way to worm their way towards major power status without direct conflict.  President Trump understands this and is fighting back.  Democrats, unfortunately, don’t get it just yet.  And so China is trying the same game in Trumpian terms.

When I worked there, they fundamentally did not understand how marketplaces work.  I still don’t think they do.  Let’s build the picture.  If you are paying attention at all, you know the EV market is dying, rapidly.  For lots of reasons, but principle among them is that the Trump administration has rolled back government incentives for them.  The incentives have been plentiful – aimed at makers and consumers.  They created a marketplace, but now that they are gone and the market is disappearing because the market did not really want the things to begin with.

Which brings me to this essay about how China is “really free.”  The point of the piece is that since China sets aside regulation on a whim it can move much faster than a western economy.  Since I work in the environmental field, I can hardly argue, China is filthy and people die daily in the filth, but the economy booms.  That’s a moral problem for sure.  But that is not what I am really interested in about the piece.  Rather, as an example, the piece uses a new tech for the processing of low-grade aluminum ore (bauxite) that enables the recovery of rare earths from the same ore.  You know, the same rare earths so prized these days because they are necessary components of batteries and other tech.  China rolled out the red carpet not because high grade aluminum ore is hard to find – it’s not, but because of the rare earth recovery.  They are betting big on the rare earth market that they already largely control.

Rare earths are necessary in all tech, but the amounts used in smart phones and other tech devices is minimal.  For the rare earth marketplace to burgeon as they are betting it will, there have to be EVs and other very large scale consumers of battery power – like storage facilities for when solar and wind are off line.  A smartphone uses mircograms of that stuff – an EV uses thousands of times more.  Therefore, China is betting big on the artificial marketplace for the EV.

My point is, the only way China’s big bet pays off significantly is if the U.S., and other western nations, return to policies that create a market where none actually exists.  (Solar and wind generation are in the same state the EV market is – no demand absent government subsidy.)  In sum, China has bet on a centralized, controlled economy.  That’s what killed the Soviet Union and it is going to kill China, if we but let it.  And it is centralized control of our economy that they are betting on.

The so-called “affordability crisis” can be laid directly at the feet of all the money Biden administration printed to provide the subsidies that created that artificial marketplace.  I don’t think we are going to repeat that mistake for a few generations now.  If we do we are handing China the win and pricing ourselves out of existence.