Fusion Magazine: Don't Fear the Dragon

The U.S. must slay its China-bashing to prosper in the 21st century

By Tyler Grimm

Thirty years ago, China made up a smaller portion of the global economy than Turkey does today. The nation was in abject poverty and hadn’t had much of a hit since it invented gunpowder.

The People’s Republic has since come a long way: It is now the world’s largest exporter, second largest manufacturer, third largest economy, has been growing at roughly 10 percent per year, and produces more than a quarter of all U.S. consumer goods. In Washington, international economic policy is set to become a hot-button issue this year and "What to do about China?" will be the 900-pound panda in the room. As has been the case over the last decade, policymakers will be tempted to act with resentment. After all, with best-case scenario predictions of 3 percent annual growth in the United States over the next 10 years, who wouldn’t be jealous of China’s expected double-digit growth?

A REMEDY WORSE THAN THE DISEASE

In 2009, we bought $300 billion worth of goods from China, and they imported only $70 billion worth of goods from us. The $230 billion trade deficit scares many Americans into believing that we are too dependent on China and they are taking our jobs.

In response, we are likely to hear increased calls for "protectionism"—the act of restricting trade with other countries in an attempt to "protect" our economy from losing jobs to foreign competition. Recent examples of this include tariffs put on tires imported from China and the "Buy American" provision in the stimulus. Such measures are the result of special interest lobbying, not good policymaking.

There is a near-consensus among economists that the benefits of free trade far outweigh the costs. Leave it to Washington to exercise economic illiteracy. In March of this year, New York Sen. Chuck Schumer declared, "We can’t jump-start our economy and pull ourselves out of this recession if we are putting Chinese workers ahead of American workers." Similar pandering sentiments have been echoed by many of his colleagues on Capitol Hill.

From a political standpoint, championing protectionism can be very attractive. If you represent a manufacturing state and constituents’ jobs are being lost because they can be done at a lower cost overseas, it is easy and popular to propose to save jobs by making foreign goods more expensive through tariffs.

In practice, though, things never work out as intended. In 1930, despite the objection of economists, we raised tariffs on more than 20,000 imported goods. This, by many accounts, triggered the Great Depression.

A SECRET ALLIANCE IN THE WAR ON POVERTY

The reality is that if a product can be made cheaper elsewhere it should be made cheaper elsewhere. The producing country benefits from selling the products while the consuming country benefits from access to cheaper goods, which translates to more disposable income. Economists use the term "comparative advantage" to describe this phenomenon.

Adam Smith was making this point as early as 1776: "If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage."

In 2008, in response to hostility toward trade, two University of Chicago economists released a groundbreaking study that dealt with the question, "Does China Benefit the Poor in America?"

The answer: a resounding "yes." It turns out that from 1994-2005 (the period studied) the widening income gap (i.e. "the rich are getting richer while the poor are getting poorer") was actually completely offset by households buying cheaper products.

Far from hindering U.S. prosperity, China has been a driver of it. The problem is simply that the gains from trade are much harder to see than the losses. Macroeconomic indicators such as import or export levels do little to make the benefits of trade apparent to average Americans. It’s easy to understand that your neighbor’s job is now being done by someone in Asia. It’s incredibly difficult, however, to process that, as a result, the economy is more dynamic and your neighbor will almost certainly find a new job, probably in a new industry that is able to thrive because of efficiency gains. Not to mention that the job going overseas to be done more economically means that you have access to many products that would otherwise be unaffordable.

Over the last 10 years, overall prices in America have risen by 29 percent. At the same time, incomes have only risen by 23 percent. But consider the prices for major imports from China: clothes, audio equipment, televisions, and toys. Clothes prices fell by 8 percent; audio equipment fell by 39 percent; televisions fell by 83 percent; toys fell by 43 percent. This is what renowned 20th century economist Joseph Schumpeter had in mind when he wrote, "The capitalist engine is first and last an engine of mass production which unavoidably means also production for the masses."

Consider this: From the time the first VCR was sold, it took the device 12 years to reach half of American households. Compare this to DVD players: a mere six years after their introduction, 8 out of 10 households had one.

The same trend—faster diffusion rates—can be seen with almost any major technology. When you see a new expensive gadget, isn’t your first thought, "I’ll get one when the price is lower?" Prices are now coming down faster, leading to more widespread ownership.

It took 28 years for radios to reach half of American households. The iPod, which is made in China, has only been on the market since 2001 and already 40 percent of Americans own a portable mp3 player.

But what effect does trade have on China?

GROWTH, A BETTER ALTERNATIVE

Some bemoan trade with China not because it hurts America’s economy, but because of concerns about unfair labor practices. While bad working conditions are a serious and sad reality, citing them as a reason to stop trade is narrow-minded and would have the opposite of the intended effect.

China has only been engaged in global trade since 1978, when Chairman Deng Xiaoping gradually began freeing the economy from the paralyzing constraints of Communism. According to trade analyst Johan Norberg, "in 20 years, China’s economy went from equaling Germany’s to exceeding the German, French, Italian, and Nordic economies combined." The World Bank described the effect of China’s semi-liberalization as the "biggest and fastest poverty reduction in history."

Chinese workers are not forced to work for foreign companies. On the contrary, they prefer it. A poll conducted by Manpower Inc. found 75 percent of Chinese workers preferred to work for a wholly foreign-owned employer, rather than a Chinese company or joint venture.

AT LEAST SOMEBODY WANTS IT

Job losses and human rights concerns haven’t been the only driver of economic paranoia about China. The country’s status as the largest foreign holder of U.S. government debt has aroused deep uneasiness and a fear that we are financially at their mercy. The statistics alone are surely alarming: In 1970, foreigners held only 4 percent of our debt; now they hold almost half of it. China alone owns roughly $900 billion worth.

The obvious, and most preferable, solution would be that America stop accumulating somuch debt. But, considering that we’re not going to pay off our $12 trillion tab anytime soon, we should be thankful China is still willing to finance it.

In March 2007, Sen. Hillary Clinton sent a letter to then-Treasury Secretary Hank Paulson, complaining about China’s U.S. debt holdings. She wrote, "It is undeniable that the exponential growth of foreign debt in the last six years has undermined our economic standing. We have to curb these deficits and ensure foreign governments don’t own too much of our public debt and take steps to ensure that our economic well being is soundly in our own hands."

She talked a good game as a senator with presidential ambitions, but two years later Secretary of State Hillary Clinton—not having to engage in populist pandering—was playing a different tune. On a trip to China in February 2009, she praised the two countries’ "positive cooperation" and even thanked China for "continued confidence in U.S. treasuries."

The fact of the matter is that foreigners’ desire to hold our debt is a positive thing—the larger the demand for our debt, the lower the interest rate we pay on it. It’s when they’re not willing to hold our debt that we have a problem. Interest is paid with tax dollars (the federal government doesn’t earn money, it only redistributes it) and higher interest rates on the debt mean higher taxes for Americans. By 2019, interest payments are already slated to be the third biggest budget item (after Social Security and Medicare). Causing this expense to go up would have serious impact on Americans’ wallets.

At present, fortunately, China doesn’t have much of an option but to hold on to U.S. debt. The dollar remains the world’s most reliable currency and is therefore China’s best choice for stocking its foreign exchange reserve.

NOT NUMBER YUAN

China’s economy has made leaps and bounds since discovering the fruits of capitalism, but perception of the country’s economic might is far greater than reality.

According to a 2009 Pew CharitableTrust poll, when asked to pick the "world’s leading economic power" 44 percent of the public chose China, compared with only 27 percent for the United States.

China is growing rapidly, but the threat of it replacing the United States as the foremost economic superpower anytime soon is exaggerated. China’s population is more than four times the size of America’s, yet its economy is equivalent to the size of only four U.S. states. Most notably, after adjusting for purchasing power, China’s GDP per capita is $6,500, compared to $46,400 in the United States.

Even if China’s economy were to grow larger than that of the United States, the earliest this would happen is 2025. And "grow larger" does not mean the average Chinese citizen would be more wealthy than the average American, it simply means that more economic activity would take place in China than in the United States. We would, by almost any measure, remain the world’s strongest nation.

Further, despite its embrace of markets, China still self-identifies as Communist and, by and large, is still a very "unfree" and unstable nation. The joint Heritage Foundation/Wall Street Journal Index of Economic Freedom ranked China 140 out of 179 countries (1 being the most free). According to the report, China "remains a one-party state in which the Communist Party maintains tight control of political expression, speech, religion, and assembly. Any social group that can organize on a large scale is deemed a threat, as are many individual dissidents."

An added benefit of trade is that it ensures our ideological differences continue to be non-violent. Countries that are economically dependent on each other have never gone to war. As French philosopher Frederic Bastiat once observed, "When goods cross borders, armies don’t." The academic literature calls this phenomenon "peace through commerce."

WITHOUT AN ECONOMIC FORTUNE COOKIE

In March, President Obama suggested that the Democrats’ once-pro-tectionist position on trade was changing: "Those who once would oppose any trade agreement now understand that there are new markets and new sectors out there that we need to break into if we want our workers to get ahead."

Policy actions taken since the start of his administration, however, seem to indicate otherwise. The "Buy American" provision, tariffs on tires, coated-paper and steel piping, and animosity toward Chinese monetary policy have all been setbacks to a relationship the president himself says will "shape the 21st century."

On the other side of the world, Chinese leaders seem to get it. Earlier this year, Premier Wen Jiabao exclaimed, "free trade not only promotes growth of the world economy... it promotes harmony in the world and changes and improves people’s lives." He reiterated it on March 13 when he promised China would "unswervingly implement its opening-up policy." At the same time, the Red nation is continuing to slowly liberalize markets, which is fueling growth.

The big question is: What does the future hold for China’s economy?

One predictor may be the size of government. China’s government now makes up less than 20 percent of its economy. This was the same as the post-war average of the U.S. federal government’s size. Recently, however, Uncle Sam has swollen to 25 percent. Think about that. The size of government in China is shrinking to the size of the U.S. government when our country was its most prosperous.

Not to mention that, while we’re going through the worst economic downturn in a generation, China escaped the global financial crisis smelling like flowers—it is enjoying significant expansion with no sign of a slow-down. This has led many to compare China to Japan in the 1980s, when it appeared to be booming and predicted to overtake the United States.

Japan’s raging growth was short-lived as it was proven to be the result of a bubble. This resulted in a "lost decade" of Japan’s government trying hopelessly to resuscitate its economy through multiple stimulus packages. It has still not fully recovered. This time, it could be the United States, not its Asian rival, that experiences a decade of malaise from too much economic intervention.

America has everything to lose and nothing to gain by going off the tried and true path for economic growth. The United States is and will remain exceptional. This, however, doesn’t change the fact that anti-growth policies that cut off our economy from the rest of the world’s resources can affect how exceptionally we grow and prosper.



<< Return to the May 2010 Index of Fusion

The conditions in Afghanistan under the Taliban rule — for Americans, allies, Christians, women and more — continue to deteriorate, and the people there continue to plead that we will not forget them. On the radio program Monday, Glenn Beck gave an emotional update on current evacuation efforts, including the tragic story of one girl — an American passport holder — who was not rescued in time.

"I have a pit in my stomach like I haven't had in a while. What is happening in Afghanistan is both miraculous and horrendous," Glenn began. "What's going on right now one of the most amazing things I've ever personally witnessed — the evacuation of Americans, those [Afghans] who helped us, Christians that are dying, women that are under incredible conditions. I see things that I can't show you. I see the pleadings from people who are in safe houses, 'Please, don't forget us.' I see what they're being sent by the Taliban.

"If I die today, my entire life will have been worth it for what you have helped get done, in just the last three weeks. You have saved well over 5,000 people," he continued.

Fighting back tears, Glenn added, "I ask that you pray for those in the Middle East, that are in the midst of doing work, that a Moses-style miracle will happen. ... There are several people that are in dire need of medical care. Friday, we told you — along with the congressman from Oklahoma [Rep. Markwayne Mullin] who had just returned — [about] a father and two daughters that were blue passport Americans, and a mother who had a permanent residence, a Green Card. The daughter was very ill. And they thought, that if we couldn't get her out of there, that she would lose her legs. I got a call on Saturday morning, that we were too late, that she didn't lose her legs. She lost her life, waiting. There are now two Americans, instead of three."

Glenn showered his audience with gratitude, repeating that "well over 5000" lives have already been saved because of their incredible generosity, but lamented that there are still thousands more people yet to be saved.

Watch the video clip below to hear more updates from Glenn:

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To donate to these rescue efforts, visit NazareneFund.org or MercuryOne.org.

Want more from Glenn Beck?

To enjoy more of Glenn's masterful storytelling, thought-provoking analysis and uncanny ability to make sense of the chaos, subscribe to BlazeTV — the largest multi-platform network of voices who love America, defend the Constitution and live the American dream.

Megyn Kelly pulled her sons out of the private elementary school they attended after she learned that the boys were asked "weekly" if they were still sure they were boys. But that's not all that this "experimental transgender education program" taught.

Megyn joined Glenn Beck on the radio program to tell the story, which she thought had ended when the school apologized, and to talk about what's next for America as our leaders refuse to promote actual psychological support for our kids and instead "parade" transgenderism as the solution to their problems.

"When [my son] was in third grade, I found out they unleashed a three-week experimental transgender education program on these boys, with really inappropriate videos. The kids were confused. These are 8- and 9-year-olds, Glenn. They have no idea what the school is even talking about with the trans thing. They got really in-depth, with really in-your-face videos — and then parents complained. And the school did something it hasn't done in its 400-year history, which was they apologized. Even they realized they had done wrong," Megyn explained.

"But, then I said to my son a year later, so did they ever round back to the trans thing? Like, whatever happened with it? And he said ... they bring it up every week. ... [They ask] how many people here still feel confident that they're a boy? Do you still feel sure you're a boy?" she continued. "This is not support. This is not nonbullying. This is indoctrination. And it's deeply confusing to the children, and wrong."

Megyn went on to give examples of how she's seen trans ideology turn "support, nonbullying, kindness, friendship, allyship, on its head."

"The absolute surrender of the medical community to this insanity is a scourge on this nation. It's disgusting what is happening with our doctors," she added. "There are people who are legitimately transgender, or who have gender dysphoria. And for those people, we should be supportive and they should get the care that they need. But what we've done instead, is taken everyone who expresses any kind of gender confusion and said, you're trans. You're trans. And we have our psychiatrists doing this."

"It's crazy," Megyn asserted. "The fact that we're doing this so willy-nilly in the name of allyship and support, it's abusive. It's criminal."

Watch the video clip below to catch more of the conversation:

Want more from Glenn Beck?

To enjoy more of Glenn's masterful storytelling, thought-provoking analysis and uncanny ability to make sense of the chaos, subscribe to BlazeTV — the largest multi-platform network of voices who love America, defend the Constitution, and live the American dream.

"Never forget" is not only a tribute to those we've lost, it's a warning that it could happen AGAIN. On "Glenn TV" Wednesday, Glenn Beck looks back 20 years ago to the modern generation's Pearl Harbor moment. A day of infamy we're STILL feeling repercussions from.

But in remembering 9/11, we need to look toward the future because the Biden administration is setting us up for the NEXT 9/11. They bungled the Afghanistan withdrawal, and now we have video of top al Qaeda commanders — who served with Osama bin Laden — returning to the country. But could America survive another terror attack?

Glenn asks former NYC Mayor Rudy Giuliani, the leader who brought America back from the brink. He tells Glenn about the moment he learned the Twin Towers were struck, the actions he took to prevent more terrorism, and if he thinks NYC could survive another attack under Mayor de Blasio's leadership.

Glenn is also joined by Rev. Johnnie Moore, author of "The Next Jihad." He warns that Biden's policies in the Middle East are Obama 2.0, and "if you thought ISIS was bad, you haven't seen anything yet. We must keep our eyes on Iran."

Watch the full episode of "Glenn TV" below:


Want more from Glenn Beck?

To enjoy more of Glenn's masterful storytelling, thought-provoking analysis and uncanny ability to make sense of the chaos, subscribe to BlazeTV — the largest multi-platform network of voices who love America, defend the Constitution and live the American dream.