Industrial Policy, Overcapacity, and U.S.-China Trade: A Conversation with Cambridge’s Jostein Hauge
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Welcome to the Cynical Podcast, the weekly discussion of current affairs in China. In this program, we’ll look at books, ideas, new research, intellectual currents, and cultural trends that can help us better understand what’s happening in China’s politics, foreign relations, economics, and society. Join me each week for in-depth conversations that shed more light and bring less heat to how we think and talk about China. I’m Kaiser Guo, coming to you from my home in Chapel Hill, North Carolina.
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Be sure also to check out the new China Talking Points, our new show. It’s available on YouTube and streaming live every other Wednesday. I’m shocked at how blatantly accepted it’s become to hold anti-China views in the West. My guest today has written more than once on X, I guess, nay, Twitter. That sentiment, something with which I absolutely agree, certainly caught my attention. It’s really validating to hear someone who isn’t steeped in the whole world of China analysis, who has a little distance, but who works in a field that is certainly adjacent and wholly relevant, to hear somebody like that saying this about the state of the discourse on China in the West.
Yeah, the West, it’s a problematic word, but here and pretty much whenever I use the word, I mean Western Europe, Great Britain, and its colonial offshoots. The author of that tweet was Jostein Halga, a Cambridge political scientist whose focus is on development studies. I started exploring some of his work. I read his book, The Future of the Factory: How Megatrends Are Changing Industrialization. I started paying much closer attention to how he was contributing to conversations online about trade, about overcapacity, about industrial policy, and the Chinese political economy. And I really liked what I saw.
Since this show is about how we think and talk about China, and in Jostein, I saw somebody who was willing to challenge what he was seeing out there and who, by my lights, models a pretty darn good way to think and talk about China, I reached out. And happily, Jostein was able to make time. And so here he is, Jostein Halga. Welcome to Seneca. Thank you for having me, Kaiser. It’s a pleasure to be here. It’s an honor to have you. Since this is your first time on the show, your work might not be super familiar to a lot of our listeners. Perhaps you could do a little bit of a self-introduction and talk about maybe how you started wading into the China conversation.
Yeah. So my work is at the intersection of development economics and international political economy. I have a special interest in the role of manufacturing and production in the economy, especially internationally, and obviously keeping an eye out on countries that are industrializing fast. I’m very interested in the process of development as a process of industrialization, right? And also—so China, obviously. China, obviously, yeah. The role of trade in that. So although I don’t fall within the China. studies club, right, or area studies specifically focusing on China. Over the years, I’ve really become interested in what’s happening in China in terms of industrialization, industrial policy, the role of the state and economic change, China’s changing role in trade, and so on. So that’s really my segue into China.
So you’re a son of eternal darkness. You’re from Northern Norway originally, huh? A son of eternal darkness during the winter and a son of eternal sunshine during the summer. Yeah. And then you’re now in Cambridge. So, I mean, it must seem positively bright and sunny compared to where you grew.
Yes. I don’t understand why people complain about the bad weather in the UK. I really don’t. It’s amazing. Yeah. Well, people will complain as they do, as you’ve noticed. You said you were shocked at how completely normalized anti-China sentiment is in Western discourse. I wanted to start with that and talk a little bit about it. It’s something I’ve talked about an awful lot and that I think many of us inside the field also lament. But, as I said, it’s good to hear from somebody who isn’t just so immersed like we are.
So what do you see? This is a tough question, but what do you see as the root causes of this mainstreaming of hostility? How much of it is grounded in economic anxiety versus ideological antagonism or just plain old great power competition and fear of being surpassed by a peer competitor? What is it?
Hmm. I think it’s a mix of all those things, but I want to start with culture and the perspective that people come with based on where they are from, where they grew up, and what they’ve seen in the world. I work on development, and I’ve been in a lot of countries. I’m especially interested in seeing developing countries emerge economically and politically. Sometimes, there is a bias, a subconscious bias, especially among people in wealthy countries, that the natural state of affairs is that the wealthy countries should be on top of the world—economically, politically, culturally. It’s a little bit questioned, but I think it needs to be more questioned. So I think that’s part of it in Northern Europe and in the United States.
Yeah. It’s just sort of this assumption that this is the natural order of things, right? Yes. This is the natural order of things. And we should get deeper into that during this conversation—how the world economy is really organized by and for the wealthy states. But, as you say, of course, this also has to do with China emerging as a competitor and as a threat.
Right. It seems like in the wealthy part of the world, we’re kind of okay with the idea of development and eliminating poverty, as long as it doesn’t threaten us in economic terms as competitors. Right. I think that because China is now emerging as an economic threat in some ways, I think China’s, as you know from what I’ve shared, served the world economically in many ways. But this aspect of China emerging as an economic threat, especially to the United States, I think is fueling these anti-China sentiments.
Yeah. I totally agree with you. I actually think that the ideological component of it is sort of an afterthought. It’s sort of tacked on as an excuse to justify often what are fundamentally psychological anxieties. I think that the ideology thing can be pretty quickly dispensed with. There are plenty of people who seem to be championing some form of anti-democratic authoritarianism who still turn that kind of autocracy versus democracy lens on China. There are plenty of people who are perfectly fine with other communist party-led states, especially Vietnam, and then get all angry about China.
But I imagine you share my belief that this anti-China narrative has impaired the West’s ability to look at China and its development objectively. How, in your view, has this discourse really shaped the perception of your views on China’s development model, especially within Western academic or policymaking circles? What kinds of misconceptions do you find most prevalent? Do you end up taking up a lot of your time just countering these prevailing views?
Yes. To some degree, I do try to counter these prevailing views. We can talk about some specific examples. I like to go into some specific examples that I find useful to discuss. For example, I read this New York Times article by Brad Zetzer, and he described China as the worst trading partner. you could have, right? Because China exports a lot and China will take over markets, right? And China has come to dominate a lot of aspects in trade. Sure. But from development theory, we’re taught that if a country wants to rise up and develop economically, they need to focus on export-led development. They need to focus on export-led growth. Right.
Right. And with this, this term of industrial overcapacity has emerged. That’s, I think, one good example of this, that China is accused of having industrial overcapacity, producing at industrial overcapacity. What does that really mean at its core? It doesn’t really mean more than producing more than consumers, consumers, consumers, consumers, right? Now, firms, consumers outside of China have been very, very willing to engage in trade with China. Right. So what are we actually talking about here?
Right. I’m sure you could convince me that in some sectors, it makes more sense to talk about industrial capacity than others. But one sector that has gotten a lot of attention is renewables. And in that sector, in my view, it makes no sense to talk about overcapacity of production of renewable energy when we’re in the midst of a climate catastrophe and disaster.
Right. I couldn’t agree with you more. Right. Yeah. I mean, that’s one area that they ought to leave out of this whole overcapacity conversation.
Yeah. You know, another really important area to talk about is technology transfer, right? How China has developed its technological capabilities and how we talk more and more now about technology theft rather than technology transfer. Right. Right. If you want a world of shared prosperity, if you want a world where today’s developing countries are able to catch up, they need to develop domestic technological capabilities and you need to see some technology transfer from wealthy countries to poorer countries. Right. Of course.
And China, in my view, has developed some clever devices in terms of transferring technology from the wealthy part of the world. Right. This is not to say that China doesn’t have an excellent innovation system. I think it does. But for example, its policies of joint ventures with foreign-owned companies have been extremely useful.
Right. Yes. And you know, in the midst of this discussion about industrial overcapacity, about technology theft, these kinds of accusations that are coming from mainly wealthy countries toward China, we don’t hear too much about how a lot of Western-based corporations have benefited tremendously from the integration of China into the global economy.
Right. That’s right. I think Apple is a really good case in point. Probably the foreign company that has made the most profits in China in the last 15 or so years out of any foreign company. Right. And they’re completely dependent on China and its supply chains. In many ways, the rise of China into the world economy, especially after its entry into the World Trade Organization in 2001, has increased the structural power of certain US corporations in the global economy.
There’s a really good scholar at King’s College London. His name is Sean Starrs. He did an interview in Jacobin Magazine recently where he talked about this, explaining how the rise of China into the world economy, the integration of China into the world economy, globalization of China has really allowed a lot of Western-based corporations to expand their power.
Yeah. Yeah, absolutely. I mean, it feels like it’s impossible to maintain a kind of critical but not hostile perspective toward China’s political economy in this environment. It’s hard for scholars to navigate the space without being accused of being complicit or naive.
How do you compare this moment with past historical periods of economic rivalry? You know, Japan in the ’80s obviously comes to mind. I mean, in terms of the rhetoric, in terms of the assumptions about a threat of industrial competitors, is this something entirely new or does this rhyme with historical precedent?
In many ways, it’s completely unprecedented. There are different ways of looking at it. If we look at China’s share, for example, of global manufacturing output and how that’s changed in the last 25 years or so, that’s unprecedented.
I mean, if I remember correctly, it went from something like 6% of global manufacturing at the eve of WTO accession to, I think it’s like 40% now? I think it’s a bit over 30% now, and it might get 40% very soon. So that’s completely unprecedented in that timeframe.
I was actually looking at this specific question in terms of, have we seen a country in the last two, 300 years, sort of after the industrial revolution actually emerge so fast on the global stage, right? We’ve seen countries that, based on their own kind of domestic industrialization… and development, have developed domestic industries rapidly, but taking over global manufacturing, right? Or at least parts of global manufacturing. I still think it’s more evenly divided between China and some other countries in the global stage than a lot of people think. But if we look at China’s share of global manufacturing, you had the US in the late 1800s, but that was sort of developing from 15% of global manufacturing to 30% from 1870 to 1910. So they started at a higher base.
That’s, I think, actually the closest kind of rapid surge you’ll find in the world economy when the US really caught up with the rest of the world in the late 1800s. So it is a completely different case than Japan. I mean, I would certainly agree with that. In your book, you talk about how successful industrialization has often relied on state coordination. In the 1980s with Japan, there was all this finger pointing about industrial policy. Miti, the Ministry of International Trade and Industry, became kind of the villain in the American telling.
How do you evaluate China’s evolving industrial policy through the historical lens? This industrial policy is one of these things where it strikes me that the US has often practiced straight up industrial policy or aspects of it. But it always remains kind of in a state of denial about it, at least until recently. I mean, now with the Chips and Science Act and the Inflation Reduction Act and the infrastructure, all that stuff, it’s a little too obvious to be denied.
Sitting outside of America, as you are watching this country from the other side of the Atlantic, get completely worked up over China and really begin to adopt the same sorts of measures it condemns in them. What does that look like? So how do you evaluate industrial policy and the American sort of, frankly, hypocritical attitude about it?
There is a really good book here. It’s called Bad Samaritans by the Korean economist Ha-Joon Chang. He writes about how, you know, the rich part of the world, today’s rich part of the world used industrial policy and had active state policies to kind of climb up the ladder of development. Then they kind of kicked away this ladder when they climbed up and sort of preached free trade to the rest of the world. That book, Bad Samaritans, is kind of a popular version of his former book, Kicking Away the Ladder.
It strikes me they’ve kicked away another ladder now with free trade. Now, you know, that you’ve used free trade. It’s like, no way, we no longer believe in free trade. They no longer believe in free trade because it no longer works for them, right? Right. But I, you know, on industrial policy, I should be clear that I have a relatively wide understanding of industrial policy, which is, you know, a policy or state intervention for the purpose of long-term development and productivity growth in the economy, kind of targeting specific sectors to make this happen.
But it’s about state intervention in the economy. That’s kind of the essence of what we’re talking about when we’re talking about industrial policy. I would go as far as to say that you haven’t seen any instances of successful development without some industrial policy. Sure, industrial policy has failed and can fail and will fail, but without industrial policy, failure is more or less a guarantee.
So you need some industrial policy to develop your economy in the long term. We saw this early on in the United States. Alexander Hamilton, you know, that’s a figure that is extremely relevant now because he was a fierce supporter of the use of industrial policy in America in its early industrialization phase. We saw it in Europe, Korea, Japan, and obviously China now.
You can trace back industrial policy in China for decades, but obviously their industrial policy has been and is still very, very strong. In the United States, we kind of saw a return of industrial policy strongly during Trump’s first term, continued under Biden with the Chips Act, for example, and to some degree still obviously exists because trade policy is part of industrial policy.
I would also add things like the Stargate project, $500 billion for that. That’s a very significant amount. Yes, I mean, Stargate to try and really maintain their dominance in AI. On that note, you know, it was very funny to see how Sam Altman, the CEO of OpenAI, was complaining about China emerging as a competitor because they compete unfairly by getting tons of state support. But then, of course, he doesn’t mention the Stargate project, which is basically billions of dollars to try to… Ensure that these American companies are dominant in the AI scene. That’s right. So let’s look at China’s industrial policy.
Really, in the last decade or so, China has definitely emphasized supply side structural reform. It’s shifted, especially, with the rise of sectors like EV and green tech, to focus on this. They talk about quality forces of production. What do you make of this approach to industrial policy? Is this something that we’ve seen before? Is this something entirely novel?
There are elements of it that we’ve seen before. I’d like to start with state ownership in the economy. You can have industrial policy where the state kind of tinkers in markets, but doesn’t own that much. But in China, the state owns a large aspect of the economy. I’m thinking especially of state-owned enterprises.
The number of state-owned enterprises in China, if I’m not mistaken, is somewhere between 300,000 and a million or even 2 million. It’s hard to say, but there are a lot of state-owned enterprises in the economy. That’s been a part of China’s industrial policy for a long time: to actually have state ownership in the economy and to also control the financial system and control credit guidance.
They’ve also used these state-owned enterprises in a smart way to try and go into joint ventures with foreign companies when they came in sort of in the 90s and 2000s. When you use joint venture requirements, for example, or local content requirements, this enhances the chance of technology transfer. That’s been a really important aspect of China’s industrialization process.
The use of state-owned enterprises, some local content requirements, and joint venture requirements are also things we’ve seen in South Korea during its industrialization. We’ve seen that in Japan. So you can see elements of these so-called East Asian tiger economies that developed from the 60s to the 90s reflected in China as well.
But obviously, we’re paying a lot of attention to China now because China is a country of 1.4 billion people. You notice when a country like that industrializes fast, the scale is just massive. It’s historically unprecedented. But as you say, it’s these uneven power relations that are really very much embedded in global value chains. China is navigating those well and maybe even altered those power structures as it climbed up the value ladder.
Is it exerting the same kind of power on less developed states that it once chafed under when it was on the receiving end of these powers? In other words, in its own supply chain ecosystem, is it now that dominant power? Is it doing unto others as it had done unto it?
Oh, that’s a good question. In some ways, you’re also asking me here, is China a fully developed country or is it not? The answer here is yes and no. Is China one of the most dominant countries in the global economy, or is it less dominant in some ways? Yes and no. I’ll explain how I see it.
You still see that in the largest global value chains of manufactured products, mostly US-based firms are lead firms. For example, Huawei is not as dominant as Apple in the global economy, right? You don’t see manufacturers in the US working on producing Huawei phones. You see it the other way around still.
So, China is still kind of quote unquote subservient in some manufacturing ecosystems to especially the United States. But that’s starting to change rapidly. If we have a conversation five years from now, I think my answer would probably be different.
You see Chinese brands emerging, as we talked about Huawei. BYD is now the largest EV producer in the world, having surpassed Tesla, although we still don’t see too many BYD cars in Northern Europe or probably the United States either. So it’s becoming a leader in some global value chains, and those global value chains are probably more specific to the global south.
But with those global value chains that go into end products that we consume in the rich part of the world, China is still part of the supply chain and not kind of the end retailer or the brand. That’s also why I remember, and this was years ago, I was living in Ethiopia and saw a lot more manufactured products that were Chinese brands than I would see in the UK.
How was their internet network set up in 5G? It was Huawei 5G boxes. I saw many more smartphones of Chinese brands that I hadn’t heard of at the time. Whereas in the UK or Norway, I would just see the Western brands. I mean, the subway in Addis is Chinese. I mean, you go in there; it’s Chinese writing. It’s built by the Chinese. That’s right. Yeah. Yeah. Yeah. Yeah. Yeah. That’s interesting.
I mean, the big question is how sustainable is China’s industrial policy in the face of these enormous geopolitical tensions and this whole de-risking, decoupling pressure from the West. I was talking with my colleagues on our new show the other day and asked this question: Are we going to look back at this moment, this sort of temporary truce in the trade war, as something of an inflection point historically? Is this a moment where Chinese power was pretty much on full display, that there’s basically no complete containment of it possible? I wonder about that, and I’m wondering if you have an opinion.
Well, just talking about this trade war that’s been playing out in the last few weeks and months with the U.S. and China and this pause, if you will, I think one thing we’ve seen is that we can talk about the strength of the Chinese economy in many ways. For example, if we talk about consumption in China, a lot of people will highlight that consumption probably needs to increase in China for the economy to be stable and keep developing. That’s a view that I largely agree with—that consumption is probably a little bit too low in China. But also, they’ve developed production and high-tech production at an extremely rapid pace, right? So it’s been simply hard for consumption to keep pace.
One thing we learned during COVID, actually, too—I would say the pandemic and also this trade war—during the pandemic, we learned that Chinese manufactured goods are very, very important in the world, finished goods, and also inputs into the production process because when trade with China stopped, everything stopped. Right? And I also think specifically when it comes to the U.S., what we’ve seen is that both China and the U.S. are dependent on one another, and both tariffs in both countries have the ability to hurt the other economy. But China has the upper hand in this trade war because you’ve seen how especially U.S. corporations and also U.S. consumers are more dependent on China than the other way around. That’s been my sense as well—this higher threshold for pain and that sort of balance of dependency that favors China.
Let’s shift gears here and talk about another one of the prominent debates. You talked a little bit about the overcapacity allegations, but this is all part of a bigger debate that you’ve seen unfold on Twitter and elsewhere. People with a view that China is a country with a distinct political economy. If it isn’t indeed, you know, a sweet generous case against these balance of payments determinists, people like the aforementioned Brad Setzer or Michael Pettis. I’m sure you follow this very closely. How do you interpret China’s path through this lens? How exceptional is it really? Does it have to obey the same sort of ironclad laws of balance of payments as Pettis and Setzer might argue?
In some ways, it has to obey these laws that Pettis outlines, but I think also a problem, for example, so I had a little debate with Setzer, and I think it was a nice debate, and I thought we converged a bit on this issue. His view, the way I understood it, was that it becomes problematic if China keeps increasing its share of global trade, global manufacturing, right? And sure, China has a slice of the pie; that pie has in China’s share of the pie has increased, and obviously increases more and more and more.
There will be less of the pie for other countries. In a very ideal world, we’d see manufacturing capabilities split evenly or technological capabilities evenly around the globe, right? But China’s dominance and emergence as an industrial superpower has also benefited a lot of countries, so it’s hard to make the case that some countries have had their manufacturing base eroded or failed to develop because of China. I’d say that U.S. deindustrialization, for example, was largely due to other causes and not China.
You need to look at the lack of industrial policy in the U.S. You also need to look at the lack of proper labor market policies to kind of shift the labor market as the economic structure of the economy shifts, which is kind of natural. You also need to understand that China has different strategies with different countries and engages in industrial diplomacy differently around the world. the British about German overcapacity in the auto sector. Right? So there seems to be a double standard when discussing overcapacity that is more about geopolitical narratives than economic realities.
Now, from an analytical perspective, overcapacity can certainly occur under certain economic conditions. In a growing industry, it can be beneficial to have excess production capacity to meet future demand. However, it’s when this overcapacity spills into global markets that it becomes contentious. Critics often characterize it as aggressive behavior, particularly when it undercuts prices and pressures domestic industries in other countries.
This is where it gets complicated because while overcapacity might be seen as a problem in the context of China’s rise, similar situations in other countries may be interpreted differently, often with less scrutiny. This inconsistency points to an ideological bias that colors how we interpret economic realities based on the entity in question.
Furthermore, China’s economic model has relied heavily on manufacturing and exports, which, while effective for lifting millions out of poverty, has also created its own set of challenges, both domestically and globally. The debate often hinges on whether one views these practices through a developmentalist lens that recognizes the achievements or through a protective lens that critiques the impacts on global competitiveness.
In conclusion, the conversation about China’s economic practices, especially related to overcapacity, is deeply intertwined with ideological perspectives. The challenge lies in acknowledging these biases while striving for a more balanced and nuanced understanding of the global economic landscape. the British, right? Because this has kind of been the state of affairs. Germany does manufacturing in Europe. Now, if these were Chinese cars, we’d probably hear something a little bit different.
So I think there is an ideological element here. We’re seeing the emergence, from the standpoint of the West, at least, of a country that is from outside the West, is from the South economic threat. I definitely think there is an ideological element behind these accusations of overcapacity.
Another interesting stat here, Kaiser is, I’ve told you how much China makes up of global manufacturing, right? But I want to look at, because industrial overcapacity touches upon exports, right? So China’s share of global goods exports is about 13%. The U.S. share of global services exports is about 14%.
Overcapacity and services, right? We should do something. Maybe there hasn’t been a change in say the U.S. dominance in service exports over the years has been felt so quickly, but the U.S. economy, the number of people living in the U.S. is much, much smaller than China, right? Yet they account for a larger share of global service exports, and China accounts for global goods exports or roughly equal share.
And we don’t hear about this. So I think a lot of this has to do with the scale at which China has emerged. I don’t think it’s unambiguously easy to deal with on a positive thing. I do think that we need to think and ask questions about, for developing countries, other developing countries that want to try and develop capabilities in EVs, in solar and wind, is it going to be possible now that China has basically become so dominant in these markets so fast?
But from China’s perspective, I think they have simply done what any developing country should try to do. And they’ve done something that the world absolutely needs. I mean, just even a few years ago, I had Barbara Finnamore on the show and she told me that at that point, something like 75% of the people in the world now live in a country where the cost of renewable energy is cheaper than that of fossil energy.
And that’s because of China. As we know, for those of us who follow Lori on Twitter, we are constantly reminded, I mean, China now, it stalls, it’s not going to be the third year running, more renewable capacity than the rest of the world had in the incumbent year. It’s pretty astonishing.
But, you know, it’s not surprising to me that we immediately reach those of us who are sort of defensive about China for these things, wind and solar, and especially solar and EVs, which are sort of more morally defensible, I think in a lot of minds of a lot of people that we’re talking to.
Adam Tooze has suggested that what China is actually attempting here is a massive gear shift toward a post-carbon industrial base. And that really resonated with me. I mean, I think that what we’re seeing here, it’s not just a lot of talk about ecological civilization. I think that a lot of the dislocations that we’re hearing, a lot of the sound of gnashing gears is a driver who’s not very good at operating the clutch but is getting into a higher gear and it’s getting into a very green gear.
How does that framing sound with you? Do you see drawing out and looking at China in macro, do you see this as a fundamental foundational shift in China’s approach to industry?
Yeah. I largely agree with Adam on that point. I think it’s really important to talk about the role of China specifically in the green transition, right? Because China—
Oh, your book actually, yeah. Your book talks about the importance of ecological industrialization, right?
Yeah, yeah, yeah. And there’s such tense debate when it comes to China on climate matters, right? Because China’s growth has entailed a huge increase in greenhouse gas emissions, right? A lot of people say that, even if you say that China’s growth is good from a poverty reduction perspective, industrialization perspective, etc., providing goods for the world, they will say, “Oh, but you know, it’s one of the largest polluters,” right?
I have a few thoughts about that that I’d like to share. One is that we need to look at, if we need to be clear about what kind of data we’re looking at here, right?
For example, if we look at per capita emissions, that would look very, very different from total emissions. And I do think per capita emissions is important because it’s not like we’re saying, let’s put together the United States, Europe, and South America and look at all their total emissions, because that would probably be around China’s population, right? So because of its large population, China should be allowed to account for some emissions. Its emissions per capita are CO2 emissions per capita consumption based. So looking at consumption in other countries, not production-based, is at the level of the EU and much smaller than the United States. So it’s not actually that bad.
But very interestingly, and here I’m coming back to your point and the point that twos make, what China has been trying to do with its growth and its productive capacity. I looked at a chart today that showed that the emissions are about to reverse, right? Because specifically of more clean energy installation and capacity, right? Yeah. Again, I just cited Laurie Mitalwa, but CO2 emissions fell by 1.6% in the first quarter.
So, I think that was actually a paper written by him. Carbon. Yes, exactly. That’s the chart I saw. And why is it a big reason behind this? It’s because they’ve used their industrialization and increased productive capacity to massively ramp up clean energy capabilities, right? I think it’s inevitable when you grow fast that you increase emissions, right? Even with current technology, it’s going to be very hard for developing countries growing fast to do it in a completely carbon-neutral way.
But the important thing is that countries are doing this, not trying to do it in such a way that they can increase capabilities in clean energy production. And that’s exactly what China has done. And that’s why we’re seeing that China has this huge share of the global market in solar panels, lithium-ion batteries, wind turbines, and EVs. And also now we’re starting to see that the total emissions are trending downwards.
So you think that China will enable developing countries going forward to be able to industrialize without significantly increasing emissions?
Well, that’s a slightly different question and perhaps. But at least the fact that China is producing all these possibilities, let’s call them, for clean energy production in a relatively cheap way, opens up the window for that.
Yeah. I mean, my sense definitely is that a lot of global south countries now are drawing from China’s efforts to balance industrial expansion with environmental constraints. And again, I’ve quoted this before, but I was at Davos a couple of years ago, and one of the Chinese interlocutors said something to the effect of, you know, it’s funny, I hear these complaints about overcapacity coming only from two geographies, from Western Europe and from the United States. The rest of the world says, “Hey, we want more. We want more of your, you know, PV, we want more EV batteries.”
That is, that’s very interesting.
Yeah. Yeah. Yeah. Yeah. So I want to move on and talk a little bit about intellectual property, innovation, and tech sovereignty, which is something you’ve talked about quite a bit. You’ve been quite critical of the current IP regime. You’ve called it a driver of global inequality.
How does China’s strategic approach to IP challenge or comply with this regime? Is it going to upend things and refashion it in a way that you think could be more just and equitable?
Oh, that’s a difficult one. You know, let me, my criticism of the current IP regime is the fact that we treat technology as something that needs to be protected for the purpose of profits. The traditional argument in favor of protecting IP is that innovators need some kind of incentive to innovate. And to some degree, you could probably argue that some innovation happens because of this, but we’ve seen lots of innovation that does not happen under the guise of the profit-making motif.
But the problem here is that if we want a world of shared prosperity, a lot more technology needs to be shared more. We also need to recognize that a lot of the laws around global intellectual property protection and patent protection are created for powerful transnational corporations and also to protect the profits of these transnational corporations.
So when you look at, say, the markups or look at how large a share Apple has of the final retail price of the iPhone, I think that’s a good example of my view on this. Apple rakes in more than 50% of the final retail price of the iPhone without actually making any components. That’s a very 21st-century concern. world economy example. This didn’t used to be the case. Companies that actually made things had to make things before. Extremely deep and tall smile curve, in other words. Yes. There we go. There we go. Yeah.
So why does Apple get so much money from its iPhone? Well, I mean, it’s their brand. There’s some research and development, some industrial design. Sure. But a big part of it is they have immense market power, and that market power is fortified by intellectual property protection, right? But sorry, by intellectual property protection through, for example, WTO laws. Right? And that creates a problem for global inequality. When we have this system of extremely strong intellectual property protection, that creates immense market power for a lot of transnational corporations, which have historically been based in the West.
If we actually care about development, this technology should be, honestly, much more shared, and we need to have a much more equal distribution of power. Now, how does China come into the picture? Well, China in part is upending this global order, right? This global order whereby transnational corporations, especially based in the West, have been in power for so long. They’re still in power, but China is challenging it.
In that sense, if China’s rise means that globally, we’ll have corporations from outside of the West also sharing some space at the top there, that means more distribution of global power. And that’s obviously good. I don’t want to see China replacing the US, and we see a world in which Chinese companies have immense market power, but we want to see a bigger distribution of market power globally. And in that sense, China’s rise is good.
Yeah. And I understand it to distribute it rather than to see it replace it. I think they would just sort of uphold those same paradigms that have been in place just so that they can extract the same kind of market power that the people they replaced once did. I think, yeah, we can’t expect benign behavior by Chinese corporate actors either. Technology has just been very much at the heart of all of this.
You discussed tech capability as really quite central to industrial policy. I feel like China has managed to accelerate its whole innovation ecosystem despite Western IP constraints. And there’s this growing sense among many of us that the US increasing weaponization of technology, you know, the chip bans are the most obvious example, has accelerated China’s push for self-reliance and I think advanced the timetable for Chinese innovation.
So do you see, ten years out, are we going to look back and think that Jake Sullivan’s efforts to ban the export of high-end chips and the equipment used in their manufacture will have utterly backfired? Will it prove to have been utter folly?
So in a way here, you’re kind of asking if the whole national security stance by especially countries like the US, or some of Europe, has backfired and in many ways strengthened the desire to innovate in China.
Exactly.
Yeah.
I feel like the desire to innovate in China has existed for a while, right? If you look back in 20, say 20, you can look at the five-year plans. It started emerging already in the early two thousands. And then you saw it made in China, very, very innovation, a very central component of made in China 2025, this huge industrial policy plan that was launched in 2015.
So I do think to some degree, innovation in China is independent of these national security concerns in other countries. But I do think you can make the argument that with the aggressive trade policy stance we’ve seen from say Trump, then Biden, and then the US towards China, China is realizing, you know, we need to really think more strongly about national security ourselves.
Right.
And I think you can make the case, and I’m working on a project right now that actually kind of concludes that industrial policy is becoming more intertwined in national security in China, in the US, and in the European Union, right? It’s becoming harder and harder to distinguish these two from one another due to these geopolitical rivalries.
Things like the Chips Act in the US, for example, I think from an American industrial policy perspective, seems like a smart thing, but yeah, these export curbs that Biden introduced, and obviously the tariffs that Trump has introduced, I don’t think— I mean, you have a lot of electronics giants in the US actually complaining about these trade restrictions not making sense, even if you want to develop a semiconductor industry in the US.
So, I think for their own national development… could, could probably have been, been smarter with trade policy in, especially in the U.S. and my God, Trump, I don’t think there has been much of a lot of really clever economic advisors next to Trump in these last two months.
No, indeed. It’s going to be really interesting to see what happens with this, the Biden era AI diffusion rule now being overturned by Trump, but putting into place this ban on global use of Chinese made, especially Huawei ascend GPUs, AI chips.
It’ll be interesting to see how this shakes out. I mean, for me, it’s pretty clear that this intensification of the trade war, despite the truce, is going to strengthen the case for more endogenous development strategies in China. I mean, it’s hard for me to imagine China will ever be willing to expose itself to that kind of risk again. So I think that that ship has sailed.
It’s not where we’re going to go back to this lovely old era of cross-pollination and strategic comparative advantage. But I’m wondering how the trade war is going to reshape the global division of labor for countries in the global south, though. That’s one of the big questions that I’m watching. They’re trying to navigate between these powers.
They’re seeing obviously a lot of Chinese firms setting up shop all across Southeast Asia and increasingly even in sub-Saharan Africa. But what’s a big story for me to follow? I’m curious whether you have thoughts on how that’s going to play out.
Yeah, I do have thoughts. Well, we are still yet to see exactly what happens with this trade war, right? We’ve seen some really sharp turns coming from Trump throughout the last few weeks and months, right? And now he’s lowered tariffs on China quite sharply, but one thing he’s done that’s going to have long-term ramifications is create more uncertainty for countries that trade with the United States.
So we’ve already started seeing, and I predict that we’ll keep seeing countries all over the world trading more with China and trading less with the United States. In some instances, there will be big shifts. In some instances, there will be smaller shifts. We’ve already seen a lot of countries starting to trade with China, but I think we’ll see an intensification of this because of the trade war.
It’ll be interesting to see especially what happens with the so-called connector countries in Southeast Asia, right? Vietnam, Indonesia. I think in many ways, Vietnam has been on a path of being the next economic success story in Asia. And this is a country that apparently is able to maintain good trade relationships with both China and the United States, but it’s now kind of leaning a bit more on China, given that China has been more sensible during this whole trade war than the United States.
We have obviously, I think you’ll see some shift towards China in Africa as well, but in most countries in Africa and also in South America, the shift towards China as an important trading partner is something we’ve seen for a very long time. So that will not be something new. But with the trade war specifically, one country to watch out for is India, right? Because India has, China has a more complicated relationship with India.
Now the U.S. says, or at least Apple, which is a really, really important company in this whole war, says they want to start assembling all their phones in India rather than China. That presents a major opportunity for India. But then again, how does China position itself here? Will they oppose the development of manufacturing capabilities or the moving of assembly operations from China to India? So it is quite country specific.
They appear to oppose it very much. Yeah. And, oddly, so does Trump. He had some strange cryptic utterance about how he doesn’t like that, that he’s going to have a talk. I saw that. So, you know, that puts all, you know, to see that Trump put spokes in the wheels for India establishing kind of stronger ties with the U.S. is weird to see, but that also shows how extremely unpredictable Trump is.
Absolutely. I mean, I feel like all of this, this whole trade war is just, it’s sort of the culmination of what I see as kind of a failure of imagination in Western economic policy. I mean, these are not rational responses. I wonder though, what would a more constructive Western approach to China’s industrial rise look like from your perspective? One that acknowledges competition without demonizing development that takes on board your ideas about how important, The contextualization that you offer, all the things that you’ve just done in the last hour, which are fantastic. Do you have some version of the sort of affirmative vision that many of us watched in horror, this kind of spastic, inchoate response to China? Do you have some vision of what the American leadership should be articulating instead?
Well, I do think that Europe has actually had an approach to China that is more measured than the United States. I fully agree. Now we’re also seeing in the news that there are instances of even closer economic ties and trade ties being forged between the European Union and China amidst this trade war because both China and European countries are seeing the dangers of being too reliant on the United States. Now, that’s not to say that Europe’s stance towards China is perfect. Right. But it’s obviously tricky for any sovereign state to figure out what to do when you have an emerging competitor.
Now, I think what Europe, especially the United States, has failed to see is that the rise of China in many ways benefits the United States, benefits U.S. corporations, and benefits U.S. consumers. In my view, there is nothing in the way of the United States developing a relatively beneficial and mutually fruitful relationship between those two countries. I think China has handled Trump in the past few months with a lot of maturity and surprising degree of respect, to be honest.
If the United States wants to develop a good relationship with China economically in the future, I think that’s going to be perfectly possible. I also do think, and this is an important point, that it’s time for us to think about a new international economic order, one where the West is not on top. By the West, I mean Northern Europe and the United States. If you look at today’s international organizations that dictate global governance, like the WTO, like the IMF, like the World Bank, sure they’re international and in many ways represent all countries in the world, but wealthy states have way too much power in these organizations.
That’s one of the things that excites me most about China’s rise, that it is starting to give us hope that we can have a new international economic order where countries outside of the West can have more power. That excites me. I think that there is a growing appetite among not just students or the public, but even among some economists for more heterodox approaches like yours that really foreground history, that foreground justice, and more equitable treatment of countries outside of the developed West.
It’s wonderful. I really hope that people get ahold of your work and follow you on X. It’s been really edifying for me to be able to follow you for the last year or so, and it’s been terrific. I want to thank you, Jostan, for taking the time to join me and for this conversation. Can you tell people where they can find you online?
Jostan: Sure. I’m relatively active on X slash Twitter. Not sure what exactly to call that platform, but one of the two. That’s at Hauge Jostan on Twitter. I also have a personal website, JostanHauge.com. There, you can find links to all my published works. A few weeks ago, I started a newsletter on Substack.
Oh, good for you. I saw one post at this point, but it was a hell of a good post.
I appreciate that.
Yeah, it was a great post.
There will be more, I promise that.
Well, welcome to Substack. I’ll make sure to follow you.
I’m really eager to see what you’ve got there. All right, let’s move on to our paying it forward segment where I ask my guests to name-check somebody whose work they find really valuable. Who do you have for us?
So, there’s one person that I’m sure you’re familiar with, who also works on these kinds of issues and is very active on X. His name is Kyle Chan.
Oh yeah, you know what? It’s really funny because I was just plugging his work on our new show. But yeah, Kyle is absolutely fantastic. I’m hoping to get you both on a live panel just to talk about this stuff. I think you guys would play off each other beautifully.
Yeah. Kyle is fantastic. I cannot agree with you more. more high capacity. His Substack is just invaluable. That would be amazing if you could get us both on a panel. Kyle is a friend. I noticed him on X and then we started working a bit together for the UN Industrial Development Organization over the past year or so. It would be really good if you could get on a panel together. That would be a dream panel. It’d be fantastic.
His newsletter, High Capacity, is in particular what I want to highlight. I think a lot of academics, when they blog, do it in a way that they might share ideas that are maybe not as novel as their academic articles or also attempt to make their work a bit more accessible. In his newsletter, Kyle comes with these extremely novel charts and graphs that academics would save for their academic articles. It’s extremely impressive.
People who are interested in industrial policy in China and the trade war between the U.S. and China really should follow his newsletter. His chart on Chinese firms and the industrial sectors that they work in, particularly in technology, was just astonishing. That has been passed around all over the place, and deservedly so because it’s just so good. He’s quite prolific; he writes a lot of stuff. You’ll be getting your money’s worth, not like certain people who have only written one post. I’m really looking forward to that. Fantastic.
What about a recommendation from you? You know, there’s one TV show that I’m sure doesn’t need much of a mention because it has a lot of fans already, but I just think it’s so good that people need to watch it. It’s a TV show that, at its core, is about portraying and laughing about the rich. It’s called White Lotus. Oh yeah, I enjoyed the third season very much. I’ve seen it all. It’s been a lot of fun.
Do you think the third season—some people say they felt like the third season didn’t develop fast enough, that there wasn’t enough plot development? No, that wasn’t my impression. I think it tried to tie up too quickly at the end; that was my problem with it. I thought the pace was great. There were a few things that I didn’t like, a few sort of deus ex machina things that were delivered, but on balance, it’s an entertaining show. You put Walton Goggins in anything, and I’m going to watch it. I was positively surprised by Arnold Schwarzenegger’s son, Patrick Schwarzenegger. He was amazing in that show.
Apparently, he didn’t have to act; that’s sort of how he is in real life. I live in North Carolina, and there was a lot of that sort of Duke and UNC rivalry that was in that family. I know, I’m an avid basketball fan, so I know my brother spent a brief time at Duke as well. Okay, yeah, they got the Duke-UNC dynamic completely right. Somebody really understood that, and Parker Posey’s character was fantastic.
All those memes! I really enjoyed it. I think there are a lot of haters out there for the third season, but I quite liked it. Great recommendation.
I am going to recommend a book: Stephen Platt’s new book, The Raider: The Untold Story of a Renegade Marine and the Birth of U.S. Special Forces in World War II. You’re wondering what the hell this has to do with China? Actually, it is all about China. A lot of you are going to know Stephen Platt. He’s a Yale graduate who studied under Jonathan Spence. From his two outstanding earlier books, Autumn in the Heavenly Kingdom, which is about the Taiping Civil War—he’s convinced me we should all now be calling it that and not the Taiping Rebellion—and Imperial Twilight: The Opium War and the End of China’s Last Golden Age, which was about the run-up to the Opium War.
Both are just fantastic books. Stephen is such a gifted writer; his prose is so lovely. This one too is just great. It’s about this Marine officer named Evans Carlson, who spent important time in China. He worked closely with the communists there after living in China. There in 27 during the white terror. He was actually in Shanghai when that struck. He was still pretty young and China naive, but he goes back later after a stint in Nicaragua where he’s fighting the Sandinistas. I’m not even halfway through it, but it’s already great. It’s so well documented and it’s such a compelling story, such an amazingly compelling character. I’m probably going to finish it this weekend. I’m scheduled to interview Stephen in early June. I’m very excited about that. So, look out for that show.
Jostan Haugen, thank you so much. That was just such a pleasure to talk to you. I mean, it was everything that I hoped for and more. That was really fun, Kaiser. Time has gone by extremely quickly. I think we could have talked for another hour.
I have a whole other section I wanted to ask you about the ideology and the practice of economics, which you’ve been very reflective on. I love the recent post that you had about there being no such thing as ideologically neutral economics. I wanted to pick your brain on that, but we’ll get into that next time. I mean, there will be a next time. There will be a next time. Lots to discuss. So much fun.
You’ve been listening to the Seneca podcast. The show is produced, recorded, engineered, edited, and mastered by me, Kaiser Guo. Support the show through Substack at www.sinecapodcast.com where there is a growing offering of terrific original China-related writing and audio. Email me at sinecapod at gmail.com if you’ve got ideas on how you can help out. Don’t forget to leave a review on Apple Podcasts.
Don’t forget to check out our new YouTube page, which features our new show called China Talking Points, which includes Eric Olander from the China Global South project, Andrew Polk from Trivium, and Lizzie Lee from the Asian Society. This is the regular cast. We’re going to be taking on the topics of the week every other week for now, and we may bump it up to weekly at some point. See how people like it.
Huge thanks this week to my guest, Yostan Haga. Thank you for listening and we will see you next week. Take care. I’ll see you next week.