Di Leo: Just What Is China Buying With All Our Money?

We may disagree about all sorts of things in economics, but not this one. It’s one of the fundamentals.

If you have a thousand dollars, you can buy something that costs $1000, or you can buy a hundred things that cost $10 each, or a thousand things that cost $1 each — or you can put your $1000 together with other money you already have, to buy something that costs more.

But it is necessary to delve into this issue, much more seriously than we usually do, because our shortsightedness about international trade has paved the way to all sorts of problems – problems, in fact, that may already be too far gone to fix.

As voters, and perhaps as economists too, we like to think of money in international trade as going back and forth in exchange for goods.

We may buy televisions from China, paying China $50 for the flatscreen that the big box retailer charges $150 for, but when we pay them $50 for that TV, the Chinese can’t eat or drink that $50; they have to spend it. So they will buy $50 worth of something else from us. Maybe raw materials like cotton or iron ore — maybe finished goods like plant machinery. But they have to buy something, otherwise that $50 is useless to them. It’s American currency. They have to turn it into another purchase.

Economists will quickly point out that they don’t have to buy anything directly from us; they could trade those fifty dollars to some other country, buying wine from France with it, for example. We’ve always thought that was fine too, because then France has the $50, and again, they have to do something with it. So maybe the French will spend the $50 on something from the USA. Or maybe they’ll spend it on something from Spain, and then Spain will have the $50. Eventually, someone will buy something from the USA with it. And that’s fine with us.

Under this theory, there really cannot be a true trade imbalance, because eventually, all your imports even out to exports. Our country’s dollars are useless overseas, until someone buys something from us with them. The entire theory of free trade is dependent on this concept.

Oh, they might wait until the dollar is weaker, and sit on the money in a bank for awhile; that’s all right. They may buy bonds and sit on those treasury notes for a couple years, essentially buying some of our crushing national debt; Americans may think we’re fine with that too.

In fact, when we say money is fungible, we’re not just talking about bank accounts and physical goods. It’s true that the money we spent on imports is going to eventually come home, but it may not come home as either debt or cargo at all. There are other ways to spend it.

As China has succeeded in putting whole industries out of business, all over the world, becoming the global manufacturing powerhouse that it is today, China has found that it needs fewer and fewer imports from the rest of the world.

So, when China gets those billions and billions of dollars for their $50 TVs and their $50 tires and their $5 shirts and their $3 board games and their $8 water pumps and $3 lithium ion batteries – they have more US dollars than ever (and Euros, and Canadian dollars, and Pounds Sterling), with fewer and fewer temptations of foreign goods to spend it all on in return.

This might naturally cause them to raise prices for the goods they export, but there are other ways to spend all that money, other ways that don’t help us at all and in fact do incredible damage to the world’s balance of power.

China has been spending a fortune on the acquisition of agricultural lands all over the world. By some counts, Chinese interests now own at least 400,000 acres of U.S. farmland alone. At least eight U.S. state legislatures have passed laws to limit such purchases to foreign interests, at least to known enemy interests, in 2023.

If you or a family member has been house-hunting in 2023, you may have encountered an unusual type of competitor for the houses you like. Flush with cash, Chinese investors are bidding well above the asking price, paying cash, and driving up prices in an already challenging year for homebuyers. On the one hand, it’s an investment – China always thinks in the long term – and on the other hand, it’s a place to be lived in, by the Chinese citizens they send here.

(PS: When studying this issue, remember that the truth is much like an iceberg; China looks like it’s only 6% of the foreign investment in American real estate, but many of the non-Chinese foreign conglomerates buying up our homes are partially or largely controlled by China as well).

China has been buying up properties all over the world for years, especially in the logistics sphere. As just one example, the Chinese operate approximately 100 seaports in over 67 countries outside China, either as outright port or berth owners or as contracted port managers with longterm contracts.

Haifa in Israel, Piraeus in Greece, Aden in Yemen, even the mega-port of Singapore, are now operated in full or in part by the government of China, with local Customs authorities working hand-in-hand with China as cargo flows in and out, as if they were allies. This is strictly commercial, of course, not military.

But all it takes is the docking of a naval vessel to turn a commercial port into a navy port. There was a time when Britain was a global naval power, then the United States took its place in the 20th century. If China wanted to make such a declaration, it wouldn’t take much, would it, with all the operations already in place.

Foreign ownership of businesses is nothing new. We have seen American holding companies buy European manufacturers and vice versa for centuries. Work in the business world long enough, and you’re almost certain to have worked for as many foreign conglomerates as American employers (Full disclosure: over his long career, this author has worked for conglomerates based in Sweden, Germany, Austria, Ireland and England, as well as the United States). But there is a difference between working for a foreign conglomerate based in an allied country and working for one based in a hostile country.

It’s notoriously difficult to identify the true controlling owners of publicly traded companies today, but the Chinese now own controlling interests in countless “American-seeming” conglomerates, from movie theatre chains to manufacturers, from hotel chains to distribution companies, from internet providers to food producers.

China delights in paying “full freight” – the cost of out-of-state tuition – for Chinese students placed in research universities all over the United States. Students not only gain access to the best professors and the most cutting edge information; they can power through the track to become teaching assistants, doctoral candidates, and professors themselves, with research projects to work on, and every opportunity to gain the latest technology for their superiors in China.

It wouldn’t be, if China were just any other country. This may sound like xenophobia, but it truly isn’t.

China is much more like the Soviet Union before the fall of the Iron Curtain, but we don’t appear to realize it. China positions students in research universities, puts military police in seaports and logistics parks, places engineers in manufacturing plants, and they all send information back to Beijing. It isn’t even necessarily accurate to call them spies; from their perspective, they’re employees, agents, serving their employers back in Beijing.

We have a system of laws to address this sort of thing, known as the United States Export Controls, designed to keep materiel and technology out of the hands of hostile foreign governments — but the problem is, these controls are simply not rigorous enough, not well-known enough even, to defend against an enemy as enormous and as devious as Mainland China has proven to be.

China’s tentacles are all over our economy; our academe; our science sector; and our geography. We have seen evidence of China’s blatant bribery and spying operations all over our own federal government. And it only stands to reason that if they have done this in the United States, they must be similarly entrenched in dozens of other countries as well.

You know the old saying: “Generals are always fighting the last war.” It may be that this is the truest example of that old line.

We worry about China attacking Taiwan or its other neighbors on the South China Sea. We are scared to death that China will one day use its military, its biological weapons, and its nuclear arsenal to take over the United States.

But perhaps that’s the last war, and what China is doing today is quietly marching to victory in a war we don’t even know we’re in. With so much control of the transportation infrastructure, the manufacturing and distribution industries, our colleges and communications, anyone keeping score can tell that we aren’t winning.

(Aside: A question… are you reading this on a desktop, a laptop, or a cellphone? Where was it made?)

Some states are waking up to this threat. Some politicians, some businesses, even some in the media, are finally recognizing it. But will enough of us realize it, and do something about it, in time?

That may be the question of the age. And it may be something we need to resolve on our own, in the private sector, without hoping a heavily compromised government will get around to doing anything about it in time.

John F. Di Leo is a Chicagoland-based trade compliance trainer and transportation manager, writer, and actor. A one-time county chairman of the Milwaukee County Republican Party, he has been writing regularly for Illinois Review since 2009. Follow John F. Di Leo on Facebook, Twitter, Gettr or TruthSocial.

A collection of John’s Illinois Review articles about vote fraud, The Tales of Little Pavel, and his 2021 political satires about current events, Evening Soup with Basement Joe, Volumes One and Two, are available, in either paperback or eBook, only on Amazon.

Note: I just noticed after hitting the preview button that I did a mind dump. Sorry I’m advance.

I’m trying to decipher the first third of this article, maybe others are seeing an incomplete picture as well. I get the idea that the author thinks when China sells something in the U.S. that somehow China has to buy something in USD. In a way that is true, because they can buy their own currency. That way they can purchase good and services from other Chinese firms. They can also buy other currencies and purchase from other nations.

Now let’s straighten out a few things without any understanding of foreign exchange markets. First, there’s a difference between fair trade and free trade. When a nation subsidizes certain industries or uses slave labor and another nation does not, there is an inherent competitive advantage for the nation that subsidizes and has slaves. The nation that doesn’t will have businesses cannot compete, resulting in those businesses not existing. This can be corrected by having tariffs on imports from the subsidized and slave owning businesses’ products equal to the difference of the subsidies and employee pay that should go to slaves. The U.S. is not the only nation that must have tariffs, all nations do.

Alternatively, the U.S. can forbid imports all together from businesses that receive subsidies or use slave labor.

As for buying commercial real estate, natural resource rights, businesses, farmland, and other things in the U.S. there is a matter of control that becomes an issue. Do any of these thing pose a national security risk? Can a foreign nation control our food supply, potentially starving Americans? Can a foreign nation control minerals, such as uranium, lithium, or rare earths so that they become the only major supplier. All of these need to be looked at absent of any economics.

Then there is the case, when we (U.S.) purchase things from foreign nations and we no longer produce those things or never produces those things. The individual item needs to be viewed as a strategic item to the functioning of our nation, or not. If it’s bananas (we don’t grow those), and for some reason we can’t buy bananas from abroad anymore, we can always replace bananas with apples or oranges grown in the U.S. That’s not a strategic concern. However, if microprocessors and electronics are cut off, then there is a slightly different problem. That can impact national security and the ability to purchase everything from computers to phones to automobiles and more. It could send us back technology wise a couple of decades.

Lastly, there is an extreme dire person security case. If life sustaining drugs are only manufactured abroad and they get cut off for some reason, then people die, some rather quickly - much faster than manufacturing can be ramped up in the U.S. (I take two drugs in this category - one only made in India and the other only made in China. Yeah, I checked.)

Now with all that said, there are many reasons other than above for America to return to its industrial giant status. We are not living up to our potential. We are not the richest nation on a per capita basis. Those are worthy goals to achieve.

We are an incredibly blessed nation. We have limitless energy right here in the U.S. that is requirement one to be an industrial giant. The notion of peak oil/gas has been proven completely wrong.

Requirement two: We are a nation rich in natural resources - iron, metals, rare earths, lumber and more. We have the raw materials to be an industrial giant - right here, not half a world away.

Requirement three: We are a nation that has multiple deep harbors, ports, navigable rivers and inter coastal waterways used to transport and export raw materials and finished goods. Unfortunately, we have those ports pointed the wrong way. We import more than we export.

Requirement four: We have the colleges and universities to educate scientists and engineers. The world comes to us for our knowledge. Associated to education, we have the intellectual property to be an industrial giant.

Requirement five: we have the ability to feed us and the world. We can fill the bellies of what could be the most skilled and most productive workforce in the world. That however is being destroyed by education system. In other words, public schools are not producing enough of the STEM students in our great colleges and universities. The rest of the world fills our college STEM programs. But we’re great at producing transgender studies students and a lot of other crap majors that you can’t build a damn thing with.

Lastly, requirement six: We are Americans. It’s a cultural thing. It’s rugged individualism. It’s being innovative, solving any problem. It’s inventive. It’s entrepreneurial. Much of the rest of world has to legally purchase our ip or steal and copy.

Our government’s policies are completely uncoordinated. Domestic, foreign, trade, tax, regulatory, monetary and fiscal policies work against each other. Despite that we still have the world’s highest GDP. We can be so much more by doing so much less. Government just needs to get the eff out of our way and focus purely on the things that people and businesses cannot do themselves.

Generally speaking, I think I agree with you on all points…

I wrote this the way I did for a couple of reasons…. I wrote a piece just a couple days ago about how much we buy from China, and I intended this piece to be the other side of that coin; to talk about how much they buy from us.

You indicated that you were wondering why I wrote the first third of the article. It was as a set up for the second and third thirds. I wanted to stress that this is how everyone thinks of international trade: you send them dollars, and they can use them to either buy your things or trade those dollars with other countries so someone else buys your things. As a result, your money gets spent on your things. That’s the theory… And it’s the reason why so many politicians and economists don’t worry about trade deficits… They truly believe that the money comes back home to another purchase, so another American sell something, so it all evens out in the end.

The purpose of the rest of my article was to explain why that is not a full picture. I wanted to talk about the other, non-goods oriented, purchases that a foreign country can make with their international trade profits.

I think there are a lot of Americans, who don’t realize how China is buying up American businesses, American farmland, American, residential and commercial properties, etc., etc. I think that most Americans know what they see every day: they see goods made in China, sitting on their store shelves, and it really horrifies them. But they don’t realize how much else China is buying up, all over our country.

So I may have failed in communicating that point… But that was my goal, anyway.

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