The least understood central issue of our time
Irwin Stelzer lays it out:
The Chinese are playing grandmaster chess against an amateur America that can’t see beyond the second move. In a bipartisan display of geopolitical obtuseness, America continues its historic trade policy: It’s free trade, except occasional lapses into protectionism when a whinging constituent must be placated, with a reliance on the World Trade Organization to settle disputes (and believing it has won something of significance when the WTO sides with it in a dispute over such a key product as cheap tires). Occasional public complaints about China’s persistent undervaluation of the renminbi, but refusal to declare the regime a currency manipulator. And conferences, conferences, conferences. All very 20th century.
China is doing a very different thing. The Communist regime sees trade policy as merely one weapon in a war aimed at overtaking the United States as the world’s preeminent economic and, by extension, military power. The undervaluation of the renminbi is a necessary means of keeping China’s export machine running at full tilt so as to create jobs for the millions who are moving from the country to the nation’s cities. Lacking democratic legitimacy, the regime’s principal claim to the loyalty, or at least the submission of its people, is its ability to provide jobs and a rising standard of living, doubly important in this period of transition to a new generation of leaders in 2012. Americans chortle: that mercantilist program of subsidizing exports cannot be sustained forever, as the inflow of dollars will sooner or later trigger inflation. Right: indeed, that is already happening, and forcing the regime to adopt a variety of measures to curb credit and inflation.
But largely irrelevant in the longer term on which the Chinese are focused. By the time the Chinese decide they will have to allow the renminbi to appreciate, they will have accomplished two long-standing objectives. First, their vaults will be stuffed with an even larger hoard of American IOUs, enough to give them an important influence over U.S. foreign policy…Second, by then the Chinese will have copied enough American and Western technology to be in less need of an undervalued renminbi — they will have made-in-China products that can dominate world markets even if their currency approximates its market value.
The wholesale offshoring of US business, which will eventuate in the offshoring of a large portion of the American middle class, is perhaps the worst threat the country faces — and the least understood and appreciated. There is a vast amount of political and corporate irresponsibility and shortsightedness involved, and it must be stopped. Surely if anything merited a a truly bi-partisan approach, it is this. Will anyone lead the charge?
Related: America’s current and completely unnecessary aversion to big industrial achievements.
December 19th, 2010 at 1:25 pm
It’s already too late. Automation will replace the low skill jobs that have moved offshore. They won’t come back as employment for the low-skilled and uneducated. Our public education is a joke among first world countries. Given the political climate and teacher’s unions, it won’t be fixed.
The Tea Party might turn things around, otherwise the political class will feast on the carcass of America for a generation or two. I’m not hopeful, and pray I am wrong.
In the long run, China won’t win either. the demographics are wrong. The future belongs to those who reproduce. Think Islamists. Sorry, kids. We inherited a Republic and couldn’t keep it.
December 20th, 2010 at 6:43 am
Monday morning links…
Re-reading Atlas Shrugged The chess game China is playing Jacoby: The great Romneycare denial Vanderleun on abortion Soros vs Murdoch: The battle for the soul of America Robert Reich wants bigger govt to deal with inequality The case for the constit…
December 20th, 2010 at 9:48 am
Sorry – closed societies cannot ultimately compete with open ones. China is drawing mass production with near-slave labor. As wealth accrues, that will become harder to maintain. Articles like these ignore the rising social unrest and continued corruption in China – which hamstring economic development.
China presents no challenge in the area of technological innovation (as Japan did).
Automation will also hit the Chinese eventually – and since their labor force is unskilled, it will hit them harder.
December 20th, 2010 at 1:43 pm
so far the Chinese have been remarkably passive about the inhuman conditions in which many of them work, and the incredible pollution which is killing them.
We keep thinking that they will rebel, but I’m not so sure. I don’t think the current set-up is as unstable as we think it is. Call it Conucianism, call it whatever you want to — the Chinese are not Americans.
December 20th, 2010 at 2:59 pm
“Sorry – closed societies cannot ultimately compete with open ones. China is drawing mass production with near-slave labor. As wealth accrues, that will become harder to maintain. ”
It won’t, as the labourers won’t accrue the wealth, government bureaucrats will (hmm, US congress?).
If you need more labourers, just round up another few thousand proles on trumped up charges of “sabotage of the Party”, “improper zeal”, or whatever, and send them to the labour camps for “reeducation”, from where under Chinese “justice” there’s no release, ever (after you complete your sentence you’re by law required to live within a certain range of the camp for the rest of your life, the only work being in the factories supported by the camp and the camp itself, at wages that are totally dependent on your ‘good behaviour’ and barely enough for subsistence at best so you think twice about even thinking of disagreeing with the government.
December 20th, 2010 at 3:14 pm
I’ve long suggested that inflating the dollar is a geo-strategic move to reduce the real value of China’s accumulation of dollars. It looks like the easy counter-move and one that American policy makers would not resist.
With the opening of China, it dumped a billion very cheap workers on the world’s labor pool. Just like a new gold mine or supergiant oil strike, the added supply reduces the price. In this case, labor is cheaper and overpriced labor will suffer.
However, China is bumped up its ability to employ that surplus labor supply and wages will rise for those near supporting infrastructure. Then the bonanza will be over and it should be back to some quasi-equilibrium.
Yes, China’s ruling class is thinking ahead in ways that our chaotic western democracies can not. Yet, is firm planning from the top such a real advantage in a dynamic and chaotic world? Or is the “Army of Davids” a better social organizing principle?
December 20th, 2010 at 3:32 pm
What a strange article to cite to: The Forbes author bemoans the fact that America cannot implement massive socialist schemes? That’s something to lament? Uh, no. If there is any one explanation for the erosion of American greatness it is creeping socialism, followed very closely by massive Third World immigration/multiculturalism — which leads to more socialism.