September 24, 2021 at 5:00 am ET
As the Biden administration’s inept evacuation from Afghanistan unfolded in August, the president sought to change the subject by saying that an exit would help Americans focus on a more serious threat: China. But with its Afghan policy so disastrously executed, the administration’s message sounded as if someone struggling to master checkers had announced he’d be entering the World Chess Championship.
Heart-wrenching scenes from Kabul have shown how Washington must get its act together if it wants to outcompete China, and that means restoring the world’s trust through a recommitment to competence.
Nowhere is competence more vital than in America’s command of the global financial system: China’s leaders must have noticed how even in the midst of a botched exit from Afghanistan, the United States was still able to cut off the Taliban’s access to billions of dollars at the Federal Reserve and the International Monetary Fund, with American sanctions primed to counter future Taliban plans for hard currency. This power rests on the dollar’s central position in the world economy, which gives the United States an ace in the hole if tensions with China intensify.
The dollar has reigned supreme because Americans have maximized its usefulness — whether by producing first-rate technologies and consumer goods for purchase, or by developing the world’s premier capital markets. Unlike the Chinese, Americans have reaped these advantages through careful governance and support for free exchange, not central planning which stymies innovation and sabotages investors through regulatory ambush. Even when the United States punishes bad actors by restricting their use of the dollar, it has sought to minimize collateral damage by adopting a measured approach.
But Washington must not squander this leverage. For America to retain its financial edge over China, policymakers should be guided by a few basic principles.
First, the United States must continue to innovate and grow more productive so that the world prefers to do business on its shores, buying its goods and services as well as investing in its companies. As Chinese regulators go about kneecapping their country’s entrepreneurs, closing off their companies to foreign capital and even cracking down on video games and online celebrities, America should double down on the power of free exchange and free thinking.
Again, a renewed interest in competence will be key. An America that once encouraged businesses to conquer the world now risks losing the plot by viewing the private sector as a mere tool to advance political agendas.
To take just one example, the Securities and Exchange Commission, an agency created to protect investors and foster capital formation, wants to mandate company disclosures on climate risk that may have nothing to do with a given business’s financial health. A similar effort to use the SEC’s disclosure regime to effect social change a decade ago actually ended up harming the people it was designed to protect.
Climate change and human rights are important, but using securities regulations to foist social agendas on the public is the epitome of using the wrong tool for the job. This will only undermine confidence in the United States as a serious place to do business, making its attempts to solve global problems less credible, not more.
The same course correction is essential in America’s steering of international bodies. Institutions such as the IMF and World Bank, led by the United States since the end of World War II, have historically lent dollars to spur global growth, helping the developing world escape poverty and reform their economies under the rule of law. But the Biden administration is now so intent on using these organizations for virtue signaling that it’s endangering U.S. leadership, pushing would-be borrowers into the arms of Chinese banks.
In August, the Treasury Department announced that it would oppose most new fossil fuel loans from the World Bank and similar lenders to poorer countries, despite the fact that the entire African continent, for example, accounts for less than 4 percent of global greenhouse emissions, compared to 27 percent from the worst polluter of all, China. Instead of taking Beijing to task for driving climate change, President Joe Biden has instead incentivized governments around the world to seek their energy financing from the Chinese.
The incoherence doesn’t stop there. Treasury Secretary Janet Yellen has pushed the IMF to disburse $650 billion in Special Drawing Rights so that low-income countries can fund the battle against COVID-19, though this money – which has no conditions attached – will most likely go to rich economies or bolster U.S. adversaries like Russia and China. Mexico even wants to use its SDRs to bail out its state-owned oil behemoth, Pemex, an embarrassing outcome when Yellen is labeling climate change “an existential threat.”
As this madness plays out, China hopes to increase its sway in the IMF and World Bank at a time when its predatory lending through the Belt and Road Initiative jeopardizes these creditors’ ability to assess financial risk. The United States can’t afford to let this happen. These important multilateral organizations instead require a back-to-basics approach under more sober leadership from America and like-minded allies. That means reviving their focus on helping countries grow and reform, not ceding the stage to a Chinese model of international finance.
This summer’s fiasco in Afghanistan showed that U.S. policymakers have grown complacent with overpromising and underdelivering. The blocking and tackling of governing has been neglected, and as tragic as this proved at the Kabul airport, it will be far more dangerous if China is approached as carelessly. Continued financial supremacy calls for allowing American companies to be more inventive and productive than China’s, demanding that Beijing play by the rules in international institutions and leading by example through responsible governance of U.S. markets. Washington should take heed before it’s engulfed in more foreign policy surprises of its own making.
Patrick McHenry represents the 10th District of North Carolina and serves as the lead Republican on the House Financial Services Committee.
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