Time for a Dose of Protectionism?
The case for giving China a taste of its own medicine.
Irwin M. Stelzer
November 30, 2009, Vol. 15, No. 11
Odd, that. There is Hu Jintao, the world's leading protectionist, the man who manipulates his nation's currency so as to keep goods and services made in other countries out while Chinese-made goods capture more and more market share, lecturing the American president on the dangers of protectionism. And there is Barack Obama, eyes downcast, supinely playing punching bag to Hu, even though he presides over the country that is China's biggest customer.
If there were to have been a useful outcome of what proved to be a disastrous Asian trip for Obama (see Ross Terrill's article on page 11 of this issue), it would have been to persuade China to abandon the policies that have jobs and investment fleeing these shores for China, to impress upon Beijing that stealing intellectual property "will have consequences," as our president often threatens in other circumstances. The Chinese seem no more cowed at the prospect of being exposed to such consequences than the Iranians, the North Koreans, the Russians, or just about any other adversary who has taken the measure of this administration.
Hu's position is understandable. His regime has no democratic legitimacy, no claim to the loyalty of its subjects--except the ability to provide jobs for the 10 million workers headed to China's cities every year. Fewer jobs might make for unhappy voters here, but in China they mean more riots, of which there seem to have been some 10,000 during the early days of the world economic downturn. The regime's ability to create millions of jobs is no small thing. But much of it is coming at the expense of American workers, and of workers in Europe, in other Asian countries that do not peg their currencies to the dollar, and in Latin America. Perhaps even worse, China's policy of subsidizing exports created and continues to create the imbalances that have done a lot more to fuel the current financial crisis than all the greedy bankers put together.
Free trade, economists like to point out, is not a zero sum game as trading partners benefit from obtaining in trade for their own products the goods they cannot make as cheaply at home. Trade with China bears little resemblance to that idealized description. In 1625, we bought Manhattan for colored beads, cloth, and hatchets worth $24. Almost four centuries later we began selling it to China for cheap sneakers and T-shirts--goods priced so low not because China is an efficient producer, but because it is a currency manipulator. Not only have we stocked up on Chinese products, we have borrowed from China to pay the bills. China now holds well over $1 trillion in American IOUs, which seems to have weighed heavily on President Obama as he met with Chinese leaders to discuss a "restructuring" of the U.S.-Chinese relationship. Hu sent him home with the present structure still firmly in place.
Many free trade proponents urge calm. After all, we survived a period in which our imbalanced trade with Japan handed us their Toyotas and them Rockefeller Center. Their pile of dollar earnings proved unthreatening to American interests. But China is not Japan. The Japanese had no way of parlaying their economic power into geopolitical power. They could not threaten us in the manner in which a creditor can threaten a debtor because they depended on us for their national security. Not so China, which has shown that it is willing to use its economic hold on us to attempt to dictate our foreign policy. In an effort to curry favor with his creditors President Obama refused to grant an audience to the Dalai Lama when the Tibetan leader visited Washington. In China, Obama failed to insist on some token release of a dissident or two. He agreed to address a handpicked audience, rather than demand access to a wider public. Even his cheerleaders in the media are appalled at the extent of the presidential groveling.
So, as Lenin once asked, "What is to be done?" Had the White House not confiscated Larry Summers's dog-eared copy of Adam Smith's Wealth of Nations lest someone learn about how markets work and the importance of keeping government from playing too intrusive a role in the economy, Obama might have found the answer.
