Elon Musk, China, and the

Biden Collapse
The Chinese government
increasingly controls U.S. discourse
and policy. The problems with the
CCP are getting worse, not better.
Matt Stoller • Apr 27

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Today I’m writing about what Elon Musk’s

purchase of Twitter shows about the U.S.
relationship with China.

Random Monopoly of the Day

I’m going to try and start throwing in short

write-ups of random monopolies I come
across, since you guys send me this stuff all
the time. Today’s monopoly has to do with
plastic toys. Over the last ten years, a firm
called Diamond Select Toys has sought to
monopolize collectibles, specifically,
American vinyl toys. Diamond took over
shelf space and then excluded competitors,
eventually overrunning the landscape with
plastic crap. Comic artistKelly Turnbull
described what happened next.

And now…

Elon Musk makes super cool stuff, and also lies a lot and
tends to engage in what looks like securities fraud.

“I Love China!”

Today, most big tech firms spend their time

buffing up their credentials on national
security, considering the war in Russia and
the threat from China. But that wasn’t
always so. In 2015, Mark Zuckerberg, while
attempting to get regulatory approval for
Facebook to enter China, embarked on the
most cringe-worthy feat of flattery of the
decade, asking Chinese leader Xi Jinping to
name his unborn child at a White House
state dinner. Zuckerberg even learned
Mandarin, and blurbed Jinping’s book.

Zuckerberg’s pleas failed. Chinese

strategists knew that social media
technology isn’t difficult to build, and they
didn’t want a Western platform dominating
speech in China. But flattery, for others, will
get you everywhere, especially if you have
something the Chinese want.

And with that, the big news over the past

week in media has been billionaire Elon
Musk’s takeover of Twitter, the relatively
small but highly influential social network
for political elites, a purchase Musk is
ostensibly pursuing to promote free speech.
Most of the light and heat in the debate is
over Musk’s content moderation choices.
But that problem can be addressed by
removing Section 230 of the
Communications Decency Act, and
restoring the traditional role of courts as
regulators of illegal speech.

Though there are risky borrowing choices

involved in this buy-out, I do not really worry
about making Twitter profitable enough to
service its debt. It’s a horrendously
managed company, so Musk should be able
to turn it around. The more interesting
critique of Musk’s purchase of Twitter is not
about his personal political goals, but about
his ties to China. These ties have largely
escaped scrutiny because looking too
closely at Musk would implicate much of
corporate America, who have similar
dependencies. It’s actually hard to find a
firm that isn’t addicted to Chinese
production, consumption or capital, from
Amazon to Apple to Disney, to Nike to
Blackrock.

But Musk’s dependency on the Chinese

government is overwhelming and personal,
to the point where he nearly equalled
Zuckerberg in cringe-worthy statements.
While insulting U.S. politicians and
regulators, he operates as a mascot for
Chinese society, and at Chinese
conferences says things like “China rocks”
and “I love China” in return for huge
subsidies. Unlike Zuckerberg, Musk’s
flattery delivered, but that’s because he had
something they wanted, which is battery,
space, and electric vehicle technology.
(Indeed, there are reasons to see Musk’s
empire of SpaceX, Tesla, and Starlink as
problematic from a competition standpoint).
In return for building out the Chinese
electric vehicle ecosystem Chinese
government essentially gave Musk a free
factory in Shanghai, as well as access to
their market.

Both China and Musk have benefitted from

this arrangement, with Tesla generating
“more than a quarter of its total revenue
from China, or about $13.8 billion.”
According to the Wall Street Journal, the
firm “sold more than 470,000 cars made at
its Shanghai factory last year, data from the
China Passenger Car Association showed.
Tesla said it delivered more than 936,000
vehicles globally in 2021.”

The result of this alliance is that Musk

became richest man in the world, and China
gained market power within a thriving
electric vehicle ecosystem. As Musk
conveyed six days ago to Tesla investors,
China controls certain key parts in the Tesla
supply chain worldwide. Moreover, Tesla is
increasingly not an American company,
using Shanghai as an export platform. One
Tesla executive noted that Shanghai’s
“lower cost structure” means that their “mix
of cars" is shifting towards China.

The net effect of this arrangement is that

Musk has the capital to buy Twitter in the
U.S. even though he openly insulted the
Securities and Exchange Commission,
which had penalized him for lying to
investors. That is not how Musk is treated in
China. Here, for instance, is what happened
last year.

Periodically, the Chinese bureaucracy

reminds powerful entities within China, and
that includes corporate America, who is in
charge. Tesla, as many others have, was
thus forced to engage in a self-confession,
turning on its belly to demonstrate
subservience to the Chinese, a far cry from
Musk’s routine attacks on American
regulators and policymakers as bastards
and fascists. In many ways, Musk has
gotten the ability to access unlimited capital
in return for effectively acting an agent of
the Chinese government.

China as the Great Geo-Political

Monopolist

Musk is useful to China, because he is

helping Chinese strategists execute on their
long-term goals. What are these goals? In
May of 2020, the Chinese Communist Party
(CCP) declared its economic strategy, using
the phrase “dual circulation.” Dual
circulation meant fostering a domestic
productive apparatus that is independent of
foreign technology and finance, while
making sure the rest of the world is
dependent on Chinese control of key supply
chains, whether it’s shipping, railroad
construction, electric batteries, or solar
panels. Chinese ‘grand economic strategy,’
in other words, is to operate as a giant
monopoly on which the rest of the world
must rely.

And it’s working. A few months ago, Federal

Maritime Commissioner Carl Bentzel put out
a report on Chinese control of shipping,
showing that over 85% of intermodal
chassis are manufactured in China, and
over 40% of the world’s commercial ship
order book were built in China. Chinese
producers control railroad production and
container cranes, active pharmaceutical
ingredients underpinning the entire
pharmaceutical industry, as well as huge
swaths of the global telecommunications
industry. It is in fact hard to find industries
over which Chinese government doesn’t
have significant influence.

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And the point of this economic grand

strategy is clear, because China believes
the U.S. presents an existential threat to
their governance system. Whether we like it
or not, the Chinese government has
declared that it will defeat the U.S. and
liberal democracy itself in a global conflict,
and that conflict - for the moment - is
playing out in the economic and ideological
sphere. There are obvious signs of this
dynamic every day. Here, for instance, is the
Wall Street Journal yesterday.

Chinese President Xi Jinping has told

officials to ensure that the country’s
economic growth outpaces the U.S.’s
this year, according to people familiar
with the discussions, even as its
economy sags under its worst Covid-19
outbreak since the pandemic began.

In meetings over the past few weeks, Mr.

Xi told senior economic and financial
officials that ensuring that the economy
is stable and growing is important
because it is critical to show that
China’s one-party system is a
superior alternative to Western liberal
democracy, and that the U.S. is
declining both politically and
economically.

Of course, the strategy isn’t just economic.

The Chinese leadership believes they will be
able to demoralize and defeat the U.S.
without firing a shot, but they are also
preparing to defeat the U.S. violently,
building up a massive blue water navy and a
military apparatus to rival America’s. China
recently signed a security deal with the
Solomon Islands, a strategic chain of
islands in the Pacific that cost thousands of
American lives during World War II. China
obviously is seeking to use its position there
to sink American ships, should that be
necessary.

Many around the world are not concerned

with this dynamic, because they don’t think
that the defeat of the U.S. would be
particularly problematic. But since I believe
that free expression and liberty are values
that only exist because they are protected
by a strong liberal democratic state, I am
concerned.

The U.S. Built the China Threat

The Chinese government is explicit about

its goals, and has been for decades. But
largely, it is Western financiers and
monopolists who have helped China
undermine liberal democracy, both in the
U.S. and in Europe. American strategists,
arrogant after the end of the Cold War,
frittered away our national strength by
moving the U.S. towards a low production
economy dominated by finance and
branding. China served as the willing
manufacturing center for all the factories
we chose to offshore.

It went far beyond simple manufacturing, of

course. Bill Clinton armed China, explicitly
transferring sensitive missile technology
from McDonnell Douglas against the
Pentagon’s wishes. China only has a rocket
program with missiles pointed at U.S. cities
because the U.S. government helped them
design it. Beyond that, Joe Biden as Vice
President helped empower Chinese
censorship of Hollywood, Chinese firms
exploit trade loopholes to dominate
industries, and Chinese firms use American
technology that our own laws lock us out of.
It’s not like China had to twist our arms to
get what they wanted, we largely sold it to
them.

In other words, most of our policies vis-a-

vis China are designed to foster the
dependence that the Chinese state wants.
Dominant monopolies in the U.S., everyone
from Walmart to hospital power buyer
Vizient, love importing from China. Despite
all the rhetoric about resiliency and supply
chains, and the images of nurses wearing
garbage bags for lack of being able to
produce domestic PPE, we are more
dependent today on Chinese imports than
we were in 2019.

There have been some policy shifts. The

Trump administration put up tariffs, which
matters, but aside from that, did little. He
made noises about banning TikTok, but did
not follow through, and Biden dropped the
idea. The Biden administration kept Trump’s
tariffs, but handed over the U.S. solar
industry to China for environmental reasons,
despite the fact that solar panels in China
are made with coal-fired power plants using
slave labor. (Thanks John Kerry!)

And now inflation is making elite

policymakers panic and run straight back
into the arms of Chinese production. Larry
Summers has been pressing to reduce
China tariffs. Republicans in the Senate,
while no one is looking, are also
encouraging Biden to do so. They are
helped by Treasury Secretary Janet Yellen,
and advisors on Biden’s national security
staff, who also getting aggressive on that
point.

On Friday, Treasury Secretary Janet

Yellen said that easing tariffs on some
goods is “worth considering,” following
comments a day earlier from Deputy
National Security Adviser Daleep Singh
that most of the duties on Chinese
imports “serve no strategic purpose” —
particularly those on consumer goods.

The rollback of tariffs, while China is setting

up to sink the U.S. Pacific fleet, is downright
insane. It’s also foolish to imagine that you
can address inflation by lowering tariffs,
considering that we can’t actually move
things through the backed-up ports, and
also considering the reality that China has
shut down Shanghai and Beijing over
COVID. How exactly is a flood of cheap stuff
going to get to the U.S. when it can’t leave
China because of COVID and can’t enter
LA/Long Beach because of ship traffic
jams?

The only thing removing tariffs will do is

encourage businesses not to re-shore
production to the United States or outside
of China. After all, if it’s clear that
policymakers want a return to cheap
Chinese production, then businesses won’t
invest to build factories, since those
factories will become unprofitable in a few
years, once China can flood us with imports
again.

It’s all so stupid and thoughtless. And this

brings me back to Musk, China, and Twitter.
There is an ideological and media
component to the contest between the U.S.
and China, and the Chinese government
already owns TikTok, one of the most
important media platforms in the world,
used by over 100 million Americans. It is
crazy we allow TikTok in this country. It is an
easily replicable service, it is not complex
technology, and allowing the CCP to control
what a generation of Americans watch is
dangerous. The CCP cannot overtly
manipulate TikTok in the U.S., it must be
subtle. But subtlety is quite manageable,
and can be built into the structure of
Twitter. Elon Musk’s control of this social
network could enable the CCP to have
influence over another important platform
for discourse. And that, far more than any
questions over censorship, is what
policymakers should be thinking about.

What I’m Reading

Corporate profits have contributed

disproportionately to inflation. How should
policymakers respond? Josh Bivens,
Economic Policy Institute

Facebook Doesn’t Know What It Does With

Your Data, Or Where It Goes: Leaked
Document, Vice

SEC fears may cement Vanguard monopoly,

Financial Times

Asking the Wrong Questions, Ramblings of

a Pharmacist

Seismic Takes Antitrust Case Against DBI,

Reyes to Federal Court, Alleges Attempt to
Maintain California Beer Distribution
Monopoly, BrewBound

Vivaldi joins Mozilla in lambasting

Microsoft's approach to changing Windows
11's default browser, Beta News

Consumer welfare standard under siege

after 40-year dominance of antitrust,
Washington Examiner

Thanks for reading!

And please send me tips on weird

monopolies, stories I’ve missed, or
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cheers,

Matt Stoller

P.S. I got the following note from a BIG

reader.

This is from a Wi-Fi professionals slack, the

background is all the major wifi vendors are
experiencing long shipment delays (6-8
months is normal) due to chipset shortages.
It seems costs have increased so much they
are now charging customers extra for
products not yet delivered:

Anybody else get the letter from Ruckus

about back-dating price increases on
orders already processed in 2021 and
still not delivered, forcing us to re-do all
those orders already in pipeline and then
either eat the difference ourselves or
pass on the price increases to
customers who are already upset about
delays that are now reaching into 2023?

This is a fairly standard chip shortage issue,

there’s two major wifi AP chipset vendors,
Qualcomm Atheros and Broadcom. Both are
fairly monopolistic in practices, you’ve
covered them both before. There are
smaller companies, MediaTek in particular
have some share, but they’re not used by
the enterprise networking vendors.

I haven’t heard of backdated price

increases, but they could become common.
: