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Obama In China: Taking Candy from A Baby
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Chinese leader Xi Jinping knows something Barack Obama doesn’t: America is finished. The U.S. economy is an ocean liner holed below the waterline. In the stateroom, the band plays on – but, on the bridge, the outcome is clear.

With the arguable exception of the late-era Soviet Union, America is sinking faster than any Great Power in history.

As a proportion of national output, America’s foreign debts are already larger than those of any Great Power since the rotten-to-the-core Ottoman empire a century ago. For those who need reminding, the Ottoman empire, which had flourished for more than six centuries, was then within a decade of final collapse.

Because every dollar of current-account deficit (the current account is the largest and most meaningful measure of trade) represents an extra dollar that has to be funded from abroad, America’s foreign indebtedness is now accumulating at a rate of more than $1 billion a day.

There is no way America can export itself back to national solvency. As Xi Jiping knows only too well, this is a matter of technology. As soon as American corporations come up with a more efficient new production technology, they ship it to China or elsewhere overseas where it will boost the productivity of foreign workers. Any corporation that wants to sell in China must not only manufacture there but bring its best technology. Then it is expected to export back to the United States. All this means that the American economy has passed the tipping point. It is now simply too hollowed out to make a recovery. Even apparently solid U.S. manufacturers like Boeing BA +1.01%,Caterpillar CAT -2.99%, and Corning Glass have long since sourced many of their most advanced components and materials from Japan, Korea, Germany, and other manufacturing-focused nations. (For a closer look at Boeing, click here and here. Much of Boeing’s most valuable technology has long since been transferred to East Asia, not least its avionics and its incomparable wing technology.)

In proceeding full steam ahead towards national bankruptcy, the United States is world history’s ultimate example of the triumph of ideology over commonsense. Beginning in the Eisenhower era, succeeding Washington administrations have bet the farm on ever-freer trade. Supposedly this would strengthen American economic leadership. To say the least, the powers that be in Tokyo, Seoul, and Taipei, as well as in Bonn, Frankfurt, and West Berlin, discreetly laughed at such epochal naïveté.

No nation has understood the stupidity of America’s trade policy more clearly than post-Mao China. On the one hand, American leaders have thrown the U.S. market wide open to Chinese exports. On the other, they have ignored Beijing’s in-your-face blocking of virtually all advanced American exports to China. The United States has been by far the most serious victim of Chinese protectionism.


As Chinese leaders know better than anyone, the ultimate issue is American corruption. Washington is actually far more corrupt than Beijing. If you want to get something done in Washington, you do what you do in Jakarta: just slip some money to the right people. The point was made as far back as a generation ago by the prominent Japanese commentator and author Shintaro Ishihara. From an East Asian point of view, the United States is already, in its political dynamics, a Third World country.

Even South Korea, with just one-seventh of America’s population, is a bigger exporter to China than the United States. On a per-capita basis, South Korea’s China exports are eight times larger than America’s. Korea’s exports moreover consist almost entirely of leading First World goods such as highly miniaturized electronic components, whereas the main things America sells to China are Third World-ish items such as iron ore, coal, and wheat.

This is not to suggest that American brands are absent from China. Actually they are everywhere. But virtually all American-brand goods sold in China are made there — using American production knowhow that, in some cases, has taken the American nation generations to build up. In an egregious sell-out of the American national interest, U.S. corporations now almost reflexively comply with China’s technology demands. Unlike their peers in places like Korea, Japan, Germany, and Taiwan, they have not had much choice: whereas other nations’ governments stand behind their corporations and work hard to stem the leakage abroad of key production technologies, Washington lets the “wisdom” of the market prevail.

As the New York Times has pointed out, a current example concerns Intel and Qualcomm, which have very similar technologies that China is angling to acquire. From Beijing’s point of view, it is taking candy from a baby. The two American companies can be pitted against one another in the certainty that one or other will soon cave. It is the group versus the individual and in a well-organized groupist society, the group always prevails.

There is a one-way valve here. Key production technologies leak out of the United States: they don’t leak in. Other nations have industrial policies to make sure that their most productive technologies stay at home. By contrast in a latter-day America, corporations have no national loyalty and they have every reason to transfer their technologies abroad. That way they can aim to earn brownie points with foreign governments, not least the communist regime in Beijing. Their executives also max out their stock options.

Eamonn Fingleton is the author of In Praise of Hard Industries: Why Manufacturing, Not the Information Economy, Is the Key To Future Prosperity (Boston: Houghton Mifflin, 1999).

(Republished from Forbes by permission of author or representative)
• Category: Economics • Tags: China, Free Trade 
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