The Magazine

Trading with the Enemy?

China wants to sell to us. We should be happy.

May 29, 2006, Vol. 11, No. 35 • By P.J. O'ROURKE
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I JUST GOT BACK from three weeks in China. So I'm a China expert--by Bush administration standards. Of course, by Bush administration standards, I'm an expert on Iraq strategy, Social Security privatization, and hurricane relief. But even a fellow with a Bush administration level of expertise can take a quick trip to the Mainland and see that America's China policy is ignorant. In the great American tradition of foreign policy bipartisanship, it's stupid too. Howard Dean thinks Hu Jintao wants to steal all of America's jobs and industries. And George Bush can't figure out why his speechwriters keep making him ask, "Who Jintao?" He knows the guy, he just met with him.

The problem with America's China policy is not ideological. True, there is the difficulty of dealing with a single-party state where the entire governmental apparatus is under the control of a small, doctrinaire political elite. But the Republicans are going to lose the House this fall. The problem is that America is wrong about economic principles. And not fancy economic principles such as Income Velocity of Money, which caused some of us to get a D on our Econ 101 midterm. America is wrong about economic principles so basic that even a doddering old Commie with a high school education like Deng Xiaoping understood them.

Economic progress requires division of labor, freedom of trade, and pursuit of self-interest. One person produces one sort of thing--a sack of rice, perhaps. Another person produces another sort of thing--transformation to an ownership society, maybe. Being self-interested, both people want both things, so they trade. The trade may not be a wise one. When Americans traded their rice sack of votes for George Bush's transformation to an ownership society, they got bungled pension and Medicare reforms and a 2006 budget deficit equal to 80 percent of the Chinese government's annual budget. But freedom of trade must be allowed. Taking the sack of rice by force destroys the pursuit of self-interest, which destroys the division of labor, which keeps anybody from doing anything about economic progress. The best minds of the nation join the Red Guards and run wild through the countryside trying to grow rice with Mao Thought while the fat, crazy peasant who had those thoughts in the first place controls the nation's minds.

Trapped in the theater of Maoism, the Chinese finally noticed the emergency exit marked "Adam Smith." China's economy barged though Deng Xiaoping's Open Door. The door smacked American policymakers in the head and they've been wandering around in a daze mumbling nonsense about the unfairness of our trade deficit with China ever since.

But there is no such thing as a trade imbalance. Trade can't be out of balance because a balance is what a trade is. Buyers and sellers decide that one thing is equivalent to another. Free trade is balanced trade. You might as well have free love then claim your partner had sex but you didn't. And a certain American president did claim that. Maybe Monica Lewinsky is in charge of America's China policy.

There is no such thing as a trade deficit. It doesn't matter if America imports all of its goods from China and exports nothing but pieces of paper. The Americans want the computer monitor, and the Chinese want handsome portraits of Benjamin Franklin. No coercion is involved. Nobody is making Americans buy Chinese goods. It's not like the Opium Wars when the British forced the Chinese to accept shipments of, shall we say, pharmaceutical imports. Maybe the Chinese will fight a war with America--the Consumer Electronics War of 2007, with Chinese gunboats cruising the fountains in America's malls. But it hasn't happened yet.

I look around my house, and everything except the kids and dogs was made in China. And I'm not sure about the kids. They have brown eyes and small noses. All the Chinese got in return were those pieces of paper and an occasional 747 and some Microsoft software. Even if the software is illegally copied 1.3 billion times--and it was, I saw it on sale--China is getting the short end of the stick. This is another economic principle that America's policymakers can't get through their lumpy, bruised skulls. Imports are good. Exports are bad. Imports are Christmas morning. Exports are January's Visa Card bill.

This can be seen in the export boom cities of China's east coast, in places like Wuxi--a town of which I'd never heard that has more people than Chicago. Wuxi is full of the holiday decorations of imported capital. Factories have been built by Volvo, GE, Panasonic, Sony, Bosch, Nikon--by seemingly every known corporation and by plenty of unknowns, such as the plant with a sign reading "Nature Factory," in case you're wondering where America gets its outdoors.