Competition with China Does Not Mean Kneecapping U.S. Aviation
“To a man with a hammer, every problem looks like a nail.”
This Mark Twain quote is often referred to as the law of the instrument, and it relates to a cognitive bias involving an over-reliance on a familiar tool. Without a doubt, U.S. economic sanctions targeting hostile governments, groups, or people who wish harm to America, is a very familiar tool to policymakers.
Given that, the U.S. continuously tries to balance the need for national security with economic opportunities, particularly with China. This relationship was very much in focus recently as both Presidents Biden and Xi met in San Francisco for the first time in months.
We need to see China as not just a strategic competitor but also a huge market opportunity for American companies. As China’s economy grew and modernized in recent years, its middle class also expanded significantly, along with its appetite for homes, vehicles, or travel, whether for business or leisure.
Competing with China should not equate to shunning the vast economic potential offered by the globe’s second-largest economy. If we were to boycott these opportunities, we stand to lose billions in profits that smart, strategic cooperation with China could yield. Currently, we stand at a pivotal moment in redefining our commercial interactions with China.
The civil aviation sector exemplifies the potential for such collaboration. Since 2008, American companies have engaged in commerce with Chinese entities such as the Commercial Aircraft Corporation of China (COMAC), which has forged robust ties with U.S. suppliers to manufacture its C919 civilian passenger jet. Notably, 48 of the 82 primary suppliers for the C919 are U.S. companies, with General Electric being a key partner, providing the essential LEAP engine for the aircraft.
Yet, challenges loom in meeting Chinese market needs due to regulatory barriers. In December 2020, the Trump administration’s Department of Commerce instituted the Military End User (MEU) List. This list forbids U.S. exports to the named entities, effectively broadening the gap between U.S. suppliers and many Chinese firms that were once regular business partners.
A significant test for the Biden administration’s approach to trade with China is on the horizon with the development of COMAC’s new wide-body aircraft, the CR929. COMAC is actively seeking partners to supply components such as fuel systems, flight navigation systems, recorders, and engines. While these components are not easily adaptable for military use, COMAC’s engineering (SADRI) and production (SAMC) units remain on the MEU List, complicating potential partnerships.
American firms are permitted to export to Chinese entities named on the list only if they secure the requisite licenses from the U.S. government. This represents a critical juncture as described earlier—the Biden administration has the option to adopt a pragmatic stance and grant licenses for exporting non-sensitive products, or it could choose a more rigid approach, halting all U.S. exports to China. Should the U.S. opt for the latter, it would pave the way for other players, like the European Union, who are not bound by these sanctions, to fulfill China’s demand for commercial airplane components.
A decision by the Biden administration to withhold export licenses could have significant economic repercussions. The U.S. Chamber of Commerce warns that being cut off from China’s burgeoning aviation market could result in annual losses ranging from $38 billion to $51 billion, potentially leading to job cuts of 167,000 to 225,000 in the U.S. civil aviation manufacturing sector. The outcome of this decision would also affect key industry suppliers, some of which are major players in both the commercial aviation sector and the broader U.S. economy, including General Electric (GE), Honeywell, Rockwell Collins, and Parker Aerospace.
National security must always be a priority in dealings with China, whether the matters pertaining to trade, technology, or industry. It is prudent for the U.S. government to carefully monitor and regulate the activities of U.S. firms in their interactions with Chinese counterparts. An example of such caution is the halting of artificial intelligence semiconductor exports to China, particularly those produced by U.S. tech company Nvidia. This action by the Department of Commerce was a justified strategy to prevent Beijing from utilizing American technology to enhance its military capabilities.
The reality of competitive tension with China should not deter the United States from engaging in commerce with them. In particular, the trade of civilian aviation components offers a valuable opportunity to mitigate a portion of the substantial trade deficit the U.S. has with China.
Ideally, the U.S. could strategically position itself as an indispensable supplier for critical aspects of China’s civilian infrastructure, creating a leverage dynamic akin to a ‘carrot and stick’ approach—rewarding positive actions and penalizing negative ones.
To harness this leverage, U.S. policy must facilitate American companies in fulfilling the increasing demand from China for commercial aviation parts and hardware.