The ‘China Syndrome’ and The G 20

The ‘China Syndrome’ and The G 20

By Dwight Owen Schweitzer June 26th 2010

I suppose it all started with the Marshall Plan to save capitalism in Western Europe at the end of WW II. Since nothing breeds success like success, from that not altogether modest beginning, the use of capitalism as an element of our foreign policy, has been a, if not the, cornerstone of US foreign policy. We withheld it from South Africa to bring an end to apartheid, embargoed Cuba with less success but all in all it has been the zeitgeist of how we deal with friends and foes who we want to help or punish but don’t want to go to war with while still getting a message to.

When the Cultural Revolution in China proved an abysmal failure in invigorating the Chinese economy wiser heads began to prevail there, and in the post Maoist era, economic growth was viewed in more international terms by the Tiananmen Square leadership who saw no relationship between economic systems and political ones. They realized early on however, that they needed admission into the family of trading nations who had been given by each other what is known as ‘most favored nation’ trading status, a concept that means simply that any trade barriers a country has cannot be made worse when it comes to you. In order for China to expand its ability to trade with the rest of the developed world, they needed entrée into what is now known as the G-20, who are presently meeting in Toronto to manage the ever evolving crises that effect world trade and finance, and all of whom enjoy that coveted position of having most favored nation status with each other.

When we go back to those thrilling days of yesteryear when China an international menace, isolated and insulated, it took Richard Nixon, a sufficiently credentialed anti-communist, to begin the trend that has made China the economic super power it is today. While there are those who sigh with some level of relief that they are looking and acting more and more, like us, what is missed in the gloss of the warm and fuzzy relationship we seem to share for the most part, is that China and the United States are in a state of war. It is not a shooting war it is an economic war, and but for a few of the more backward spots in the world where real war is waged as we think wars ‘ought to be waged’ this is a very different kind of war. It is a 21st century kind of war, a war over wealth and wealth is power in a world where GNP is the mark of status and the goal to be improved by those in power.

By that standard, China lamenting that its’ economic growth will fall to just under 8% as a result of the world economic crisis is the political equivalent of laughing all the way to the bank. The United States by comparison, and comparisons are much more complex than is implied here, is happy to see a modest 2.9% growth in GNP in the last quarter. More importantly, China is the largest creditor of the United States, a situation that is going to get worse long before it gets better if it ever does.

How they were able to carry this out in such a relatively short time, one might ask, and here the answer really is simple, so simple that the degree of stupidity that allowed it has to be called into question. Remember that the Chinese wanted ‘in’ to that select group of nations that had most favored nation status with each other for the most logical of reasons, foreign trade meant hard currency when the Yuan was not worth the paper in was printed on in foreign exchange little more than a generation ago. Here is where we get back to the marriage of foreign policy and international monetary policy and the overriding idea that fostering the growth of capitalism is the mid-wife of democracy. To give the devil it’s due, no one thought that a central government could run a capitalist based economy with any degree of success and so they were willing to take the chance that by promoting capitalism in China they would not only come to look like us, they would come to be like us.

The policy makers in China however, knew better, they would just invite us in to ‘capitalize’ their economy while making sure that no foreign company allowed ‘in’ was controlled by the foreign interests that brought it. OK, that was not too hard to take, given that a billion potential consumers were worth some sacrifices, and after all we wanted to help them become just like us as quickly as we could because we knew that the old methods there resulted in things like the massacre at Tiananmen Square, and those sort of things are less likely to happen when we have trade sanctions as an added weapon to keep them in line.

But there was just one more problem to solve; they needed to buy lots of stuff to get their new economic engine started, not to mention up and running and we wanted to be sure this introduction into the world economic trading fraternity was a success and they had only one modest request. In order for their currency to be respected in the markets they needed to get to, it would be really helpful if they could peg its’ value to the dollar. Well, if they were buying more than they were selling that was just fine and who thought that would change anytime soon. However if they were selling more than they were buying…..but who ever thought that would happen and if so, trade deficits come and go. China was a poor country at the time, third world by most standards, with a billion mouths to feed, not much of an infrastructure, and so we let loose a unique economic engine upon an unsuspecting world, a regulated capitalistic economy.

The magnitude of that mistake, while no longer in its infancy, will, at current and projected rates of growth make the Chinese economy the largest in the world in less than 15 years. It is interesting to remember that not so long ago the Chinese questioned whether the dollar should be the standard by which other currencies are measured. No one took them seriously at the time but that trial balloon is the harbinger of the day when it is the Yuan.

In parting, it is worth noting two interesting statistics; the Chinese have more honors students than we have students and in ten years they will be the number one English-speaking country in the world.   ‘…..For the times they are a changin….’ http://www.youtube.com/watch?v=NY27PbQ4Ig4

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