Bush vs. Hu: Free Trade, China, and the Road to Ruin

American Economic Alert ^ | Wednesday, April 26, 2006 | William R. Hawkins

[A. Pole]

In his opening remarks welcoming Chinese President Hu Jintao to the White House on April 20, President George W. Bush said: "The United States and China are two nations divided by a vast ocean -- yet connected through a global economy that has created opportunity for both our peoples. The United States welcomes the emergence of a China that is peaceful and prosperous, and that supports international institutions. As stakeholders in the international system, our two nations share many strategic interests. President Hu and I will discuss how to advance those interests, and how China and the United States can cooperate responsibly with other nations to address common challenges."

Bush's attempt to mask national rivalries by appealing to some imagined "international system" of global economics and institutions had little impact on a Chinese leader firmly rooted in the cultural heritage of his vast country and the rising nationalism of its people.

The "stakeholder" gambit was first tried out by Deputy Secretary of State Robert Zoellick in a speech to the National Committee on U.S.-China Relations last September, who claimed, "All nations conduct diplomacy to promote their national interests. Responsible stakeholders go further: They recognize that the international system sustains their peaceful prosperity, so they work to sustain the system."

In the same speech, Zoellick rejected any policy to "contain" China, or "promote other powers in Asia at its expense." Or indeed invoke "the distant balance-of-power politics of the 19th century." Such naive thinking by a high ranking American official can only serve to confirm in the minds of Beijing's hard-line analysts their belief that the U.S. has entered a decadent, downward spiral. Washington is simply no longer willing to play for keeps in world affairs to protect itself.

Conjuring up the notion of a peaceful system to which the American people should sacrifice their advantages for the good of universal others is the road to ruin. This is true even of international commerce, which most economists claim is conducive to the idea of interdependence and laissez-faire.

[Laissez-faire: a French term meaning "leave alone." Laissez-faire is most frequently used as the name of a doctrine holding that an economic system functions best when there is no interference by government, and private actors are left free to pursue their own interests.]

As McGill University political science professor Mark R. Brawley has argued in regard to the attempted establishment of international order, "the liberal rules [that] the leading state creates seem to diffuse economic power out of that country and into others, undermining the leader's own position." (Liberal Leadership: Great Powers and Their Challengers in Peace and War, Cornell University Press, 1993.) "Relative economic decline is explained through the success of the liberal leader's capital-intensive sectors in exporting captial-intensive goods and services," writes Brawley, as this "allows capital to be accumulated elsewhere." This is what is happening as American (and other foreign capital) flows into China to build production capacity, which is then supported by exports that destroy the home industries of the countries where the foreign capital originated.

The decline of England has always been a favorite for this kind of analysis. As the prominent commercial lawyer and judge Lord Penzance warned in 1886, "The advance of other nations into those regions of manufacture in which we used to stand either alone or supreme, should make us alive to the possible future. Where we used to find customers, we now find rivals....prudence demands a dispassionate inquiry into the course we are pursuing, in place of a blind adhesion to a discredited theory." The "discredited theory" to which Lord Penzance was referring is "free trade." England had adopted this doctrine when it had a substantial lead in the Industrial Revolution and wanted to open foreign markets for its exports. But as conditions changed, its leaders clung to policies that no longer fit world affairs.

British historian D.C.M. Platt [Finance, Trade and Politics in British Foreign Policy 1815-1914, Oxford University, 1968] has argued that the leaders of Victorian England were so devoted to "free trade" that they were willing to sacrifice their direct interests to this intellectual ideal. Another British historian, Keith Robbins [The Eclipse of a Great Power: Modern Britain 1870-1975, Longman, 1983] has written, "To a few contemporaries, this devotion was perverse. It seemed obvious that the world was not following Britain's Free Trade example. Germany introduced a measure of protection in 1879, France in 1882 and the United States in 1883 and 1900....But there was no British retaliation."

The failure to adapt in a dynamic world is a central weakness of thinking bound by ideology; i.e., the belief that some doctrine is so perfect that it fits all times and places. Such blind faith can lead people to reject another idea they know will work, because it does not fit their misplaced "values." For example, the Indian historian Partha Sarathi Gupta [Power, Politics and the People: Studies in British Imperialism and Indian Nationalism, Anthem Press, 2002] cites a 1915 memo from Ernest Low, secretary to the Viceroy's commerce department, which acknowledged, "The public...have a policy [of protectionism] on the theoretical advantages of which a large section of them are unanimously agreed; which has been tried in many countries and can point to a considerable measure of success." To head off the rising call for action, Low proposed a "committee of enquiry," but one so rigged that "all questions relating to protection be ex hypothesi excluded....the enquiry will concern itself only with the examination of the alternative policies." Low advised this course even as other voices were "pointing to the danger of 'subsidised Japanese manufactures' capturing the Indian market while Europe was at war," according to Gupta. Low would feel right at home in the Bush administration.

World War I was too big a dose of reality for the free traders to deny. In 1917 the Imperial War Cabinet adopted a resolution calling for a system of trade preferences within the British Empire, concluding, "The time was arrived when all possible encouragement should be given to the development of imperial resources, and especially to making the Empire independent of other countries in respect of food supplies, raw materials and essential industries." This was to be done by using tariffs to protect producers within the empire from outside competition. The new principle was first incorporated legislatively in 1919. Gupta notes, "Except for the Manchester Chamber of Commerce [long the center of the free trade movement], all other chambers of commerce seemed to think that a new international economic arrangement, not based on free trade, might become necessary." As previously mentioned, most European nations had already abandoned their flirtation with free trade before the war.

However, after seventy years of Free Trade, England's decline had progressed too far to be easily reversed, though some improvement was made. Non-Empire imports had been cut from 22% of England's GNP in 1913 down to 10% by 1938. Yet England still found its industrial base inadequate in the face of the revived threat from Germany under Hitler. Without the support of American finance and industry, England would have found itself bankrupt and unable to further resist the Axis in 1942.

Today, the United States has no one to back it up if it falters. The Bush Administration has followed an activist foreign policy, while ignoring the deteriorating international position of the American economy upon which the nation's power depends. It was clear from President Bush's statements during the visit of President Hu, that the White House is still gripped by an ideology that prevents it from taking action to contain the Chinese economic threat that is shifting the balance of power in world affairs.

The proper role of "ideology" is not in limiting the means, but in setting the ends to be pursued. The proper end of U.S. international economic policy is the preservation of America as the preeminent world power, with the largest and most advanced industrial economy, supported by sound and sustainable finances. Policies are tools to be used in shaping the desired outcome. It is long past time for U.S. policymakers to return to traditional thinking on trade and foreign investment. They must limit the first and guide the second so as to maintain American advantages and limit the rise of rivals.

[A. Pole]

The failure to adapt in a dynamic world is a central weakness of thinking bound by ideology; i.e., the belief that some doctrine is so perfect that it fits all times and places. Such blind faith can lead people to reject another idea they know will work, because it does not fit their misplaced "values."

Bump

[308MBR]

I know it wouldn't do any good, but things like this make me want to slap Nixon.

Never mind he's the biggest RINO to ever get into office, what with the creation of the DEA, EPA, wage and price controls, etc., but without him China would just be a supersized North Korea with about 800 million starving citizens instead of a superpower today that is plotting our ruin.

[Candor7]

Well written but Ivory Tower.

Nice summary of the fault in "Universal" liberal ideology.

The true Universal rule is , " survival of the fittest."

Darwinian analysis of the distribution of power in the world is much more revealing.

The recent report on China and its agenda of aggressive hegemony, completed in 2005 by the Sec. Def. gives a tangible overview of the und=certain future facing China, which labors under no delusion of liberalism.

I also assume that Dubyah's public position with Hu is a posture to placate China and gain its support or neutrality on the coming conflict with Iran. It also placates about 50% of the American electorate , that seems to be quite stuck in the past, in Liberal Utopianism.

The fact is that we will move to sanction Iran internationally, while surreptitiously moving for a regime change by taking advantage of Iran's internal regional tensions.This has the current Islamic Regime in Iran having public hissy fits. The path that China chooses to follow in the future will be defined by its choices on Iran, and the President of the United States knows it. He has graciously left the door to future peace and prosperity open to China. Whether she enters it is open to conjecture and fear on the part of those who view the future through the lens of "real politik." But China's history shows us that she will enter both doors, playing the peaceful smiling paternal idealogue, while promoting international drug traffic from Afghanistan, and the golden triangle, funding revolutionary communist regimes, violating the Munroe Doctrine in South America, controling the Panama Canal, completely absorbing Tibet, infringing Buthan unilaterally, etc.

Conventional wisdom on Chian needs be discarded, and in fact, we need to simply be very prepared to slap the royal shite out of her in the Western Pacific, as do South Korea, Japan, Thailand, Vietnam, Australia and Taiwan.

One might predict the resupply of Muslim Terorists in these areas , where they are currently active, in order to secure the oil supplies from the Arab World that China will need in the coming decades, while neutralizing the USA and coalition forces in the region.

[Candor7]

Link to Sec Def Report on China 2005:

viewable via pdf or HTML through Google

www.defenselink.mil/pubs/20030730chinaex.pdf

HTML version:

http://72.14.203.104/search?q=cache:nkgGOz8xoKMJ:www.defenselink.mil/news/Jul2005/d20050719china.pdf+China+Report+Congress&hl=en&gl=us&ct=clnk&cd=2

[Nowhere Man]

I know it wouldn't do any good, but things like this make me want to slap Nixon.

Never mind he's the biggest RINO to ever get into office, what with the creation of the DEA, EPA, wage and price controls, etc., but without him China would just be a supersized North Korea with about 800 million starving citizens instead of a superpower today that is plotting our ruin.

Agreed, looking back, I always thought it was a mistake that President Nixon went to Red China. Should have left them alone.

[bert]

The Chinese dualism reflects the current internal dissention and struggle to map a future course.

It appears the chicoms are in decline and the chicaps are ascendent. So long as the rate of change does not become too steep it apears to be a workable course.

The course in Iran will be both ends against the middle. The resultant muddle will be acceptable or at least not totally rejected by both sides.

[jpsb]

Bump, excellent.

[Paul Ross]

Bump!

The disconnect of the idealogues for free trade despite the clear non-cooperation of the adversary nations continues. Ambassador Peter Allgeier at least did honestly observe of China just this month:

"China's use of industrial policy tools - including government subsidization - to promote and protect these and other industries appears to be on the rise, instead of in decline, and it is a cause of great concern to the United States," the ambassador said.

Another area that continues to generate significant problems for the United States, according to Allgeier, is China's inadequate enforcement of laws, particularly in the area of intellectual property rights.

The U.S. is playing by its free trade rules. China is playing Three Card Monty.

[hedgetrimmer]

The U.S. is playing by its free trade rules.

Rules which inherently undermine our domestic economy and create "interdependence".

[Paul Ross]

Yes.

Interdependence which never worked to maintain peace anywhere else before between Great Powers.

The proper concern Hawkins identifies that needs to be hammered home is that the ideological inflexibility of the free traders preventing their proper, intelligent responding to changes of circumstances. Treasury and Commerce Depts in particular. And at the Fed Alan Greenspan was just plain wrong when he equated hamburger-making as equivalent to shipbuilding in economic clout. Somone should ask Bernanke if he agreed in principle with that notion.

The President needs to take a cool, calm, reasoned look at the overwhelming evidence of doctrinnaire self-delusion on our side, and then compare that with the massive evidence of Chinese enmity, and duplicity on their side...and come to a Reaganesque conclusion that they aren't mere 'competitors.'

They are true enemy adversaries, an unreformed Communist Menace that simply has a better scam than the Soviets old Peace Offensive. He needs to then properly change all the policies enabling their government, confront and denounce them, and recognize that:

"they reserve unto themselves the right to commit any crime, to lie, to cheat. . . "

A good place to start would be to recognize the Hit Squads they have roaming around within the United States looking for Falun Gong. THAT is what should give ole "Expatriate" something to really think about, notwithstanding his apparent unconcern as China, almost without effort, swallows up his old haunt of Panama whole...

[snowrip]

... a China that is peaceful and prosperous, and that supports international institutions.

Huh?

[Iscool]

I believe Nixon was just one of the many tools used to move the process along...

The Council on Foreign Relations whose entire existance is for the sole purpose of destroying International Sovereign borders and elevating the 'elite' to run the world has been behind this since about 1913...

All of Bush's Cabinet Members are members of the CFR as well as most of the leaders in the entire administration as well as many members of the Senate and House...Supreme Court...

I mean, look at how many Clinton appointees were left in position when he took over...They have a common interest which exceeds the interest of just one country, the U.S.A...

I don't know that we could turn back the clock...Just look how many one-worlders there are here on FR...

[Paul Ross]

Rules which inherently undermine our domestic economy and create "interdependence".

General Chi Haotian, Former Defense Minister, Head of the PLA, put it rather plainly just last year how much they scorn this U.S. day dream:

"One time, some Americans came to visit and tried to convince us that the relationship between China and United States is one of interdependence. Comrade Xiaoping replied in a polite manner: “Go tell your government, China and the United States do not have such a relationship that is interdependent and mutually reliant.”

Actually, Comrade Xiaoping was being too polite, he could have been more frank, “The relationship between China and United States is one of a life-and-death struggle.” Of course, right now it is not the time to openly break up with them yet. Our reform and opening to the outside world still rely on their capital and technology, we still need America. "

[hedgetrimmer]

Go tell your government, China and the United States do not have such a relationship that is interdependent and mutually reliant.”

Its a larger version of this old saw, 'my wife is married, but I ain't'.

[Alamo-Girl]

Thanks for the ping!

[Paul Ross]

Ping.

[The Duke]

...The failure to adapt in a dynamic world is a central weakness of thinking bound by ideology;...

Forget "ideology" ... I say look for offshore bank accounts if you want to find the motivation here.

[Clintonfatigued]

Verry well-put. Nixon foolishly assumed that he could play the Soviet Union and China against each other and that the U.S. could never lose control of the situation.

Even Napolean knew better than to wake the sleeping dragon.

[Mind-numbed Robot]

Russia and China are two faces of the same beast, Communism. Russia pretends to have changed after the supposed fall of the USSR. They only went underground to transition to a more workable economic system, capitalism.

About the same time China started emulating them and converting some of their operations to free enterprise, in a sense. Both Russia and China are now in the same position. The key industries are still owned by the state or previous state apparatchiks although they seem to function as independents businesses.

The reason they made the transition was not philosophy, it was economics. Plainly, they went broke as Communists and had to change. However, they did not give up their power or goals. The same ones who controlled under Communism control under Capitalism. Their goal is still world domination.

Mutually assured destruction with nukes (MAD) has made unconditional war between nuclear armed countries obsolete but Communism has always advanced with lies and deception, fomenting discontent among "victim groups", and attempting to take over countries by coup or subversion, part of which is rigging elections.

When actually engaging in military conflict they prefer to use surrogates, preferably those on the opposite side of the world from the U.S. and close to them. There was Korea and then Vietnam and now it is the Islamists whom they began cultivating before, during, and after WWII.

Our weapon of subversion is free enterprise/capitalism. It cannot exist without freedom and free markets. A centrally run/managed economy is not free and, therefore, unworkable. (That is why they have been trying to transition us to them and them to us.)

Both Russia and China have seen in a short time the power of free enterprise, even the bastardized kind they have. It is now a race to see if their desire for wealth and freedom is as strong as their desire for power and control.

Eventually, power and control destroy the dynamics of human nature and bring about ruin. No matter how many people they kill along they way totalitarianism eventually collapses under its own weight.

Free enterprise on the other hand simply expands and grows more dynamic because it is in harmony with human nature. It is also self-correcting and self-perpetuating. R. Buckminster Fuller, of Bucky ball and the geodesic dome fame, said that free enterprise has the unique ability to transform the selfish desires of the individual into a good for the whole.

That is what the battle is about and that is why it is wise to open up and trade with Communist countries. Their distortions of the free market will hurt them more than us and they will eventually see that.

Who will win? Sooner or later human nature will. Is human nature survival of the fittest in the sense of the strong dominating the weak? At first blush it would seem so until you realize that the weak greatly outnumber the strong and that the strong need the weak in order to get what they, the strong, want. The previous example of how Communism killed millions but still crumbled is apt, as is Gandhi's success through pacifism in India.

It can easily be boiled down to which message will prevail, the one in the Koran or the one in the Bible. History has shown the strength of free enterprise over Communism and ree enterprise depends on freedom. We live in interesting times.