America’s all-out effort to “de-risk” our trade with China, or “stabilize” our relations with the People’s Republic are polite ways of saying we aren’t serious about our contest with the communist regime for power and influence.
Yellen Receives A Smiling Welcome
Our efforts so far took an economic turn when President Biden sent treasury secretary Janet Yellen to meet with her Chinese counterparts, some remembered as trusted negotiating partners from the days of trade deals. The Chinese economy is in trouble, so she was granted a cordial reception. If China can persuade Yellen that it is not in America’s interest to do more than act against a few points of its economic vulnerability rather than launch a full-scale attack on its economy, the handshakes and smiles will have been worthwhile.
China knows a thing or two about how devastating economic warfare can be. For decades the communist regime sought to undermine the American economy by stealing intellectual property, violating WTO trade rules, manipulating its currency, gutting the manufacturing sector. Xi understood that a prosperous America is not in China’s interest other than as a resident on the one-way street marked “Free Trade” down which Chinese goods travelled.
In that, he is no different than America’s leaders. They, too, understand the power of economic weapons to damage an adversary. America has sanctioned Russia, North Korea and Iran in an effort to reduce their ability to continue and expand their aggressive and terrorist policies. With mixed but sufficient success in damaging their economies to make them struggle to have sanctions removed, or develop costly work-arounds.
Previous American Supplicants Came Up Empty
Previous visits by high level American suppliants were not very productive: Xi continues to sulk because we had the temerity to shoot down a spy balloon that President Biden assures us Xi did know about. (He is unlikely to exonerate what he calls China’s “dictator” of knowledge about the surveillance station the PRC is building in Cuba.)
Secretary of State of State Antony Blinken preceded Yellen to Beijing to ask Xi Jinping to restore communications between American and Chinese militaries to avoid possibly catastrophic misunderstandings and received a definite “no”. After all, he would not be eager to alert America to the timing of any plans to invade Taiwan.
Blinken asked Xi to cooperate on keeping fentanyl out of the US, and was told, “The US must face up to its own problems,” and was treated to a lecture on the mid-19th century Opium Wars that resulted in Western imposition of unequal treaties on China. Why Xi should want to stanch the flow of the death-dealing drug into America is unclear, and why Blinken did not know that to be the case is even less clear.
A Tale Of Two Economies
The failure of previous visits by high level American officials – Xi will not take direct calls from Biden – was not the only reason why it is puzzling that these discussions were extended by America to the economic sphere. The American economy continues to thrive in the face of rapidly rising interest rates. Even though there are far more jobs than job seekers, last week the Consumer Price Index rose at its slowest pace in more than two years, continuing a decline that has taken it from 9 per cent last summer to 3 per cent. Even the Federal Reserve Board’s preferred inflation measures, which exclude most things Americans who push supermarket carts and pump gas at filling stations care about, is showing signs of some cooling.
By contrast, China faces
· 20.8 per cent youth unemployment due in part to a regulatory crackdown on big tech that has removed it as a job source.
· nervous consumers with deteriorating household balance sheets that discourage spending (property sales down 28 per cent from last year);
· an economy slipping into a deflationary spiral that discourages new investment (manufacturers’ prices down 5.4 per cent from last year);
· diminishing returns from government-led investments;
· dwindling exports (down 16 per cent this year);
· debt-laden municipal governments; and
· emigration by 300,000 citizens annually, including tens of thousands of high-net-worth individuals frightened by the disappearance of their peers.
China’s Entrepreneurs Sit On Their Hands, And Cash
Perhaps most significant, investment by private-sector Chinese firms has turned negative for the first time in decades (except for pandemic years). The Wall Street Journal also reports that only about 6 per cent of Chinese aged 18-to-64 intend to start businesses in the next three years, down from 21 per cent in 2021. Better to send the kids and cash to safe havens overseas while waiting to see whether Xi’s belated assurances that he values the private sector are more reliable than his promises to America not to militarize the islands he built in the South China Sea.
A Tale Of Two Systems
These are not problems that a change in American policy can ease. They are the direct result of bedrock communist policy that elevates retention of power over a well-functioning economy. Impose a policy that assures a low birth rate and you find yourself with an ageing population. Make entrepreneurs “disappear” and the flair goes out of the economy. Put party apparatchiks on the boards of major companies to make certain that nothing threatens the regime, and investment declines. Direct investments to overstuffed property companies, and gluts and unpaid loans emerge. Threaten your most important customer, America, with a cut-off of important materials and it will subsidize the home-town boys to reduce dependence on you, and limit subsidy recipients’ ability to invest in China.
That is what Xi Jinping has wrought, proving once again that Karl Marx was looking at the wrong economic system in his hunt for the inherent contradictions that will lead to the ultimate destruction of that system.
It is now in America’s interest that the Chinese economy continue to flounder, reducing inflationary pressures on prices of commodities used in America, and revenues to finance its military. The Biden administration has taken imperfectly crafted but broadly sensible steps to subsidize industries that accelerate de-coupling from the People’s Republic. And to the consternation of some in the think tank industry and business community, the President has left Trump tariffs in place.
Increasing China’s economic pain will inflict not inconsiderable costs on Americans, including many of its leading companies. And there is no denying that the Chinese economy, which accounts for 18.9 per cent of world GDP compared with America’s 15.4 per cent (China’s population is four times America’s) is a big player in the global economy. It is an important market for some products: it accounts for half the exports of American soy beans. It holds nearly $1 trillion of American debt. Pursuing policies that damage China’s economy in a major way will have a cost, not least that imposed by China’s retaliation.
The Biden Administration Comes To A Crossroads And Takes It
America will soon restrict American investment in a few sensitive areas of China’s economy, rather than issuing a broad ban. It will merely introduce notification requirements in others. Never mind that targeted restrictions are difficult to enforce, since point-of-origin of imports is not always easy to discover. Or that notification requirements have little impact on most domestic players, whose lobbyists have become practitioners of the craft of proposing exceptions to any rule.
Most important, the limp response comes at a time when a key adversary is rapidly overtaking and exceeding the military capability of an America unwilling to give up entitlements for munitions, but has a vulnerable economic system in which many, according to The WSJ, are “losing faith”. That is Xi’s biggest worry, and explains his recent effort to assure investors that China will treat foreign capital kindly, and Premier Li Quiang’s labeling internet companies such as Alibaba “trailblazers of the era” according to Bloomberg. You remember, Jack Ma, the founder of Alibaba and fintech giant Ant Group, who disappeared from sight and reappeared after being persuaded by the regime to relinquish much of his ownership stake.
Biden has done well to dazzle American (and indeed, foreign) manufacturers with pots of subsidy and tax-credit gold awaiting them if they build back America. He likes to say that he is inflicting himself and possibly a ludicrous Kamala Harris on America in 2024 so that he can “finish the job”. Surely that includes evidence that capitalism is the strong horse that people prefer to a weakened horse, to borrow from Osama bin Laden.
Useful Idiots Are Not Only Found In Government
To do that he would have to persuade his Yellen-led treasury and this nation’s capitalists, still lusting after China’s masses as customers, to end their opposition to a more comprehensive effort to weaken China’s recovery. Tesla’s Elon Musk, for whom Xi rolled out the red carpet, has gone so far as to promise to promote “core socialist values” in China’s EV market. Apple retains and is expanding important R&D research facilities in China and supports millions of manufacturing and retail jobs in the People’s Republic. Lenin is said to have claimed that capitalists would sell him the rope with which to hang them, and called them and other American supporters of his regime “useful idiots”. If not, he probably is wishing he had done just that, as he smiles up at us.