To compete with China, the U.S. should admit more immigrants and lay off government regulation — Q&A with Clark Packard

One of the more depressing aspects of the current political moment in the U.S. is how Washington, D.C., seems determined to learn the worst and most paranoid lessons from Beijing when it comes to national security.

I moved from apartheid-era South Africa — I am an almost exact contemporary of Elon Musk, and we grew up miles apart — to China. After spending the first four decades of my life in these places, moving to the U.S. in 2015 gave me an extreme sense of liberation. You can start a business here with no one’s permission, you can call up the state governor and the president’s office and someone will talk to you, and you are generally left to make your own decisions when it comes to business.

But that attitude seems to be changing. Washington, D.C., is now infected with all kinds of proposals for anti-China legislation that would bar Chinese students, companies, and investors from the U.S., puts tariffs on imports from China, and does other things that restrict the free movement of goods and ideas.

That approach is “reflexively hawkish economically, scattershot, and woefully inadequate for the economic challenge that China presents,” argue Clark Packard and Scott Lincicome of the Cato Institute, in Course Correction — Charting a More Effective Approach to U.S.-China Trade, an essay published this month.

I spoke to Packard last this week about the essay. This is an abridged transcript of our conversation, lightly edited for clarity.

—Jeremy Goldkorn

How would you characterize the place of the Cato Institute in the American political spectrum?

Cato believes in market liberalism. I don’t know where that puts us on the political spectrum anymore. Traditionally, it’s been a small-government, very pro-market organization, but things are just so jumbled in U.S. politics that I don’t even know that those terms have much meaning anymore.

I’m a firm believer in global capitalism and free trade and immigration. That’s where I think of myself, and I won’t speak for Cato at large.

What makes you think that the current American approach to China is failing?

U.S. policy vis-à-vis China and the economy is off track. The U.S. imposed massive tariffs on imports from China.

We focused, to the detriment of the overall argument, on making bizarre purchase requirement requests of the Chinese, that they need to buy X amount of exports from the U.S. in an attempt to close the bilateral trade deficit, which was never going to work. But we ignored the structural issues, the IP theft and cyber hacking into commercial networks, and all of that.

On top of that, the U.S. has imposed export controls on semiconductors, the October 7 export controls. We’re looking at investment restrictions, outbound investment restrictions in China and certain industries.

On the domestic side, the U.S. has loaded up, sort of mimicking Chinese industrial policy. We’ve dumped a bunch of subsidies to semiconductor production to bring it back onshore. And I think all of those weaken the United States. And in my overall thinking about this stuff, the United States needs to worry a little less about China and worry more about itself. We tend to think that we have a lot of ability to shape what Beijing does. And I think that’s sort of a hubris among policymakers. I think that humility is really necessary, understanding the limits of American influence over Beijing’s decisions. In light of that, the U.S. should be taking steps to make our own economy and the economies of our allies stronger.

What would you say is the most important thing that the U.S. could do?

That’s a challenging one. I think the most important is to admit more immigrants into the country. If you look at the nexus of what the competition is about between the United States and China, obviously there are hard power concerns with Taiwan and all of that. A lot of it focuses on the nexus of national security and technology and international commerce.

But I think it’s pretty clear that immigrants are a superpower for the U.S. I think immigrants are…I think most U.S.-China analysts would say that that’s a very asymmetrical advantage that the United States has, the welcoming of immigrants. But I do think that our immigration system is broken.

I’m not an immigration analyst, but the more I read into the academic literature on the technological benefits and innovation driven by immigration, I think that that’s really one of the most important tools that the U.S. could have. The openness of the United States is unique among the large powers in the world, that we’re a nation of immigrants. That’s a superpower strength particularly vis-à-vis China in the technology space.

Right. In fact, specifically with regards to China, it feels as though we’ve been doing our best to actually chase immigrants and students away. The FBI’s China Initiative was, I think, extremely problematic and has resulted in a loss of some raw talent that has actually gone back to China because of fear of…

Yeah. A colleague of mine on the immigration side has shown that the U.S. has lost some really talented scientists, and China has gained…Those folks have gone back to China. And it’s not just China, right? The Trump administration oversaw a [huge] decline of international students enrolled in U.S. universities. And there’s some zero-sum thinking about, well, immigrants are taking the spots of Americans, and I think there’s probably some veiled racism there.

But the U.S. could be a beacon to attract people from all over the world, very talented foreigners. And those are the kind of folks that we need if the U.S. is going to outcompete China in the 21st century at the nexus of technology.

Can you talk about tech optimism and how you see the way that America should approach regulating technology, both its own companies, but also TikTok and other foreign companies?

I think it’s safe to say that the U.S. technology industry is, in many respects, the envy of the world.

That’s why Europe and China are trying to mimic it through subsidies and protectionism. And it’s at the epicenter of U.S.-China competition.

It’s not that I have some massive love of big technology. What I would say, though, is that those companies, the big technology companies in the United States are the organizations driving private R&D investment in the types of cutting-edge technologies that are at the forefront of the U.S.-China competition, whether that’s AI or quantum….If you look at Amazon, Alphabet, the parent company of Google, Intel, Facebook, Microsoft, Apple, I mean, those companies are massive in the global economy, and they drive so much investment into R&D and trying to figure out new technologies.

You’re seeing that with ChatGPT and AI explosion. That’s a separate conversation! But yeah, it’s odd that on one hand, the U.S. policymakers talk about the need to outcompete China, but by the same token, they want to hamstring our most globally innovative and competitive firms. And that I get a little queasy about.

If there are antitrust concerns about harm to consumers that happens as a result of the sheer size of these corporations, then that’s one thing. But I think there’s just a populist backlash against these companies that I don’t think is really helpful.

If you think that one of the most important things that the U.S. should be focusing on is outcompeting China, and that’s sort of the existential threat, then take steps to…I don’t want to subsidize those companies, but I also don’t want to kneecap them either.

That’s sort of where I come down, and I fear the populist sentiment across the country, there’s sort of a thirst for blood. I think that we’re going to end up, potentially, cooking the goose that’s laying the golden egg.

Do you think that fears in the U.S. about Huawei and TikTok are legitimate? And if so, what could the U.S. do about them?

I do think that there are legitimate fears. I am skeptical of both companies. I’m a little skeptical of the tool, the Restrict Act is what’s floating around Congress that would essentially ban TikTok. I don’t love that bill. Some of the lawyers that I work with across departments, we looked at the text in the bill and put out a blog post that was somewhat skeptical or critical of the Restrict Act.

If you want to ban TikTok, I think that maybe you use some other tool, but the latitude granted under the Restrict Act, I think, goes way too far. It enables all kinds of national security-related protectionism that we saw abused during the Trump administration. The Trump administration used national security as a pretext for more and more protectionism.

And that, to me, is…I always think of national security as the last refuge of the scoundrel. Anytime you want to get anything done, you just claim, “Oh, this is for national security,” and people have to step away from it.

That’s what the Chinese Communist Party does.

Yeah, exactly. Right. And that gets to [what you said before started recording] about the openness of the U.S. versus the sort of closed system in China. I tend to think that the U.S. system is preferable to the Chinese system. And so, I don’t want to see the U.S. mimicking that kind of national security-related restrictionism.

Nonetheless, you do think there might be cause for some kind of action about Huawei and TikTok?

I do.

But what frustrates me though about this debate is that there’s an asymmetry of information available.I’m a lay person, you’re a lay person, and we’re just sort of told, well, trust the national security experts. And I understand that they can’t divulge certain information, classified intelligence and information, but I just don’t think that the public is being made aware, the case is not being strongly enough made about the problems with Huawei and TikTok.

Instead, it’s just that they’re a “national security risk.” Okay, so how so?

I also understand that there’s a concern that there’s not a hard barrier between the parent company of TikTok and the Chinese government. And so, information and data could flow to TikTok. But I do believe that both are genuine, probably national security risks, or pose some sort of risk.

But in the U.S., we’re just going about dealing with them in a sort of crude and heavy-handed way?

Yeah, I think that’s exactly right.

You are an international trade lawyer. It would be remiss of me not to ask about your thinking on the TPP, now the CPTPP.

[The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is a free-trade agreement that was signed in March 2018 by 11 countries, after then U.S president Donald Trump withdrew from the original agreement known as the Trans-Pacific Partnership (TPP) in 2017.]

Yeah.

I was in Japan in early March, and I was over there talking about export controls, but also U.S. trade policy. I think the case for TPP grows stronger every day as Beijing becomes more assertive and more aggressive.

Beijing was ecstatic that the United States withdrew.

Other than the Iraq war, withdrawing from TPP was probably our single greatest foreign policy blunder of the post-Cold War era. I think the case for TPP grows stronger every day.

It was good on economics. It cut tariffs on imports and opened notoriously-closed Asian agriculture markets to American products, or would have.

It was good for setting standards. Part of it is the United States wants to sort of set the standards for how commerce is going to be conducted in the Asia Pacific.

But when you withdraw, you lose your seat at the table.

I think it was also good on geopolitics. If the idea is to offset China’s massive gravitational pull economically in the region and reorient supply chains out of China, then TPP was the tool to do that. [Leaving it] was a tragic mistake.

[And now] Beijing has applied to join CPTPP. And I hear all the time from governments in South Korea and policymakers in South Korea and China or in Japan and Taiwan that there’s a big lobbying effort underway to speed up China’s accession to CPTPP. And if China were to join, that’s the ultimate self-own.

The U.S. set the stage here for this thing as a tool to combat Chinese economic coercion and uproot supply chains out of China. And then you entrench China in the system that the U.S. designed and the U.S. doesn’t have any of the benefits. What I’ve made clear to policymakers in Asia that I talk to is that if that were to happen, then the U.S. would never rejoin.

But I also understand their argument. “We can’t wait around forever. China’s a massive market. And so, if you guys are serious about this, you need to get off the sidelines and start competing.”

I really would like to see the U.S. do that. And I don’t think that it’s a short-term proposition, but I think it’s possible in the medium-term. In the next five years, my hope is that policymakers sort of wake up and realize, wait a second, TPP was actually pretty well thought out. It wasn’t perfect. I had some complaints with it. But overall, I thought it was generally better than the status quo. And I think the case grows stronger for it every day.

How far out of the mainstream is your thinking on these questions at the moment?

Five years ago, I think I was firmly in the center. I do think that the ground underneath is shifting in the U.S. And that was one impetus for writing the paper was [the feeling] that the U.S. is marching down this path of closing off some of the avenues of commerce and immigration and investment — policies [that] have made the U.S. very wealthy, very powerful.

Perhaps we’re tilting at windmills. I understand that we’re outside the mainstream, but I think that it’s important that somebody make this case, somebody make the affirmative case for rules-based trade and immigration and optimism about technology. If nobody else will, then we will stand there. but again, I think it is important that somebody make the case.