America Begins To See The Consequences Of The Past Policy Errors That Helped China’s Rise

From the South China Sea to the Indian Ocean and the African Continent, China is rising fast, challenging America’s long dominance.

That’s something investors should watch closely, as rising tensions between the world’s two largest economies raise geopolitical risks that begin to spread beyond trade.


China’s rise didn’t happen by accident. It occurred systematically, helped by the kindness of the previous US administrations that allowed China to launch and execute its grand strategy.


That’s according to a recently published Council of Foreign Affairs special report, which argues that US administrations, from President Clinton to President Obama, misread China’s strategic intentions on several fronts; and made optimistic statements about US-China relations. 

While these presidents were making such optimistic statements over a nearly twenty-year period, China implemented a grand strategy under Xi Jinping; used geoeconomic tools to coerce its neighbors and others, including most recently though the Belt and Road Initiative (BRI); violated international commercial practices, including by committing massive theft of U.S. intellectual property; manipulated its currency for trade benefits; threatened Taiwan; build up its military forces to push the United States beyond Japan and the Philippines; constructed and militarized artificial islands in the South China Sea, in violation of the international law. . . and patiently and incrementally built its power and influence with the strategic goal of challenging the United States as the primary power in Asia.


One of the errors of previous administrations in South Asia was the failure to assure Asian allies that America would come to their side in case they were attacked by China, as has been argued by foreign policy experts for quite some-time. Ely Ratner of the Center for American Security, for instance, has been calling for America to abandon its neutrality in the South China Sea region by supplementing diplomacy with military assurances.


In ‘The Stealth Superpower: How China Hid Its Global Ambitions,’ published in the January/February issue of Foreign Affairs, he says the US “should supplement diplomacy with deterrence by warning China that if it continues, the United States will abandon its neutrality and help countries in the region defend their claims. Washington should make it clear that it can live with an uneasy stalemate in Asia—but not with Chinese hegemony.”


Ted Bauman, a senior research analyst and economist at Banyan Hill Publishing, agrees that US administrations played a role in accommodating China’s rise. But it wasn’t an act of kindness. “Successive U.S. governments have played a critical role in creating the modern Chinese economy, above all the Clinton administration’s assistance to get China into the WTO,” says Bauman. “But they didn’t do that out of the goodness of their hearts. They did it as part of a broader shift in the nature of the U.S. political economy — which in turn contributed to our trade deficit with China.”


Like what he calls “post-New Deal social compact,” a system that allowed America to cope with the wage stagnation of the 1980s and the 1980s. Opening up the American economy to China allowed American workers to “have access to low-cost Chinese wage goods,” like electronics, appliances, clothing furniture and so on. This would mitigate the stagnation of real wages,” says Bauman.”


Then there was easy credit that allowed Americans to live beyond their means, which placed American wage earners at the core of America’s merchandise deficit with China, according to Bauman. “A nation runs trade deficits when its consumption spending exceeds the value of goods and services it produces,” explains Bauman. “By using money borrowed from the owners of capital to buy Chinese goods before they have earned the wages that will ultimately pay for them, U.S. wage earners are at the heart of our merchandise trade deficit with China.” 


The bottom line: US policies accommodating China’s rise in the last twenty years may look like a policy error today, but they looked like an opportunity back then, when these policies were launched.


US policies confronting China today look like an opportunity, how will they look in the next twenty years?

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