A Conversation With Biden’s Former Top Economic Advisor, Part 2

Few people have shaped Bidenomics more than Brian Deese. From 2021 to 2023, Deese led the National Economic Council at the White House, serving as President Joe Biden’s top economic aide. He’s now an Innovation Fellow at MIT, where he helps lead the new Clean Investment Monitor project.

In part two of Shift Key’s conversation with Deese, we discuss electric vehicles, the future of U.S.-China trade relations, and whether the Big Three automakers can survive.

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Here is an excerpt from our conversation:

Jesse Jenkins: I recently traveled to Australia in December. And there's a country that basically ceded its auto industry in the 1990s to early 2000. They basically said, you know what, we're done trying to compete and keep our domestic manufacturing sector alive. And as a result, now have very low tariffs for imports, everything's imported, and have embraced Chinese imports of vehicles, not just EVs, but also, you know, I was surprised to see all kinds of, you know, Chinese badged brands like SAIC and Great Walls Motors and Haval and others on the roads there.

So I guess the question, maybe just to frame it this way, you know, I have my thoughts on the answers too, but I'd love to get your direct answer is like, why don't we want Chinese cars on the roads here? Why don't we want a $16,000 EV, as opposed to in the same category as the Chevy Bolt EUV, which costs $10,000 more than that. Wouldn't that be good for American consumers, good for decarbonization? Talk through the thinking about how to balance those kinds of concerns.

Brian Deese: Yeah, so I've heard this expressed and in ways that was less thoughtful than your T up recently around, you know, damn it, we just need to decide if we like cheap electric vehicles more than we hate China and that's, you know, that's just, you know, as climate as climate forward thinkers, that question is stated as a leading question.

And I do think to really understand this, I think that that question starts from the wrong premise and then it ends up reaching the wrong conclusion implicitly in what it suggests, right? Because it starts from the premise that China's a market-based economy and a market-based actor, but more importantly, it starts from the premise that we're operating in a balanced and sustainable global trading regime and that why can't we just take the benefit of lower cost goods?

But if we step back, in terms of the global trading system, we have this enormous imbalance because China has this enormous excess savings. And what they're trying to do to try to solve the acute economic challenges that they face is to plow that into manufacturing with the explicit goal of trying to dominate, not just try to gain competitive edge, but dominate particular industries. And when they do that and then through explicit status strategies, they flood markets with cheap goods, we, the recipient countries, end up paying a lot of the cost of those Chinese subsidies and those Chinese policies.

Jenkins: What do you mean by that? Paying in what way?

Deese: We end up paying by our own industries, our own industries, our own capabilities being diminished and derogated in a way that they wouldn't have that imbalance not existed.

So I like to flip the question, right? And actually say, like China needs to decide if it loves this unsustainable, unbalanced, in many cases, illegal manufacturing strategy more than it loves the kind of, or more than it hates the kind of domestic reforms it would actually need to take to boost domestic consumption, produce more balanced growth as it becomes a more mature economy, and as it becomes a larger anchor of the global economic system.

And I don't have any illusions that China is going to engage in that, but I think some of the approach to this issue in the past has been predicated on the idea that if we in the United States operate by ignoring those realities and by trying to engage with by lowering trade barriers, that might induce China to move in that direction. And that, I think, is, that's an unsupportable hypothesis at this point.

Robinson Meyer: Where do you see this ending? Because what you're describing, I agree, is very well supported. The phenomenon you're describing where China's excess savings cause it to have all these manufactured goods that Chinese people can't buy and so therefore it has to export them to the world. That's like a flaw in the post-1945 global economy we set up, right? Because you are punished as a country if you have excess spending by your bondholders, by financial institutions. You are not punished as a country if you have excess saving. And so I think what worries people is that, well, we shut down our market to China in some regards, where does this eventually lead? Like, how do we eventually force a Chinese structural adjustment, it just starts to go quite dark places quite fast. So I guess where do you see this process that we're engaged in ending up?

Deese: I think the destination and the goal should be toward a more sustainable equilibrium, which doesn't mean a perfect equilibrium, but more sustainable equilibrium. And I think the answer to that for American policy, I think is some version of the policy mix that the Biden administration has put together: invest domestically in industrial capacity, impose costs on China where they're actually clearly in unfairly seeking to perpetuate that balance or to accelerate that balance by dominating in particular industries and also protect core technologies that are dual use and have national security implications.

That is hard, it's not easy, but it's possible to put an approach like that in place, and also to recognize that the goal of the strategy is not then to have China-free supply chains.

And when, again, President Biden's predecessor goes out and says he wants to eliminate imports from China over four years, that's utterly infeasible and shouldn't be our policy goal. It shouldn't be the way we think about what we're trying to accomplish. It shouldn't be the way we engage with the Chinese in terms of finding a more sustainable equilibrium.

But it is totally possible in the electric vehicle market for there to be a global market that is not so dominated by China that then there's no room to build competitive alternatives, right?

And we see this in the United States as well. I take your point, Jesse, about the Bolt that you made previously — $10,000 more than a BYD equivalent — but I bought my Bolt a year or two ago and it was sticker price equivalent with the ICE equivalent in the U.S. market before you take into account total cost of ownership.

You know now that particular car and the trajectory since then and we could get into we could get into company-specific decisions …

Jenkins: You can put that aside, yeah.

Deese: But you know, it's possible. I mean, Tesla as like, as a phenomenon, right? And we should be for creating the space for competition and for innovation and for the United States to maintain an important, resilient share in that. Now, that's hard.

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Music for Shift Key is by Adam Kromelow.