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LLWELLYN KING: Savaged by the Chinese dragon we fed

by lking@kingpublishing.com on June 10, 2013 10:00 AM

I don’t like it that my Florsheim shoes, a great American name in footwear, are made in China, but I can’t blame the Chinese. I don’t like it that my famous-name English tweed cap was, in fact, made in China, but I can’t blame the Chinese. And I won’t like it when my ham from Smithfield Foods, Inc., a great U.S. meat processor, is wholly owned by Shuanghui International, but I won’t blame the Chinese.

I blame the shameless, shortsighted greed of the American and European companies and their political leaders, who bought the argument of the business world that it was both good and inevitable that we move our manufacturing to China. The same fellow travelers now argue that it’s beneficial to sell our companies to China — just so long as the price is right today (forget about tomorrow.)

Whereas I hope that President Obama has made great progress with persuading Chinese President Xi Jinping that China should abide by both the spirit and letter of its commitments to fair trade and the World Trade Organization, I’m not hopeful. Meanwhile, U.S. business, led by Wall Street, will argue that money is its own imperative and that this imperative cannot be ignored. In the world of finance, shareholder value today trumps national interest tomorrow.

There are glimmering signs that even devoted free traders, as pointed out by Clyde Prestowitz in Foreign Policy magazine, are beginning to grasp slowly — oh, so slowly — that Western business has marched willfully behind the banner of free trade into the embrace of the Chinese state. This state is positioned to practice mercantilism on a scale that the world has never imagined, even in the days of the wicked mercantile imperialism of the British Empire.

It’s unlikely that the Chinese leadership planned world economic domination the same way that it continuously dreams of taking over Taiwan. But once it saw that it was possible to expand throughout the world, the game was on. For China, the elegant thing has been that their expansion has been financed by those it is competing against. Not a shot has been fired, yet China expands exponentially. Several authorities, including the Organization for Economic Cooperation and Development, predict that China’s economy will draw ahead of that of the United States in 2016. It will not have gotten there by the genius of Beijing, but by manifest folly elsewhere.

An old joke says that though the English burned Joan of Arc, the French sold them the wood. The wholesale preparedness of American and European companies to move their manufacturing to Asia, and particularly to China, brings this gag to mind: We have sold the wood and now we, like the Maid of Orleans, are being burned.

This has happened because of the seductive power of a dubious economic theory: that the market has supernatural powers and it will always bring about the best result, whether in the diplomatic or social fields. There’s no doubt that markets are very efficient. Markets are efficient internationally to a fault. In a few short years, they’ve efficiently exported much American and European manufacturing to China, and with equal efficiency they’ve recycled China’s earnings into buying up whole industries, and — as in the case of Africa — whole countries have been locked up as suppliers.

China’s expansion has had two things going for it: Western greed and the hope in Western capitals that China will behave itself, float its currency and stop stealing intellectual property. They also hope that as a result of this maturing, China will stop dumping its manufactured products; reveal the government’s role in its companies, including the role of the Red Army; stop government-supported hacking for commercial purposes; sign on to global environmental standards; and put some of its accumulating wealth towards growing its domestic markets with world access. Fat chance, I fear.

Money has been flowing downhill because those who manage it have found that profitable. Trouble is it’s pooling in China with awful consequences for the rest of the world.

Obama’s presidency could turn on how he stands up to China, as could the well-being of the world trading system and life in the United States and Europe. This is bigger than drones, Obamacare, sequestration or the other things that bother us.

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