What Were We Thinking?

Trading With China Since 1988

by Godfree Roberts

https://www.unz.com (January 17 2020)

 

 

The suggestion that any American administration had the power to influence decisively the course of a tremendous domestic-political upheaval in another great country on another side of the globe is intrinsically silly and childish. No great country has that sort of influence on the internal developments of any other one.

– George F Kennan {1}

 

In 1941, the Council on Foreign Relations produced a key document for the US State Department, “Methods of Economic Collaboration: The Role of the Grand Area in American Economic Policy”. The report proposed that the Western hemisphere, large parts of Europe, the British Empire, the Dutch East Indies, and the Pacific Rim including China and Japan would be a “source of raw materials and a market for our manufacturers”. To this proposal, the State Department added, “To seek less than preponderant power would be to opt for defeat. Preponderant power must be the object of US policy.”

Four years later, in 1945, Mao {2} wrote President Roosevelt a plea he would repeat to Truman and Eisenhower, “China must industrialize. This can only be done by free enterprise. Chinese and American interests fit together, economically and politically. America need not fear that we will not be co-operative. We cannot risk any conflict.” They ignored him, perhaps because they knew what he had told colleagues {3},

 

 

Some people refuse to understand why the Chinese Communists do not fear capitalism but, on the contrary, develop it as much as possible. Our answer is simple: we have to replace foreign imperialist and native feudalist oppression with capitalist development because that is the inevitable course of our economy and because both the capitalist class and the proletariat benefit. What is superfluous is not native capitalism but foreign imperialism and native feudalism. On the contrary, our capitalism is indeed too little. To develop industry, enormous capital is required. Where will it come from? It can only come from two sources: the capital accumulated by the Chinese people themselves and from foreign loans, and we must welcome all foreign investments as long as they obey the laws of China and are advantageous to our economy.

 

In 1979 his successor, Deng Xiaoping {4} added,

 

 

Those countries want to apply sanctions against us? All right, but first, let’s ask them why this is any of their business. And second, if it is, then we can fight with sanctions, too. Our economic growth might suffer, but not all that much. We’ve done all right under international sanctions for most of the forty years of the People’s Republic. So we don’t have to worry too much; we can take it all calmly. This little tempest is not going to blow us over. We’re not trying to offend anybody; we’re just plugging away at our own work. Anybody who tries to interfere in our affairs or threaten us is going to come up empty.

 

In 1997 the Council on Foreign Relations published its findings on trade in a 400-page book, China Joins the World {5}, summarizing the national debate on trading with China between economic nationalists; accommodational ideationalists; confrontational ideationists; confrontational realists; and neoliberals:

 

THE POWER OF IDEAS

 

Economic Nationalists concur that economic strength has become central in world affairs and that trade issues are paramount in a nation’s agenda. They therefore emphasize that the United States should stipulate the terms of Chinese entry into the WTO in a way that clearly protects American national interests, that the United States employ trade sanctions until China meets American expectations in such areas as protection of intellectual property rights and/or working conditions of Chinese labor meets American expectations and that protectionist measures should be undertaken until China addresses its trade imbalances with the United States.

Accommodational Ideationists believe that the key target should be China’s leaders and strategic thinkers – the elite – and the message should focus on the nature of the post-cold-war world. They advocate lengthy and candid discussions between the two sides concerning each side’s fundamental values, interests, and strategies. They hope that out of such discussions, requiring many hours of patient explanations, would emerge a deeper understanding of how the two nations can best cooperate in an area where their values and interests overlap to the areas of divergence.

Confrontational Ideationists tend to scorn the top elite and rather advocate targeting the broader Chinese public in service of democratic values. The supporters of this approach phrase their purpose in diverse ways. Some, assuming that significant pro-democracy and pro-human rights constituencies already exist in China, wish to provide those Chinese with the information they need to sustain their beliefs and activities. Others, less sure that many Chinese adhere to the values championed by the United States, wish to cultivate such sentiments. The Confrontational Ideationists support Radio Free Asia, people-to-people diplomacy and exiles dissident communities as well as dissidents within China. They recommend confronting China’s leaders with the inadequacy of their ideology and challenging them to embark on democratization. Adherents of this view draw their inspiration in part from the role they believe such activities ultimately played in the transformation of Eastern Europe. They argue that the United States must begin now to prepare for the upcoming hostile and tense relationship with China. They draw parallels between China’s rise and that of the Soviet Union and advocate girding for a new cold war by maintaining a robust American military presence and strong alliances in Asia.

Neoliberals are confident that an open international trading system, with minimal constraints on trade, will promote American and international economic growth, and that openness and growth, in turn, will promote liberalizing tendencies and democratic values around the world. Moreover, the telecommunications and transportation transformations make an open trading system and international financial system more feasible than in the past; foreign trade is physically easier to carry out than in the past. China’s increasing involvement in international trade is to be encouraged and accommodated since the nation’s leaders then will have greater incentive to support the existing international trade regime. Chinese membership in the World Trade Organization (WTO) is, therefore, a priority objective, as is opening the country to foreign direct investment, assisting it to develop its capital markets, and securing foreign access to the service sector of its economy. The United States must retain an insurance policy in case the effort fails, especially through maintenance of robust bilateral alliances with its partners in the region and a credible, forward-deployed military presence in the region.

 

By July 2016, it was clear that things had not gone according to plan and Peter Navarro, White House director of trade and manufacturing policy, predicted that the mere threat of tariffs would force China to capitulate. “The purpose is not to impose tariffs. The purpose is to use the threat of tariffs as a way of getting the attention of any trading partners that cheat, and, basically, encouraging them to play by the rules, knowing that Trump, if they don’t, damn well will follow through on that promise.” A tariff program, he said, is “Kind of like the military – if it’s strong enough, then nobody messes with you”.

By October 2019 tariffs, which had been in place for fifteen months, suppressed investment and weighed on the American economy. The New York Federal Reserve (Fed) found that, despite the tariffs, Chinese wholesale prices had not changed and US companies and consumers were paying the entire $40 billion tariff costs. Researchers estimated that that tariffs have been passed on entirely to US importers and consumers {6} and, by year’s end, they would cost the average US household four thousand dollars and the Department of Agriculture had spent twenty-eight billion dollars in aid to farmers for lost exports – more than twice as much as taxpayers spent to bail out the auto industry in 2008.

In 2020, China’s economy is one-third bigger than ours and grows three times faster. Our execrable media have deceived us about China as they did about President Trump, as this review of the past twelve months suggests:

* Yesterday, Vice-Premier Liu He said, “We stuck to two important conditions during negotiations. The first was that it won’t hurt any third party, and the second was that it sticks to the principles of the World Trade Organisation. Liu said Beijing has little interest in immediately starting negotiations on phase two of a trade deal with the United States, contradicting President Trump’s suggestion the next stage of talks would start soon.

* Chinese companies signed Belt and Road (BRI) contracts worth nearly $128 billion in the first 11 months of last year, a 41 percent increase over the same period in 2018.

* Despite the tariffs and simultaneous attacks in Hong Kong and Xinjiang (which ceased once the trade deal was signed), GDP is growing faster than ever: the economy added $1.60 Trillion in 2019 vs $1.00 Trillion in 2009 {7} in 2019, grew 6.2%, to $27 trillion vs US $21 trillion PPP.

* Though China’s 2019 trade volume shrank 1% to $4.6 trillion, its trade surplus reached $421.5 billion, higher than in 2018 and marking the third-highest since 1950.

* Goods exports grew 7.6% year-on-year (YoY) to $237.7 billion/month. Imports jumped 16.3% YoY to $191 billion.

* Shipments to ASEAN surged 13% while those to the UK rose 10%.

* Trade with BRI partner countries totaled $1.34 trillion, up 10.8 percent YoY, making China the biggest trade partner of 25 BRI countries.

* Total 2019 revenue of US companies and affiliates in China, for one year, was six hundred billion dollars. The odds that these numbers can fall 80-90 percent are zero.

* Foreign direct investment into China rose 6 percent and US companies invested $13 billion, up 1.5% YoY.

* Facebook sold over $5 billion annually of ad space to Chinese businesses and agencies, making China its biggest country for revenue after the US.

* To­tal as­sets of Chi­nese bank­ing sec­tor in­sti­tu­tions were 284.67 tril­lion yuan, for YoY growth of 7.7%, while to­tal as­sets of se­cu­ri­ties sec­tor in­sti­tu­tions were 7.83 tril­lion yuan, for YoY growth of 13.6%. To­tal as­sets of in­sur­ance sec­tor in­sti­tu­tions were 19.96 tril­lion yuan, for YoY growth of 11.7%.

* China has the high­est level of wealth ac­cu­mu­la­tion and the low­est wealth ex­pectancy gap – the dif­fer­ence be­tween what re­spon­dents be­lieved they needed to re­tire com­fort­ably and the amount they would likely have at the age of 60 based on eco­nomic fore­casts.

* China’s Box Office Total Breaks All-Time Record in 2019 – Variety

* Retail sales grew by 8 percent.

* Leading insurer Ping An net profit rose 68% and Ping An Bank’s average salary rose 21%, to $82,055 PPP.

* The economy created 13.52 mil­lion new ur­ban jobs in, while the na­tional reg­is­tered ur­ban un­em­ploy­ment rate stood at 3.62%.

* Rail cargo grew 6.8%. Excavator sales rose 12%. Heavy truck sales rose 11% percent.

* The mar­itime econ­omy grew 6.3%

* Average real wages rose 6%, as they did in 2018. Shanghai’s minimum wage rose 10 percent.

* Mobile payments rose 60% YoY.

* China overtook the US as the world’s largest fashion market.

* Profits at Chinese companies with a market capitalization of over $1 billion grew 10%

* 60% of the world’s fastest 500 supercomputers are in China.

* China led the Nature Index of high-quality research in chemistry, and leads in four of the eight basic sciences: mathematics, engineering, computer science, and materials sciences.

* Over the past 5 years, US research article publications would have declined without co-authorship with China, whereas China’s publication rate would have risen without the USA.

* Household finances remain healthy.

* China’s Richest Cities:

As Herbert Schiller {8} says,

 

 

Media manipulation’s greatest triumph, most evident in the United States, is to have taken advantage of the special historical circumstances of Western development to perpetrate as truth a definition of freedom cast in individualistic terms, enabling the concept to serve a double function: It protects the ownership of [social] private property (factories, land, et cetera), more or less absolutely, while simultaneously offering itself as the guardian of the individual’s well-being, suggesting, if not insisting, that the latter is unattainable without the former. Upon this central premise an entire scaffolding of manipulation has been erected.

 

It’s bullshit, as we are in the process of discovering. Everything we’ve been told about China – everything – is wrong.

Notes:

{1} New York Times, October 28 1992.

{2} Mission to Yenan: American Liaison with the Chinese Communists, 1944-1947 (1997) by Carolle J Carter

{3} Portrait of a Revolutionary: Mao Tse-Tung by Robert Payne. Abelard-Schuman. 1950.

{4} Deng Xiaoping. The Tiananmen Papers, page 423.

{5} China Joins the World: Progress and Prospects. Michel Oksenberg and Elizabeth Economy, Editors., The Council on Foreign Relations Press. October 19 1998

{6} NBER Working Paper No. 26610. Issued in January 2020.

{7} PPP and inflation-adjusted

{8} http://www.chinabankingnews.com/2019/12/19/china-has-worlds-highest-wealth-accumulation-rate-standard-chartered-report/

{9} https://variety.com/2019/film/news/china-box-office-breaks-all-time-record-cinema-ne-zha-wandering-earth-1203447147/

{10} https://link.springer.com/article/10.1007%2Fs10734-019-00464-7

{11} https://www.greanvillepost.com/2016/02/10/schiller-the-packaged-consciousness/

https://www.unz.com/article/what-were-we-thinking/

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