Gary Busey

I read Noah Smith @Noahpinion on China sometimes, because he is one of several prolific content creators here who represent a particular school of thought on China which I need to understand deeply. Specifically about Noah, he’s obviously smart and capable of making a persuasive argument. And to be fair, I am constructive on some of his China diagnosis more than some of my criticism of him might suggest. But when it comes to China details, Noah repeatedly illustrates a problem I see across American policy commentary: intelligence and confidence substituting for learned experience, with some consequential gaps between explaining what China does and understanding what it means. Let’s looks specifically at several of his recurring arguments, which is the reason for this post. First, overcapacity. Noah argues that China’s system of cheap capital, subsidies and relentless investment produces chronic overcapacity, forcing Chinese companies to export the resulting surplus abroad. There is plenty of truth to this. China has unquestionably overinvested and wasted staggering amounts of capital. But “overcapacity” describes the financial condition better than it describes the industrial outcome. What did all that supposedly excessive investment actually buy? Factories. Engineers. Suppliers. Tooling. Infrastructure. Process knowledge. Logistics networks. Battery ecosystems. Automation expertise. And an extraordinary ability to manufacture complicated products quickly, cheaply and at scale. China’s system can be colossally wasteful and devastatingly effective at the same time. Americans have enormous difficulty holding those two thoughts in their heads simultaneously. Second, subsidies. Noah puts considerable weight on subsidies and below-market financing in explaining Chinese competitiveness. Again, fair enough. But showing that BYD benefited from industrial policy doesn’t make BYD less capable. Calling Chinese EVs subsidized doesn’t make them worse cars. Explaining how China created its battery ecosystem doesn’t make that ecosystem disappear. Subsidies can help create capability. They cannot indefinitely counterfeit it. Eventually somebody has to engineer the battery, design the production line, manage thousands of suppliers, manufacture the car and sell something customers actually want. China can now do those things exceptionally well. Explaining why your competitor became formidable is not a strategy for competing with them. Third, Noah worries that Chinese exports could deindustrialize America and Europe, including industries the U.S. might need in a military conflict. This is one of his stronger arguments, and I largely agree with the premise. Where I part company is the reflexive leap from vulnerability to exclusion. His strategy recommendations are pretty counterproductive. Protecting American companies from Chinese competition is not the same thing as making American companies competitive. Tariffs can be useful. I support them when they buy time and create leverage to rebuild American capability. But tariffs without capability acquisition risk creating a Galápagos economy: American companies protected inside their home market from competitors they increasingly cannot beat elsewhere. The better question is: *What does China know how to do that we no longer do—or cannot do nearly as efficiently—and how do we acquire those capabilities in the near term?* That question leads to a very different industrial policy. If Chinese EV, battery, solar, robotics or advanced-manufacturing companies want access to the American market, use tariffs and market access as leverage to make them manufacture here, employ Americans, build American supply chains, partner where appropriate with American companies, and transfer manufacturing know-how—while drawing very hard lines around data, critical infrastructure and genuine national-security risks. (1/2)