Wednesday, August 22, 2007

A Conservative’s Viewpoint
China - A Force To Be Reckoned With

Article by Bob Steinburg - Edenton, North Carolina: Cradle of the Colony

The United States and China are in a race for economic dominance. We look in our rear-- view mirror to see them on our bumper waiting to overtake the economic pole position we have long occupied. Competition is good and brings out American ingenuity and resolve.

In the 1980’s it was Japan riding our bumper and most thought they would overtake us to become the worlds leading economy. We were struggling with the Cold War which drained the emotional and financial resources of America. Paul Kennedy in his book “The Rise and Fall of the Great Powers” said we were suffering from “imperial overstretch” and predicted we would decline as a nation. The Soviet Union crashed and burned and today Japan is no threat-but China is.

In 1972 Richard Nixon, the first president to visit China, proposed a loosening of trade and visa restrictions, and encouraged a cultural and scientific exchange. A country whose population represents one fifth of the human race and the potential to develop into the world’s largest market could not be ignored. The president believed China could become a huge player in the international movement of goods and capital. He was right. Nixon’s vision would prove to be the greatest legacy of his ultimately disgraced presidency.

China’s population of 1.3 billion is a Leninist regime engaged in a semi -- capitalist society.

The Chinese people are awakening from their centuries -- old slumber, with a hunger for goods, services and freedoms. Their leaders want the best of both worlds -- control the hearts and minds of the Chinese people, and the economic benefits realized through China’s participation in the World Trade Organization. Walking this tightrope could lead to the end of communism here.

China’s leadership has no desire to relinquish power and is confronting a dilemma-- risking continuing their foray into capitalism, or retreating from the economic stage with the possible consequences of a North Korean -- like existence? A difficult choice for China’s leaders perhaps -- but not her people.

Pandora’s Box is open and the world is staring into the eyes of an 800 -- pound economic gorilla.

Our trade-gap with China is $232 billion. To help counter this, the U. S. wants China’s currency to rise- but keeping exports cheap is what gives China the ability to flood markets with quality goods at inexpensive prices.

China fears that raising its currency threatens the existence of hundreds of thousands of textile workers and their employers who are already operating on razor thin margins.

North Carolinians know a thing or two about razor thin margins. In the manufacturing sector alone we’ve lost 100,000 plus jobs in textiles, apparel, and furniture since 1990. Plants closed, and jobs moved off-shore. Many firms couldn’t compete with products made in China and elsewhere. Manufacturing is the economic backbone of our rural counties, and each loss has devastating consequences.

Treasury Secretary Henry Paulson recognizes we have a problem, yet has discouraged Congress from slapping China with trade sanctions, as one possible solution. Many economists and free traders don’t like this idea, but the threat of imposing sanctions may prove a strong tool in getting China to an economic summit.

The U. S. must keep the pressure on. China cannot continue to ignore our trade deficit and must come to the realization that our deficit is unsustainable. The most logical place to start is for China to open up more markets to U. S. products, reducing our trade deficit, and putting teeth back into “balance of trade”.

The U. S. imports more than 30 percent of China’s exports. China has considerable holdings of our dollars and Treasury Bonds. Both nations have more than a little reason to get this right.

While we may not be able to keep China in the rear -- view mirror forever, we need to secure a more equitable trading agreement with our “friends” in the orient, before it is too late.

Made in China. Whoever thought it would be this complicated?

An important issue on which Bob and I disagree is the concept that we are in a contest to be the world's super power. I don't agree at all that such a goal is what we seek. I also don't think we need fear long term any nation that is controlled the way the China economy is controlled. Henry Paulson (mentioned in Bob's article above) is simply an economist who recognizes that slapping trade sanctions on China is a way to "control" our own economy and will hurt us more than the Chinese are hurting us now. China is in an early part of the free enterprise cycle that means internal competition provides them with a temporary advantage that their socialist nature will not sustain.

I wish that more conservatives would recognized . . . we should be in a race to be the world's most free nation. Economic success is the result. Our victory in the last contest against the Soviet Union should have provided lessons for this new so-called contest against China. Our strength and the source of our victory was our resistance to the socialist control that ultimately assured the demise of the Soviet Union. Too many people do not understand the key component of our economic strength is freedom.

I personally wish more conservatives would recognize the practical difference between "capitalism" and "free enterprise". I repeat, freedom is our strength. Freedom only occurs in a system where competition remains and that is not true of pure capitalism. Pure capitalism leads to monopoly by the winner.

Big business (which is what most people mean when they say capitalism) loves monopolies. Capitalism allows for monopolies to exist if they are created "naturally" by the competition included in "free enterprise". However monopolies end "free enterprise" because the people, the customers, lose their freedom to choose as monopolies occur. Any system of "free enterprise" must assure that even naturally created monopolies are not allowed to remain as they kill the competition which provides freedom of choice.

Their are many ways big business pretends it is "fair" to retain the lack of competition a monopoly creates. Patents and copyrights are one way. Patents and copyright protection are fair when they encourage the genius of a people. They become a burden when they are sustained too long or they are not enforced to protect genius but to protect big business. China's short term violation of our patents and copyrights (a component of their current success) is not going to be sustained as their own people start to invent things they will want to protect. Social benefits from high taxation and government "control" of business , things socialists love, are another favorite defense of big business and another issue that will hurt China longer term. Both failure of a fair intelectual property system (patents and copyrights) and government control are ultimately destructive of freedom and the concept of "free enterprise". China suffers from both and that will assure our victory if America simply focuses on freedom.

Our focus should not be on managing the balance of trade between our two nations. That has been tried before and the mercantilism concept (managed trade) has never worked any better than socialism has worked.

As China gains more internal competition their socialist oriented government will not be able to resist the control of business that socialist governments always want. Right now they are starting at such a low level of economic success that growth is easy and internal competition is rampant. However as their business grow and start to compete with each other, the easy advantage they currently have will disappear. The government's natural desire to tax profits and determine who wins will create the burden that always destroys socialism. Their growth will slow and the nation which provides the most freedom will prevail. As with the Soviet Union that will happen long before they overtake us.

I pray that we focus on avoiding all the economic failures of the past. Mercantilism (another name for this is managed trade which Bob is proposing) is as evil as socialism. Both are threats America needs to avoid.


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