During the 2008 campaign, Barack Obama’s most loyal and affectionate constituency was one that cannot legally vote in U.S. elections: foreigners. His campaign and subsequent election were celebrated in European, Asian, and African capitals. Stamps were issued, posters printed up. Hymns were sung. He was hailed as a bright new John F. Kennedy when he spoke in Berlin, and the Norwegians awarded him the Nobel Peace Prize just for showing up at work for the first couple of months. He visited 20 countries during his first year, a record number, and in China offhandedly declared that, after only a few months of his patented charm, he had “restored America’s standing in the world.”
America’s economic standing in the world has taken a beating since then, as have Obama’s political fortunes — and now, only two years after sending his hope-and-change pixie dust swirling around the planet like the grit from one of those monster Mongolian dust storms, Obama has decided that foreigners are the enemy. Suddenly, Obama’s world looks less like the United Federation of Planets and more like Mos Eisley, that “wretched hive of scum and villainy,” an exotic collection of gangsters and far-flung ne’er-do-wells, inscrutable enemies with inscrutable motives.
Advertisement
Obama is not much focused on the foreigners who want to saw our heads off on jihadi snuff videos, though he has continued fighting the drone wars with at least as much gusto as his predecessor. The foreigners who seem most severely to chap the presidential hide in anno Domini 2010 are those who want to sell us goods and services. And what an enemies list Obama has compiled: the entirely fictitious cabal of foreign financiers he blamed for the U.S. Chamber of Commerce’s criticism of his party’s fiscal incontinence, the “foreign corporations” he insists are bankrolling sundry other political enemies, and, most important, the go-to foreigners American politicians rely on when an exotic peril must be rustled up in the months before a difficult election: the Chinese.
Obama and the Sinophobe wing of the Democratic party have seized upon what is for them a nearly perfect issue: the valuation of China’s currency, the renminbi. The issue is complicated enough to accommodate the intellectual vanity of the president and his coterie while consigning most voters to a state of rational ignorance, and the narrative is flexible enough to be used to explain away a great many varieties of bad economic news. It’s the all-purpose phlogiston of the self-consciously cerebral policy set. Massive trade deficits? Blame the renminbi. Investment in decline? Blame the renminbi. The fact that Obama’s reckless State of the Union promise to double American exports is starting to look like the sort of thing a luckless gambler says to himself before putting his Greyhound-ticket money on the craps table in Vegas? Blame the renminbi. Persistent levels of historically high unemployment? Chinamen are stealing our jobs and using their artificially devalued currency to do it.
The administration has been stepping up the anti-China rhetoric for a year now, and Treasury secretary Timothy Geithner underwhelmed the G-20 meeting in Gyeongju, South Korea, in late October with non-credible demands that each country adopt policies to keep both trade surpluses and trade deficits “below a specified share” of GDP, with his preferred target being about 4 percent. The Indian delegation responded with whatever the Hindi is for “Get the hell out of here!” — or, as finance minister Pranab Mukherjee, New Delhi’s man at the G-20, put it, “Protectionist policies are not acceptable.” Japan’s representative called the plan “unrealistic,” apparently ignorant of the fact that “unrealistic” is the defining adjective of the Obama administration. The Germans denounced Geithner’s proposal as a move toward a “command economy,” demonstrating a fine Teutonic flair for the obvious. (Too protectionist for the Indians, too authoritarian for the Germans — that’s our economic policy.) Geithner did not mention China by name, and China returned the favor.
It is undeniable that Beijing plays games with China’s currency in order to bolster exports. To put it bluntly, China keeps its people artificially poor, their wages artificially low, and their savings diminished in value, in order to increase the profits flowing into the state enterprises run by Beijing’s power elite, a good deal of the returns being captured by the thriving entrepreneurs who make up the officers’ corps of the People’s Liberation Army. When one considers that China’s economic strategy is predicated on creating needless poverty for its people, it all seems a lot less clever, and Tom Friedman’s occasional orgasmic moans in the New York Times sound a bit nefarious, to say nothing of embarrassing.
For a start, anyone who tries to apportion the "blame" for our current economic mess entirely on the behaviour of other countries is overly simplistic and wrong. But this analysis fundamentally makes the obverse of the mistake, and is equally simplistic.
First, I don't have the data at hand, but I think it would be instructive to look at the individual trade balances between China and its trading partners one by one. What does the set of countries who run trade surpluses with China have in common? And what percentage of the imports that make up 32 per cent (from Mr Williamson's figures) of China's GDP consists of raw materials (oil, iron, wood)? What is the makeup of the EXPORTS that China sends out is value-added products?
Put simply, if China imports tonnes and tonnes of iron to make steel, and outputs finished steel products, that is different from the other way round. My question is this: is China's economy somewhat akin to a colonial (or mercantile) economy like, for example, the relationship between England and the American colonies in the 18th century?
One massive problem I think that Mr Williamson (and others) make is to equate the situation between China today with, e.g., Japan, Korea, or Taiwan of the past. There is a fundamental problem with that, in that China is a nation of 1.3 BILLION people. Of the others, Japan is the largest, and it is roughly 10 per cent of the size of China. I worked in Silicon Valley for many years, and remember the challenge Japan presented to the tech companies; they responded, and ultimately more than weathered the challenge. Thus, the folks at Intel and others assume that the challenge from China is the same.
It isn't.
Put simply, Japan is a nation where the rule of law - and intellectual property law is in that set - exists as more than an artefact of a phony constitution.
Mr Williamson talks of how China's growth is buoyed by innovation - tell me: what major 'innovations' of the past 20 years have come from China?
That is going to change, obviously. China is home to a large pool of smart engineering talent - some of the best has been educated here in the US. As our economic situation gets somewhat bleaker, that talent is going to be returning to China, and we will soon face real competition in the area of innovation, and not just rip-offs of advances made here. That possibly will make the situation much, much worse.
I'm a big proponent of reducing the deficit spending. I'd love to hear how Mr Williamson and others are going to cut 1.3 TRILLION dollars out of our spending over the next 5-10 years.
"So what should the United States “do” about China? Nothing. Nada. Sit on our national hands."
Which means that we are going to get pols who try to do everything to get China to appreciate its currency to "save" the U.S. economy.
Also, thanks for making another point that is lost on people: The primary holders of American debt are not the Chinese, but fellow Americans. When Helicopter Ben is out there printing more money to finance the debt, know that it is Americans who are suffering the most.
After the fear, doom and gloom on display on national news these days, (depending on what station you watch) your article is both insightful and refreshing Kevin.
Thank you, and keep writing!
You’ve hit some points in your long and winded treatise while you’ve also missed some other obvious key points on the matter, glaring deficiencies on your part derived from incredible and inexplicable oversight if not intentional and willful avoidance of ulterior motive which I hope not.
1. For all the China’s policies of keeping its people artificially poor and their wage artificially lows you mentioned incommensurate with its tremendous overall economic development, the neo-imperialistic and hegemonic China is doing this deliberately and consciously with a clear objective in its mind i.e. amassing a stupendous amounts of wealth for the use of the state e.g. foreign natural resources and high-tech acquisition and military expansion and upgrading, rather than for individual enrichment at least for the time being, for higher and strategic goal i.e. pursuit of global domination as the new superpower. So while an undesirability to be poked and sneered in your eyes, it’s actually a smart strategic maneuvering designed to serve larger and more consequential future purposes with vital strategic significance to the whole country. By the way, enforcing sacrifices and demanding belt-tightening constraints and endurances on the part of masses for the overriding interest and vaulting ambitions of the country has always been a considered a highly-valued virtue deep-rooted in the traditional culture of oriental states starting from China. And the peerlessly ruthless Chinese regime has repeatedly proved itself all too skillful and effective at handling such situations as long as it deems it good and necessary for its long term strategic planning. Also, after all, the Chinese regime does it all too well to spoon-feed its already avidly nationalistic, implacable and spiteful masses of subjects with even more potent and heavier doses of the poisonous blame-the-foreign-devils-for-all-problems mentality-inducing-and-entrenching indoctrinations to which they are always conducive and possess an insatiable appetite, and lead them into fiery provocative confrontations seeking to bully, punish and despoil any Western country it feels like picking with matchless ferocity and voracity by vindictive, vengeful and vicious incitation eventually when it deems itself empowered and prepared well enough to be ready to challenge other major powers (or ex-major powers like US thanks to her reckless adoption of your gravely flawed, myopic and juvenilely cocksure and self-righteous perceptions). Thus my kind warning: Never mind the current manifold artificial policies producing a seemingly imbalanced state of “Rich State vs. Poor People”, it being just a middle step, nevertheless a very insightful and clever one, in the course of China’s meticulously and resourcefully premeditated grand cause of ultimate ascendancy and crowning on the earth.
2. Admittedly, as many so-called experts and fanatical worshipers and fundamentalists of unconditional and absolute free-trade universalism are inclined to claim, that if China drops off the list as the most prominent exporter and supplier of US consumer goods and other commodities, its place will always been replaced by Vietnam, Mexico, or Honduras, and the deficit on the part of America shall remain there if other factors keep in place. That surely will be the case, yes, but so what? Does Vietnam or Mexico or Honduras or any other possible candidate in potential succession to China, indeed, any country on the earth other than China, bring the same magnitude of threat to the core strategic interests and national security of US, the West in the whole, and to the existing international order that China possesses and is actively seeking to increase on daily basis? Does any other country in the world except China has that active and unmistakable will, that aggressive ambition and the sheer capacity on size and number for sustaining it, as manifested in its increasingly flagrancy on the international stage demonstrated by a series of continual and intensifying incidents as well as its incessant and ever-heightening arsenal building in recent years with no possible conceivable explanation other than intending for external aggression, conquest and global dominance, to strive actively to thoroughly disrupt the current world order and soundly defeat and permanently weaken US, displace and usurp its leadership position with no qualms about throwing the whole world into war and commotions if necessary? Or do any of them have the potential of developing oneself into that prominent and dangerous status of the rare breed of daring, formidable, all-powerful new global master? Apparently they all don’t. Now you see? China is a unique and incomparable monstrosity with far-reaching strategic and mortal consequences on politics and national security spheres which are far beyond ordinary context of trade and shall by no means be reckoned only with mere economic terms of gains or losses. Do not look at matters only from the narrow and one-sided territory of your present standing, learn also to examine and weigh issues of the other side, try to analyze and discern its latent strategic intentions below the surface of a seemingly single and separate issue, especially when the other side you are dealing with happens to be your largest potential challenger and avowed adversary. Don’t shortchange your own honesty and don’t fool your own conscience. Get yourself some mind refreshment so as to acquire some not-too-difficult perspective and vision!
3. Yeah, I completely agree with all you guys viscerally and solemnly stating the problem does not rest with China but with US herself. Only the problem means, and shall only mean, that US did not take timely and drastic measures to counter the vicious and virulent challenge and threat from China because US failed in the first place, and has remained in such abysmally pathetic state of failure ever since, to cut through all the haze and fog imbued with artificial nonsensical talking, excuse-finding and sugar-coating united in one continuous and treasonous shilling for China, in order to get right to the nature of China ---- the single most dishonest and unscrupulous, disingenuous and duplicitous, ruthless and rapacious nation in the history of human civilization of unprecedented and utmost turpitude and treachery. Americans have failed to keep notice of the fatal phrase of “The velvet paws hide sharp claws”, an ideal and identical proverb to be applied to China, because we Americans are too lazy and indulgent, unthinking, unvigilant, ignorant and stupid. China is basically a Frankenstein of the West’s especially America’s own making through our decades of over-generous capital and technological subsidizing non-stop. Our next generations will pay a dear price for our fundamentally wrongheaded, pink-colored infantile perception of China since 1970s.
When was the last actual "trade war"? It is funny to search phrases like "could touch off a trade war" in the Google News Archive...
1981: "West Germany cautioned the Reagan administration Saturday that blocking imports of foreign cars could touch off a trade war among the allied countries."
1986: "Australia and Canada have warned that the Dole measure could touch off a trade war."
1987: "Dukakis said retaliation could touch off a trade war..."
It looks like "trade wars" are the dogs that don't bark. Big business puts flowers in its hair and starts singing "give peace a chance..." and whew! another crisis averted.
Because the tacit assumption is that there's no possible way we (however "we" is defined) could actually have the upper hand in a "trade war."
I'm too much of a rube to know why some corporate welfare is OK (e.g. farm subsidies) and why other corporate welfare (e.g. textile tariffs) comprises a destabilizing assault on global free markets.
One should be careful about what one wishes for. We could take any newspaper article at random from the early 1980s and substitute China wherever we see Japan and they would sound exactly like today's.
We complained that the Yen was undervalued and needed to appreciate. From a low of Y256/$1 in January 1985 it has appreciated to highs in the Y85/$1 or better recently. What happened? The US' Balance of Payments with Japan didn't budge. We still import $50B more than we export to them, even though our goods have dropped dramatically in price (before our marking them up to take advantage of the shield provided by the changed terms of trade) while our cost of goods made there increased almost three fold before any price adjustment. The Japanese became even more efficient while we took advantage of the ability to raise prices and didn't become super-efficient. We induced them to become even more effective competitors not just here but in the competition for other markets. We are about to do the same with the Chinese. We'll never learn
A great piece, Kevin. I am often thinking, do not go "long" on China. As affluence spreads among China's "little people," the contradiction between the freedom to choose that they enjoy in the consumer marketplace and the inability to choose their government and their laws will build like the intersection between two tectonic plates moving in opposite directions. The inevitable earthquake which follows will shake the entire world. This is one danger we can, and should, plan for. OTOH, Mr. Li's hypothesis of a new Red Scare is not persuasive. We learned in the first Cold War how to use MAD to keep the peace. Let China spend all the trillions necessary to transform itself into a second military superpower. That effort is more likely to turn the PRC into a second Russian Federation than to turn the U.S. into the vanquished.
CHINA
“To put it bluntly, China keeps its people artificially poor, their wages artificially low, and their savings diminished in value, in order to increase the profits flowing into the state enterprises run by Beijing’s power elite, a good deal of the returns being captured by the thriving entrepreneurs who make up the officers’ corps of the People’s Liberation Army.”
I think this is precisely what happens in America. Government taxes on a company forces the company to raise the cost of material used in manufacturing by another company to produce their particular widget.
Who pays for government tax increases? The consumer taxpayer!
The company begins to feel the inevitable ‘supply and demand’ thing because the widget is too expensive. Better bargains elsewhere.
Layoffs and pink slips begin to arrive. Employees demanding a pay increase to stay up with the inflation of prices for widgets and the cost of living.
Then the professional, political, parasite arrives demanding minimum wages be increased to offset the cost increase of widgets. Any wage increase does nothing for the wage earner, except place them in a higher tax bracket, which means more money for the government to give away to the undeserving. Welfare and other entitlements suck billions from the American taxpayer.
Yesterday the price of milk was $1.00 a gallon and eggs cost $1.00 per dozen! Tomorrow, when the dust settles from global collapse, the gallon of milk will cost $10.00 and the dozen eggs will cost $24.00!
This is what the Federal Reserve is creating by printing worthless money for distribution round the world and selling $600,000,000 in bonds back to the Federal Reserve and the beat goes on!
KW hits the ball out to straight away center field in this column. A too rarely seen overview of modern economies.
Spending is the first issue. But taxes are going to go up. The only question is whether those increases will be rational or irrational.
And taxes are going to go up on the middle class because that is where the money is. The Laffer curve works differently for the rich than it does for the middle class. We'll peak out on revenues received from the rich long before we get close to balancing even a reduced budget. The rich have options not available to the middle class.
The most palatable increases on the middle class are reductions in middle class subsidies; mortgage interest, college funding, etc...
The conservative position is to require spending cuts first. We have to see last semester's grades before we pony up for next semester's classes.
