Former U.S. Economic Official Warns: To Revitalize Manufacturing, Don't Treat China as a "Doomsday Threat"
Hello everyone, I'm your financial journalist. Today, we're going to discuss a very interesting, even somewhat “heretical” article.
What's the most popular slogan in U.S. politics these days? It's “de-China-ization,” “decoupling,” and “keeping China out.” Even the Secretary of Transportation wrote a letter criticizing Ford Motor for its partnership with Chinese company CATL, calling it an “overly close relationship” and a “betrayal.”
However, amidst this anti-China rhetoric, Brian Deese, former director of the White House Office of Economic Affairs and a key policy-maker during the Obama administration, published an article in Foreign Affairs that poured cold water on U.S. political rhetoric. His main point is stark: If you want to revive American industry and catch up with China's electric vehicle and battery technology, you can't shut China out. The more you reject China, the faster American manufacturing will decline.
This article is not just defending Ford Motor; it's also challenging the current U.S. foreign investment review process. Let me break down the article into five key points to explain what this former U.S. official is saying and what it means for us.
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1. The Current Situation: The U.S. is “Cutting Off Its Own Arms,” Excluding Both Allies and Competitors
First, we need to understand the context of Deese's criticism.
Recently, Secretary of Transportation Sean Duffy sent a harsh letter to Ford CEO Jim Farley, accusing the company of using technology from CATL in its Michigan battery factory and collaborating with Geely in Europe, claiming this tied Ford's future too closely to China and urging Ford to “de-China-ize” its operations.
Ford responded strongly, pointing out that the factory is entirely owned and operated by Ford, and the cooperation with CATL is merely a licensing agreement, with Ford bringing advanced manufacturing capabilities to the U.S., not relying on China.
Deese argues that this is not just a dispute between Ford and the Secretary of Transportation; it reflects a broader trend of “defensive industrial policy” at all levels of government in the U.S.
In simple terms:
Imagine you want to open a restaurant and make delicious food. You notice that your neighbor (China) has great recipes, so you ask them for the recipes or invite them to teach you how to cook. But then your boss (the U.S. government) comes in and scolds you, saying, “How dare you learn from them? They’re a competitor! You have to figure it out on your own, even if it means making bad food!”
Deese believes this “better to err on the side of caution” attitude applies not only to China but also to allies. For example, there are proposals to tax assets held by allies in the U.S., and Congress is considering taxing foreign capital inflows. This approach actually blocks American companies from accessing the latest technology and best management practices. The U.S. is trying to achieve industrial revitalization through isolation, which is logically contradictory.
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2. Historical Lessons: The U.S. Became Powerful by Being a “Super Imitator”
Deese spends a lot of space in the article looking back at history, emphasizing that imitation is the highest form of praise, and America’s greatest successes came from its ability to learn from others.
He cites two classic examples:
- DuPont’s Gunpowder: In the early 1800s, the U.S. needed gunpowder for warfare but lacked domestic technology. French chemist Jean-Pierre DuPont brought advanced gunpowder manufacturing techniques to the U.S., leading to the rise of DuPont as a chemical giant.
- General Motors’ Transformation by Toyota: In the 1980s, American cars were outperformed by Japanese cars. GM collaborated with Toyota, adopting Toyota’s lean production methods, which transformed a previously inefficient factory into the most efficient in the U.S. These methods became the standard for American manufacturing.
In simple terms:
America has never dominated the world with pure domestic technology. Its strength lies in its ability to absorb and adapt foreign innovations.
The current Chip and Science Act follows this logic: The U.S. is investing in companies like Samsung and TSMC to teach its workers how to make chips. If America can’t even learn from others, what’s the point of such laws?
Deese notes that China has done the same over the past few decades, attracting foreign investment to learn and then surpass its competitors. Now it’s America’s turn. If it wants to catch up with China in electric vehicles and batteries, the most realistic path is to adopt China’s approach: openness, learning, and absorption.
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3. The Real Challenge: The CATL Example—A Model the U.S. Needs
Deese focuses on the Ford-CATL partnership in Michigan. He argues that this project has been politically attacked because it’s too successful, making some uncomfortable.
The partnership has several key features:
- Clear Ownership: The factory is 100% owned by Ford, with no shareholding by CATL.
- Technology Licensing: Ford pays for the license and receives training from CATL.
- Long-Term Goal: Ford aims to eventually become independent of CATL’s technology.
Deese believes this is the model the U.S. should encourage: American companies should maintain control, with foreign companies providing technology, and the U.S. gaining expertise through practice.
However, the current CFIUS (Committee on Foreign Investment in the United States) is overly cautious, focusing on risks and often rejecting deals. In simple terms:
Imagine you want to borrow a neighbor’s ladder to fix your roof. The neighbor (CATL) agrees, you pay rent, and you ensure safety. After the repair, you return the ladder. But the community committee (CFIUS) says, “No, the neighbor is an outsider; what if they steal your privacy or control your roof?” They initiate a complicated review process that either delays the deal or discourages the company.
Deese points out that CFIUS only reviews equity acquisitions and leaves technical licensing agreements in a regulatory gray area. The IRS (Internal Revenue Service) has even threatened to revoke tax incentives for the Ford factory, citing “national security risks.” He calls this a case of “throwing out the baby with the bathwater.”
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4. Solutions: Focus on Benefits, Not Just Risks, and Establish a Tiered Approval System
Deese proposes a new regulatory framework that shifts from a “default refusal” to conditional approval:
- Differentiate between Allies and Competitors: Simplify reviews for allies (Japan, South Korea, Europe) and introduce more nuanced mechanisms for “high-risk countries” like China, Russia, and Iran.
- Adopt the FOCI (Foreign Ownership, Control, or Influence) Model: Use the Pentagon’s system for managing foreign defense contractors, where foreign companies have independent U.S. boards and security measures to protect sensitive information.
- Reframe Risk Assessment: Evaluate the net benefits of a deal for the U.S., not just the risks. If a deal creates jobs, enhances industrial security, and provides core technologies, it should be approved even with some risks.
In simple terms:
The current U.S. regulatory system is like an overly cautious security guard who rejects everyone. Deese suggests a more flexible approach:
- Allies should have simplified reviews.
- For foreign companies, establish temporary permits with restrictions (e.g., limited access to sensitive areas and independent oversight).
- If a deal enhances industrial capabilities, it should be considered worthwhile.
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5. The Democratic Shift and China’s Role
Deese’s article also reflects a subtle shift within the Democratic Party. While Democrats have traditionally favored multilateralism and free trade, they are becoming more pragmatic on security issues. His views represent a pragmatic faction within the party that believes ideology shouldn’t override industrial competitiveness.
He warns that if the U.S. continues to pursue anti-China policies without considering industrial realities, it will harm American workers and global competitiveness. Although the Trump administration was protectionist, it was more for political showmanship. If Democrats can find a balance between openness and security, they can be more effective in industrial policy.
Implications for China:
This article suggests that American elites are beginning to realize the costs of complete decoupling from China. China’s technology has become essential for American industrial advancement. The shift in U.S. policy may lead to more complex economic relations, with a focus on cooperation while managing risks.
In summary, Deese’s article is a call for a new approach to U.S. industrial policy that emphasizes learning from and integrating global technologies, rather than isolation. For China, it indicates that American elites are recognizing the value of Chinese technology and the need for a balanced approach to trade and security.
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This analysis highlights the complex dynamics in U.S. politics and the changing landscape of Sino-U.S. economic relations. It’s both a challenge and an opportunity for both countries as they navigate the new global economy.