Within US policy circles, the rapid rise of China as a major force in the global economy is provoking a reconsideration of whether free trade is still in the US national interest.
The prospect that China can be a major economic power is feeding widespread paranoia in the United States. The fear is that developing nations, led by China and India, may out-compete the advanced nations for high-tech jobs while keeping the low-skill, labor-intensive manufacturing jobs they already own. China already is the world's biggest producer and exporter of consumer electronics and it is a matter of time before it becomes a major player in auto exports. Shipbuilding is now dominated by China and aircraft manufacturing will follow.
The fear of China by Western World dates back to almost two centuries of racial prejudice, ever since Western imperialism invaded Asia beginning in the early 19th century, and it has been accelerating with these facts: It is the country with the world's largest population, an ancient culture and long history would again be a big player in the world economy as it modernizes, the fear that China might soon gain advantages of labor, capital and even technology. Chinese culture commands close affinity with the peoples of Asia, the main concentration of the world's population and a revived focal point of global geopolitics.
The US is waking up from its self-delusion to the reality that free trade never leads to balanced trade. Free trade always works against the weaker trading partner, even with the principle of comparative advantage. The US was happy to promote free trade when unbalanced trade was in favor of the stronger US economy. Balanced trade between unequal partners requires managed trade at the expense of the stronger partner, which is achieved by the weaker economy resorting to government interference for more favorable terms of trade.
While the narrowing of the wage disparity will slow the job drain to China, the resultant rise in Chinese aggregate national wealth will threaten US economic dominance in the world. In a neo-liberal free-trade regime, the US has a choice of losing jobs or losing economic dominance and geopolitical power to China. That is the key dilemma in US economic policy toward China.
A market economy is a feeble weakling compared with a wartime command economy. That a war in Asia would relocate manufacturing jobs back to the United States in large scale to get the US economy moving again must have occurred to the neo-con warriors who have been controlling US policy since 2000. The hawks in this group are betting that China's nuclear deterrence against attacks from the US can be neutralized by the US strategic defense initiative (SDI), and that the US mainland will again be safe from attack.
Henry Kissinger, arguably the greatest living master of geo-realpolitik, wrote on June 13 in the Washington Post: "Military imperialism is not the Chinese style. [Karl von] Clausewitz, the leading Western strategic theoretician, addresses the preparation and conduct of a central battle. Sun Tzu, his Chinese counterpart, focuses on the psychological weakening of the adversary. China seeks its objectives by careful study, patience and the accumulation of nuances - only rarely does China risk a winner-take-all showdown."
US fear of China is a reaction to the destabilizing effect on existing, established geo-economics from the natural rise in economic power of a modernizing nation with a large population. It was this natural advantage of a large population that permitted the US and the USSR to exploit geopolitical opportunities to catapult themselves into superpower status after World War II.
China, similarly to the US experience, will go through several series of historic policy debates over the choice between isolationism and international engagement as its economy develops. Developing countries should not misconstrue isolationism as an effective strategy of anti-imperialism. Quarantine is a strategy that deprives the subject of any chance of developing effective immunity against invading viruses that eventually exposes it to more serious vulnerability. Hostility breeds counter-hostility, and protectionism breeds counter-protectionism. Isolation between hostile nations leads inevitably to war.
The decline of China that began in early 19th century was traceable in part to Chinese self-imposed isolationism, in contrast to Japan's forced opening to the then more technologically advanced West that led to the Meiji Reformation. Immigration is the fountainhead of economic development and sustained prosperity. The developmental history of the US is one of immigration. Germany benefited greatly from the immigration of Jews and lost much from Nazi prosecution of its Jewish citizens.
An internationally engaged China will be a positive force for world peace and prosperity. US hostility and preemptive strategy toward a peacefully rising China may be forced to fall back on ineffective US unilateralism, devoid of willing partners even from among its residual Cold War allies. Everywhere else in the world, from Asia to Latin America, from the Middle East to Africa, sympathy for China's effort to regain its natural prominence in the world and positive response to its effective development strategy are mounting while appreciation for unilateral US security and economic policies is falling.
Neo-communism in China is largely a strategic response to and the resultant consequence of expanding global neo-liberalism. If neo-liberalism should fail and the global trading system freeze, the future of Chinese neo-communism will also be put in jeopardy. Thus US isolationism is the unwitting ally of Chinese orthodox communism.
"The general dogma that anything that expands globalization is good for everyone isn't right," Samuelson said. And as all political scientists know, when the majority loses, the politics turns ugly in a democracy.
China is significant not only because it is the most populous nation with the fastest-growing economy, but also because it is one of the poorest and thus has much prospect and room for basic growth. The whole world now wants to trade and interact with the Chinese economy because under the current trade regime, trade with China benefits the foreign trading partners more than its does China itself. Federal Reserve chairman Alan Greenspan warned senators in public testimony not to let their misguided frustrations with China's economic policies breed reactions that would do the US economy more harm than good.
The danger of trade wars
US geopolitical hostility toward China will manifest itself first in trade friction, which will lead to a mutually recriminatory trade war between the two major economies that will attract opportunistic trade realignments among the traditional allies of the United States. US multinational corporations, unable to steer US domestic politics, will increasingly trade with China through their foreign subsidiaries, leaving the US economy with even fewer jobs, and a condition that will further exacerbate anti-China popular sentiments that translate into more anti-free-trade policies generally and anti-China policies specifically.
A war between the US and China can have no winners, particularly on the political front. Even if the US were to prevail militarily through its technological superiority, the political cost of military victory would be so severe that the US as it currently exists would not be recognizable after the conflict and the original geopolitical aim behind the conflict would remain elusive, as the Vietnam War and the Iraq war have demonstrated.
US policymakers have an option to make China a friend and partner in a peaceful world for the benefit of all nations. To do so, they must first recognize that the world can operate on the principle of platitude and that prosperity is not something to be fought over by killing consumers in a world plagued with overcapacity.
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