The New China Syndrome

chinese-flagSince last month China has been on an economic rampage that could have serious long- term effects on the United States and Europe. While Americans have been inundated with a vast and steady diet of “news” focused on personalities (the ongoing deaths of Michael Jackson and Farrah Fawcett and the death-like experiences of Governor Mark Sanford, Senator John Ensign, and Governor Sarah Palin, just to name a few) the economic movements in China that will have a much more significant impact on Americans and their futures have gone virtually unreported by both the American major print and electronic reporting media. Unlike American media, foreign news services have given front-page coverage and deep analytical assessments of China’s economic developments.

Examples of these significant developments include: 

  • The very rapid economic recovery of the Chinese economy as against those of the U.S. and the E.U. in the wake of the world-wide economic crisis;
  • China’s institution of a broad and deep “Buy China” program despite China’s protests of American congressional consideration of an expansion of its “Buy America” program three months ago (because China’s economy includes many state- or military-owned industries, a “Buy China” program that is facilitated by the top-down structure of Chinese law and government can have a much greater disruptive impact on world trade than a “Buy America” program);
  • A complaint filed by the U.S. and the E.U. with the World Trade Organization addressing China’s blocking the export of essential raw materials that would be used by competitive industries in the U.S. and E.U. (China has pointed out that it did not agree to the system of world export trade);
  • An effort by China (and Russia) to move away from a U.S. dollar-based world trade system to a broader market basket of currencies.

For Americans these issues are quite important.  The ability to obtain raw materials that will be used in creating the products of American labor and the opportunity to export American-made goods on a level playing field  is essential. One does not need to be an economist to understand that it will be very difficult to rescue the American economy if American industry cannot produce goods or cannot sell goods in foreign markets. Indeed, the Chinese remember very well the nineteenth- and twentieth-century imperialism that undermined Chinese society and its economy by draining natural resources and causing the Chinese to have to buy imported finished goods at high prices. With the hollowing out of American manufacturing during the past quarter of a century, the great costs of war, and the recent undermining of the American banking system leading to the current debtor-nation role of the U.S., we can ill afford to endure trade barriers.

The importance of these economic issues transcends mere American business and financial concerns. At their root is a very different outlook as to the role of government in transnational trade, and different approaches to foreign policy and world environmental, labor, and human rights issues.  This is not to say that Chinese self-interest, however it is defined by its government, is inherently antithetical to American interests. Rather, if the U.S. and the E.U. are going to deal effectively in an open world trade environment, they must have citizens who are familiar with the trade issues and actively involved in supporting a policy that provides growth for all. This is especially true at a time of great world economic vulnerability and a very real potential that the kind of protectionism that undermined world trade in the 1930’s may be revived and threaten to lead us into the kind of world economic depression that was a significant factor behind World War II.

This Post Has 3 Comments

  1. Gary McCarty

    We lead, and others follow–or retaliate. In other words, we make our own bed and then lie in it. If GDII arrives, it will be on our shoulders.

  2. Ron English

    In regards to the author’s comments concerning China’s stockpiling of natural resources, I submit that at least on a limited level America should be following the lead of its eastern neighbors. Specifically, I have for some type believed that at this opportunistic moment, America should double the size of its Strategic Petroleum Reserve (hereinafter “SPR”).

    For those of you unfamiliar with the SPR, Congress through the Energy and Policy Conservation Act following the 1973 Energy Crisis mandated that one billion barrels of petroleum should be stored as an emergency safeguard. Currently the SPR inventory holds roughly 724 million barrels of petroleum. That is roughly 72 days of oil at current consumption rates. The government estimates inventories will reach one billion barrels in 2010. I submit the reserve capacity should be doubled to further safeguard America as demand continues to increase and the risk of speculation remains.

    I think it is safe to say many if not all of us appreciate the importance of oil. On or around Feb. 2009 crude oil on the Nymex was selling for roughly $35 a barrel. A price drastically less than the highs of $140 a barrel not too long ago. What better time than now exists to increase our supply of petroleum when oil is selling at a such a relatively low price? An increase in inventory will allow the America government to better navigate the speculative oil market and substantially benefit taxpayers when, not if, speculation creeps back into the marketplace.

    China is merely taking the same action I proposed. While China’s interests are self-serving and concern over market manipulation remains, China is protecting their interests by buying natural resources while prices are low, similar to the rational behavior of any private buyer. This type of “fiscal” policy will certainly pay dividends for China and America should not be caught asleep at this opportunistic moment.

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