The Dangers of Sinophobia
On the surface there was a triumph of trade two weeks ago for U.S. corporations and the Chinese people. Almost simultaneously, the Big Three in Detroit, followed closely by GE and Boeing, announced massive trade deals with the Chinese government valued at over three billions dollars.
For his part, GM chairman and CEO Rick Wagoner sounded quite enthusiastic. "We believe now is the right time to introduce our Cadillac luxury brand to China. Today's agreement also indicates the seriousness of our intention to be a major player in China," he was quoted as saying. To be sure, the sun was shining bright for all parties concerned.
Yet upon closer inspection, the newest trade deals involving American corporations and the Chinese government look less like free trade and more like mafia thuggery. Using the threat of trade sanctions, the U.S. government has bullied the Chinese into purchasing billions of dollars in goods from only a few corporations. Just as the mob would exact tribute, the U.S. government is now playing the part of the mob and the Chinese government playing the hapless storeowner.
The reason behind the communist party’s sudden largesse is in fact fear—the fear of reprisal. There has been a dark cloud hanging over Washington with calls for protectionism on the ascendancy. The Bush administration has made it clear that it will not stand an "un-level playing field," whatever that may mean.
Holding true to their word, Bush and Co. enacted quotas on bras and other garments imported from China. For their part, the Chinese have threatened to retaliate with some type of import restriction. News of the insipient trade war sent the dollar plummeting. Warned Alan Greenspan, "Some clouds of emerging protectionism have become increasingly visible on today's horizon."
The U.S. government’s recent spate of demands on the Chinese government perhaps reflects less of a genuine disapproval of China’s handling of their economy and more of an attempt to appease the manufacturing industry. Bush will now be able to stand in front of some factory next year and declare that he has fought for American jobs. The People’s Daily of China, which acts as a mouthpiece for Communist Party propaganda, bluntly summarizes the Bush economic doctrine: "Growing domestic unemployment has led many U.S. politicians to simplistically put all the blame on China even though Chinese exports to the United States account for only about 1 per cent of the U.S. gross domestic product."
In reality, Bush has fought to save some American jobs at the expense of countless others. While the evidence is not clear on whether or not the "death knell" has sounded for America’s manufacturing sector, Bush has shown once again that he is not afraid to break the baker’s window to support the glassier.
In a wonderfully written piece of fiction for the Wall Street Journal, Commerce Secretary Don Evans opined, "From day one, the Bush administration has been working to level the global playing field for American workers. Committed proponents of free trade, like the president, have a responsibility to ensure that our trading relationships take place on a level playing field."
Mr. Evans comments, it must be remembered, came within two weeks of the WTO’s ruling against Bush’s steel tariffs. He continues: "Several proposals in Congress reflect the tension in our trade relations with China. One measure would repeal Permanent Normal Trade Relations with China while another would impose a 27.5% tariff on all Chinese exports to the U.S. The Bush administration opposes these proposals, but they should serve as ample warning to the Chinese government that progress—not promises—is required." China’s only crime is selling goods too cheaply.
During the early to mid-1990s, some politicians, journalists and intellectuals began to create the "China Threat" in the minds of the public. The threat, as of then, was more or less confined to matters of military security. Reports of China’s purchase of military secrets from the U.S. only heightened Sino-U.S. tensions. As it became obvious to most casual observers that these allegations were largely untenable, the "China-as-economic-threat" was born. Recent headlines detailing the slow, painful and quite noisy death of the manufacturing sector have added gas to the Sinophobia now infecting much of Washington.
Perennial economic pessimist Pat Buchanan summarizes the new economic threat from China: "Hamilton, Clay, Lincoln, and T.R. would recognize China’s policy for what it is and counter it. But this generation of free traders does not have a clue as to what is going on, or does not care. Either way, the consequences will be the same: de-industrialization of America, decline of the dollar, a deepening dependency on foreign countries for the necessities of our national life, diminished sovereignty, and eventual loss of our independence."
The shift from military to economic bellicosity on behalf of the U.S. government is positive in only one sense. Bastiat once wrote that guns cross boarders when goods don’t. In the case of China and the U.S., the now commercial interdependence between the two countries essentially excludes any possibility of military aggression. As the Washington Post reports, "more than half of Chinese exports to the United States are produced by factories wholly or jointly owned by American companies, according to the China Council for the Promotion of International Trade, a government-affiliated group."
As the example of Cuba and North Korea show, belligerency and militaristic posturing move inversely with the level of capitalist integration. The United States is able to threaten Cuba and North Korea precisely because it can do so at little financial loss. A war with China is now unthinkable due to the destruction it would bring not only to the U.S. and China, but to the world in general. In short, commerce facilitates peace.
Viewed in this light, the threats of protectionist action against China are more than mere blusterings in the halls of Congress. The opinion of some that our greatest trading partner also represents the gravest of military and economic threats is as ludicrous as it is dangerous. The Sinophobia now infecting the Beltway and some corporate boardrooms must not be ignored. The peace and prosperity of the world, in large part, depends on our continuing economic ties with China. In short, the fetters of economic nationalism must be broken in the hearts and minds of the American public so that the mistakes of the 20th century are not again repeated.
Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.