Bloomberg New Economy: How Elon Musk Won Trump’s Trade War With China

The deal that key Chinese leaders struck with Elon Musk is a perfect illustration of why the Trump administration’s multi-faceted crackdown in Beijing on trade, technology and security has largely failed. And it also shows why the team behind US President-elect Joe Biden will have to find a radically different approach to compete with America’s most powerful rival.

To get the billionaire CEO of Tesla and Space X to build Giga Shanghai amid Trump’s trade war, they showered him with special perks and favors (like tax breaks and cheap loans) and granted his organization an extraordinary access to power. Apparently, Tesla’s local unit has a channel to President Xi Jinping himself, according to Bloomberg Businessweek. What did Musk get out of the deal? Privileged access to the world’s largest electric vehicle market and unprecedented wealth.

Thanks in large part to China, it now the richest man in the world.

This week in the new economy

What did China get? Advanced technology. Musk came with research and development, not just the production lines. Its presence has forced local competitors to improve their game. Chinese automakers have never been successful in winning the domestic combustion engine vehicle market against American, German and Japanese brands. Now, With Musk’s help, the country is poised to dominate the new era of electric mobility.

So much for Trump’s trade war: The U.S. trade deficit with China is about the same today as when the Republican took office. At the same time, writes Derek Scissors, resident researcher at the American Enterprise Institute, US investment in China now probably exceeds $ 1 trillion, much of which was invested during Trump’s tenure.

This is how China wins the biggest Asian competition with the United States, which will define the start of the 21st century. As the US political system crumbles, China’s leaders focus on attracting foreign technology, the key to what they call “a global national power,” which means both economic and military power.

Trump’s somewhat more successful attempts to push China back into the security arena – for example, US warships now regularly sail on Chinese man-made islands bristling with military installations in the South China Sea, however, faced realities similar to those it faced economically. China’s rapid acquisition of technology has dramatically altered the balance of power in the Western Pacific, a fact that has been evident to US military strategists for some time.

In his essential book “The Kill Chain, ”Christian Brose, former director of personnel for the Senate Armed Services Committee, describes how the Information Age has bypassed much of the US military. To cite just one example, the F-22 and F-35A fighter jets still rely on the radio pilot to share basic data; their embedded software cannot talk to each other. Meanwhile, China is planning fully autonomous swarms of intelligent combat drones while gearing up for an “AI arms race,” a “quantum arms race” and a “gene-editing arms race. , A “genetically modified arms race,” which will produce biologically enhanced warriors for a new military frontier. In all of these areas, China is catching up quickly or has already left a shaky America in the dust.

“The problem is that America is play a losing game, ”writes Brose.

It is this dilemma that the new Biden administration now faces. A test in Foreign Affairs by Kurt Campbell, Biden’s new Asian tsar, and Brookings Institution researcher Rush Doshi, acknowledges the huge scale of challenge.

Among its prescriptions is a massive investment in the kind of weapons China has long deployed, including rockets and missiles; to disperse American forces more widely in the region since the American military bases are now sitting ducks; and encourage new military and intelligence partnerships between states in the region.

In the economic realm, Campbell and Doshi focus on America’s role in strengthening supply chains, standards, investment regimes, and trade agreements.

“Negotiating Beijing’s role in this order is the the most complex element of the overall effort, ”they write, with considerable understatement.

Will the Chinese leaders adhere to such an arrangement? Their ultimate goal is to negotiate Washington’s exit from the current Asian order – or push it back – and then establish a new organizing principle based on Chinese preeminence. Beijing’s ambition is fueled by China’s irresistible allure large consumer markets.

Xi’s membership in Tesla is part of China’s larger strategy. Of course, there is no guarantee that Musk will be successful in his largest market outside the U.S. It is possible that he will be ousted once Chinese competitors catch up with Tesla, or that he finds himself caught in the crosshairs. American-Chinese technological competition and being forced to choose sides. For now, however, he’s all-in.

“I love China,” Musk said in a 2019 meeting with Prime Minister Li Keqiang, who offered him a residential green card.

__________________________________________________________

Do you like turning points? Subscribe to Bloomberg.com for unlimited access trusted, data-driven journalism and get expert analysis from exclusive subscriber-only newsletters.

Bloomberg Money Stuff: At the beginning of 2021, there‘Great news for fans of Bloomberg columnist Matt Levine and the popular Money Stuff newsletter. Levine is back from leave and once again offers readers his daily take on Wall Street and the world of finance. register here.

Download the Bloomberg app: It is available for iOS and Android.

Before being here, it’s on the Bloomberg terminal. Find out how the Terminal provides insight and analysis that finance professionals can’t find anywhere else. Learn more.