Washington is panicking.
Step inside any think-tank briefing or congressional hearing on Capitol Hill, and you will hear the same anxious refrain: China is winning, the liberal international order is crumbling, and America must restructure its entire economy to fight back. The consensus is set. To survive the rise of Beijing, Washington believes it must abandon the free market, erect massive tariff walls, and use state coffers to fund domestic industries. Meanwhile, you can read related developments here: The Trillion Dollar Hostage Holding Pakistan Together.
This is not a strategy. It is a slow-motion capitulation.
By trying to beat China at its own game, the United States is abandoning the exact economic principles that made it a global superpower. We are trading dynamic, market-driven growth for a sluggish, state-directed economy. We are building a system of corporate welfare, bureaucratic red tape, and economic isolationism. To explore the complete picture, check out the recent analysis by NPR.
The prevailing belief that America must copy China's state capitalism to defeat it is a dangerous illusion.
The Peak China Myth Washington Bought Hook, Line, and Sinker
The entire foundation of current US foreign policy rests on a flawed premise: that China is an unstoppable economic juggernaut on an endless upward trajectory.
It is not.
China’s economic miracle is sputtering, ran aground by the structural contradictions of authoritarian capitalism. For decades, Beijing fueled its growth through raw capital accumulation, debt-financed infrastructure, and a massive demographic dividend. Today, every single one of those engines has stalled.
- The Demographic Implosion: China is aging faster than any society in modern history. Thanks to decades of the One-Child Policy, its working-age population peaked around 2015. By the end of this century, China's population is projected to shrink by hundreds of millions. You cannot sustain a global economic empire when your workforce is evaporating.
- The Debt Trap: China's local government debt is a black hole. Years of building empty cities, redundant high-speed rail lines, and highways to nowhere have left provincial governments buried under mountains of hidden liabilities. Total debt-to-GDP is pushing over 300 percent.
- The Productivity Stagnation: Under Xi Jinping, the Chinese Communist Party has reasserted state control over the private sector. They crushed their own tech giants, crippled the real estate sector, and starved dynamic private firms of capital to fund inefficient state-owned enterprises (SOEs).
I have spent two decades advising multinational corporations on supply chain logistics. I saw firsthand how factories in Shenzhen and Zhejiang operated at peak efficiency in the 2010s. Today, those same zones are plagued by capital flight, regulatory terror, and a demoralized youth culture characterized by "lying flat" (tang ping).
Yet, Washington is acting as if China is ten feet tall. Instead of letting Beijing choke on its own economic contradictions, the US has decided to mimic the very policies that are currently dragging China down.
The Industrial Policy Trap: The Failure of the CHIPS Act
Nowhere is this copycat syndrome more obvious than in America’s sudden obsession with industrial policy. The crowning achievement of this new consensus is the $52.7 billion CHIPS and Science Act.
The logic behind it sounds simple: Semiconductors are the lifeblood of the modern economy. Taiwan produces the vast majority of them. If China invades Taiwan, the US is cut off. Therefore, we must pay companies to build chip factories in America.
But government central planners are terrible at business.
When you hand out billions of dollars in state subsidies, you do not get cheap, efficient chip manufacturing. You get corporate welfare and political theater. I have watched semiconductor giants take these taxpayer handouts and immediately run into a wall of state-imposed inefficiencies.
+------------------------------------+ +------------------------------------+
| Free-Market Allocation | | State-Subsidized Allocation |
+------------------------------------+ +------------------------------------+
| • Capital flows to efficient firms | | • Capital flows to connected firms |
| • Focus on yield, cost, and speed | | • Focus on compliance and lobbying|
| • Driven by consumer demand | | • Driven by political mandates |
+------------------------------------+ +------------------------------------+
To receive CHIPS Act funding, companies cannot just build factories. They must comply with a laundry list of social engineering projects:
- Providing affordable childcare for construction and factory workers.
- Paying union-level prevailing wages.
- Sharing "excess profits" with the federal government if the facility does exceptionally well.
- Agreeing to strict environmental review processes that delay construction by years.
This is not how you build a competitive industry. This is how you build a sluggish, federally funded cartel.
TSMC’s factory in Arizona has been plagued by delays, cultural clashes, and soaring costs. Building a fabrication plant in the US is estimated to be 4 or 5 times more expensive than building the exact same facility in Taiwan. By subsidizing these plants rather than reforming the underlying regulations—like the National Environmental Policy Act (NEPA)—that make building anything in America impossible, Washington is just subsidizing national inefficiency.
The Autarky Illusion: Why Complete Self-Reliance Is a Fantasy
The second pillar of Washington’s new consensus is "de-risking" or "decoupling." The goal is to bring manufacturing home and build closed, domestic supply chains.
This is an economic fantasy.
No modern nation can be entirely self-sufficient without impoverishing its citizens. The global supply chain is not a luxury; it is the source of our prosperity. It allows countries to specialize in what they do best.
[Global Raw Materials] ➔ [Specialized Refining] ➔ [Component Manufacturing] ➔ [Final Assembly]
(Africa/LATAM) (East Asia) (Europe/US) (Southeast Asia)
Take the electric vehicle (EV) battery supply chain. You can build all the gigafactories you want in Michigan or Ohio, but if you do not have access to refined lithium, cobalt, nickel, and graphite, those factories are useless. China controls over 80 percent of the world’s rare earth refining capacity.
Even if we mined these materials in the US, environmental regulations make setting up refining facilities nearly impossible. To truly bypass China, we would have to rewrite our entire domestic regulatory code—something neither political party has the stomach to do.
Instead, we slap 100 percent tariffs on Chinese EVs.
Who does this protect? It does not protect American workers; it protects Detroit auto executives who have failed to innovate. It forces American consumers to pay double the price for inferior technology, slowing down the adoption of clean energy and making our domestic industries less competitive globally. If an industry requires permanent tariff barriers to survive, it is not an asset; it is a liability.
The Real Way to Win: Double Down on Liberal Capitalism
If we want to defeat an authoritarian, state-directed economy, we do not do it by becoming more like them. We do it by becoming more like us.
We need to stop playing defense and start playing offense. This means unleashing the chaotic, disruptive, and highly productive forces of free-market capitalism.
1. Radically Deregulate the Supply Side
The biggest bottleneck to American competitiveness is not a lack of government money; it is the inability to build anything. The US cannot build high-speed rail, power grids, housing, or factories because of a thicket of local, state, and federal regulations.
We must reform NEPA, streamline the permitting process, and strip away the veto power that NIMBYs and environmental groups hold over infrastructure projects. If we make it cheap and fast to build in America, capital will flood in naturally without needing a single cent of taxpayer subsidies.
2. Weaponize High-Skill Immigration
China's greatest weakness is its closed society. No one is risking their life on a raft to get into China.
America's greatest superpower has always been its ability to attract the world’s smartest, most ambitious people. Yet, our immigration system treats highly skilled engineers, scientists, and entrepreneurs like criminals. We educate the brightest minds from across the globe at our top universities, and then we force them to leave the country because of arbitrary visa caps.
We should hand a green card to every foreign national who graduates with a STEM degree from an accredited American university. If we drain China’s best brains, we win the technology war overnight.
3. Return to Open Markets
Instead of retreating into protectionism, the US should lead a massive, open-market trading bloc that excludes China. We should have stayed in the Trans-Pacific Partnership (TPP). By abandoning multilateral trade agreements, we left a vacuum in the Asia-Pacific region that China gladly filled.
We must lower trade barriers with friendly nations in Southeast Asia, Latin America, and Europe. This creates a diversified, resilient trade network that naturally isolates Beijing without raising costs for American consumers.
The Hard Truth of the Market
Let us be honest about the downside. Pure, unadulterated capitalism is messy.
It means some domestic factories will close. It means some jobs will be displaced. It means we cannot guarantee that every town in America will have a bustling manufacturing sector.
But trying to freeze the economy in amber through state subsidies and tariff walls is a guaranteed recipe for long-term decline. It creates a zombie economy, populated by politically connected companies that survive on lobbying rather than innovation.
China’s rise was fueled by its move toward markets in the 1980s and 1990s. Its current stagnation is the direct result of its return to state control.
It is supreme irony that just as Beijing is proving the limits of state-directed capitalism, Washington has decided that state-directed capitalism is the future. We are copying their failure.
We do not need to adjust to China’s global rise by building our own version of the Politburo. We need to tear down our own bureaucratic barriers, open our borders to global talent, and trust the chaotic brilliance of the free market.
Anything less is a slow surrender.
