America Fears China’s Geo-Political Power More Than China’s Economic Might

The Bannonite wing of the new American right is angry about China. The anger stems primarily from the fact that China’s manufacturing has outpaced that of the US and economies similar to that of the US, which in turn has arguably been a cause of US industrial decline.

Steve Bannon recently gave a speech in the Chinese island of Hong Kong where he stated that while the US is at “economic war” with China, but that nevertheless he and Donald Trump admire China and President Xi Jinping in particular.

In this sense, Bannon has admitted the hypothesis I recently offered that many in the US are jealous of Chinese economic strength and wish that the US might be able to replicate a similar success story among its declining industrial base which still has a great deal of latent potential.

In this sense, while Bannon’s talk of ‘war’ is worrying, his honestly is nevertheless, refreshing. Furthermore his genuine affection for the American working class is admirable and honourable, even if attacking China is not necessarily the best way to express such feelings.

Bannon’s remarks exist at a time when the neo-con faction of the so-called US right (a deceptive term if there even was one, but one which still is pervasive), don’t particularly care about the US industrial working class. However, they do care about US military hegemony and consequently, they are keen on disrupting China’s growing super-power status. Because China’s ascent to the position of global leadership, along with a renewed Russia and a still strong, though declining US, is largely fuelled by China’s economic engine, the neo-cons likewise seek to do whatever they can to disrupt China’s economic progress.

China’s One Belt–One Road is a testament to the fact that China seeks to use economic cooperation in order to diversify its national interests and increase its economic wealth and consequently, its influence. This contrasts with the Russian model of effective diplomacy based geo-political leadership and the US model of neo-imperialist proxy wars/hybrid wars.

In this sense, there are important economic similarities, but key geo-strategic differences between America’s current position via-a-vis China and America’s position vis-a-vis Japan in the 1980s and 1990s.

Made in Japan

In the 1960s and early 1970s, the moniker “Made in Japan” stood for cheap goods that were generally of lesser quality via-a-vis their western counterparts.

By the end of the 1970s, “Made in Japan” meant goods, particularly in respect of electronics and motor vehicles that were often superior to their US counterparts, all while still being more affordable and more reliable.

By the late 1980s, many Americans were complaining of Japan “dumping” their goods at US ports. At this time, Japanese money flowed into American cities and a combination of economic uncertainty mixed with what can only be described as latent anti-Japanese sentiments dating back to Pearl Harbor and the US experience in the Second World War in the Pacific, led to an anti-Japanese backlash that is hardly ever discussed today.

An article from the New York Times originally published on 14 August 1987, titled “U.S. Takes New Tack On Japanese Dumping”, states the following,

“In an action that could speed up price increases on products imported from Japan, the Commerce Department has found that two Japanese companies have been selling roller bearings at illegally low prices.

The case was brought because many Japanese companies have put off raising prices to compensate for the much higher value of the yen against the dollar. Instead, they preferred to absorb costs resulting from a strong yen and even sell at a loss, rather than lose market share.

This is the first time Washington has moved in a significant way to penalize Japan for following this course. Higher Duties Possible

The yen has risen against the dollar by more than 60 percent since February 1985, which should mean that Japanese products would cost much more in the United States than before.

But some bearing prices failed to rise at all during the investigation period, between March 1 and Aug. 31 of last year.

Should the ruling be affirmed, it would result in higher customs duties on the imported bearings, which have a variety of industrial uses, especially in transportation equipment.

But many analysts said the case could set a precedent for other industries in which the dollar’s decline has failed to improve their ability to compete against the Japanese.

The decision comes as the trading relationship between the United States and Japan has been strained by the Toshiba Machine Company’s sale of sensitive military goods to the Soviet Union and a disagreement between Washington and Tokyo, now partially settled, over the dumping of computer chips. Looking for ‘Fair Value’

Koichi Haraguchi, information counselor at the Japanese Embassy, said it was ”not appropriate” for his Government to comment because this was an ”internal action taken in accordance with U.S. dumping law.”

The duties are intended to raise the Japanese selling prices to what the Commerce Department has determined to be ”fair value.” This is computed on the basis of the exporters’ home market price, his selling price in other markets outside the United States, his cost of production and other factors including a margin of profit.

The department singled out two Japanese companies for sales of tapered roller bearings. It said that the Koyo Seiko Company was selling bearings at 70.44 percent below the computed fair value and that the NTN Toyo Bearing Company was selling bearings for 47.05 percent less”.

In summary, in the 1980s and into the 1990s, many in the US were upset with Japan for selling goods to the US, which in spite of the strength of the Yen versus the Dollar, were still sold cheaply to US consumers due to Japan implementing a strategy based on volume rather than an instant Dollar for Dollar profit.

Déjà vu +

Today, an equal and opposite charge is levelled against China. China is accused of dumping high quality and/or much sought after goods on US soil for prices that generally are better than that of the domestic competition. Interestingly, where Japan was lambasted by the US for a strong Yen, China is inversely lambasted for having an allegedly weak Yuan.

This general attitude towards Chinese monetary policy is succinctly expressed in a piece from the Global Finance School economic news website:

“China periodically announces that it will float the value of the Yuan, which has traditionally been pegged to the U.S. Dollar. The Chinese central government has so far not made any serious changes. Many countries have legitimate reasons for a fixed exchange rate, but a large, economically powerful country like China should have the strength to maintain a stable currency in the open market without manipulation. Economists suggest the Yuan is undervalued by 15% to 40%, though it is hard to accurately conclude. The People’s Bank of China currently holds $3.2 trillion of foreign-exchange reserves.

How does China keep the Yuan weak? By buying US currency and treasury notes on the open market, China keeps demand for the US dollar high. They can afford to buy and hold so much US currency due to their huge trade surplus with America, and they buy US currency roughly equal to this surplus. To keep the influx of dollars from increasing the Chinese money supply, China “sterilizes” the dollar purchases by selling bonds to Chinese investors like commercial banks. By boosting the dollar, still one of the most powerful worldwide currencies, the Yuan looks weak in relation. For the last few years China has maintained the value of their currency at just under 7 Chinese Yuan to $1. Today $1 equals 6.54 Yuan. Something close to 5 Yuan to the dollar might be a better valuation based on other market factors.

The cheap Yuan gives China an unfair advantage in the export market, encouraging the United States’ growing trade deficit with China and keeping goods in markets like India from competing locally.

Holding so much US currency gives China a lot of power over the dollar, and thus the US economy. What if China’s central bank decided to sell a large amount of US dollars and treasury notes all at once? The dollar could drop, leaving the US economy gasping for breath.

Unnaturally cheap goods and services from China hurt growing economies like India. India has a trade deficit of $19.2 billion with China. India has the potential to manufacture and sell lower priced goods, if the Rupee could compete with the Yuan.

By making other currencies relatively expensive, the booming Chinese population is discouraged from importing goods from other countries, including India, the United States, and Europe, because the cost is artificially inflated. This restricts a balance in trade and increases other countries trade deficits with China”.

This analysis fails to take into account the fact that in almost all sectors, China’s industrial infrastructure is vastly more advanced than that of India, in spite of India’s development in such areas. Simultaneous to this, the article does not take into account the fact that US industry is in need of large scale modernisation and that modern EU industry is among the most regulated in world history. These are not value judgements on any of these economies or cultures, but they are the objective realities.

However, the article does display the angry attitude that many have towards China maintaining an monetary policy that has merely taken advantage of America’s large national debt combined with the fact that the US refuses to peg the Dollar against a metallic standard as many US monetary conservatives like Ron Paul have suggested for decades.

In short, whether competing against a vibrant 1980s style Japanese economy that could outproduce the US in spite of a high valued Yen or in competing with a China capable of a titanic industrial output irrespective of the valuation of the Yuan versus the Dollar, many of the same complaints have been made.

The geo-political X-factor 

Few Americans in the 1980s or 1990s spoke of “war” with Japan, whether economic or otherwise. The reason for this is due to the fact that Japan is a geo-political ally of the United States and has been so consistently since 1945.

If America cracked down on Japanese imports too severely, it would have made for an awkward geo-political situation that the US had invested greatly in on many fronts.

By contrast, China’s expansion while fuelled by its economic might, has wide ranging geo-political implications. If One Belt–One Road and cooperative monetary initiatives from the BRICS as well as other groups can help create a trading, financial and monetary system wherein the US Dollar, US dominated World Bank, US ally dominated IMF and US military alliances that are often prerequisite for doing deals with the US can be bypassed; the US will have increasingly little to offer the wider developing world and frankly the wider global east as a whole.

This is what America fears most. Far from propping up the Dollar, China with its gold reserves, Dollar reserves and the impetus to begin trading with Asian and Eurasian partners in local currencies, could do more damage to US hegemony than the dumping of anyone’s goods at US ports could ever hope to achieve.

In this sense, America’s implicit fear is that Chinese initiatives could transform into a proverbial all-purpose lubricant which oils the machine of global trade, global finance and global monetary exchange. In so doing, China could undermine America’s role as the de-facto international financial and monetary hub. So goes the Federal Reserve, so goes America. This is especially the case since the US did so little to protect its manufacturing base from internal crises in the late 20th century. This has left America widely exposed to pressures from the international monetary and financial markets without the safety net of a strong domestic base for industrial production.

Japan’s success in the 1980s and China’s success today, demonstrate that if one has a modern, skilled and dynamic industrial base, one can whether the storms of both ends of the monetary valuation spectrum and still manage to have a powerful working economy that produces much sought after goods on world markets as well as domestically.

One of China’s biggest markets is its still partly untapped domestic market. This is something that is often forgotten in western discussions about China, as is the fact that increased Chinese labour costs mean that the idea of ‘cheap Chinese labour’ is no longer a reality. Mexico for example now has cheaper labour costs than does China. This is why many “American” cars are no manufactured in Mexico.

The idea that the Chinese economy only succeeds because of cheap labour and an ‘undervalued’ Yuan is a fallacy that only harms the ostensibly pro-western causes of those making the allegations.

The classic American export

In reality, the two most dynamic heavy industries in the US at the moment are the defence industry and the energy sector. This ironically is how many critics of Russia in the US, including John McCain have used to lambaste Russia, a country whose economy is actually diversifying far more than it is given credit for.

In this sense, exporting war is important for the United States and from different perspectives, both the neo-cons/neo-libs and Bannonites realise this. If America makes the machines of war and little else, war itself becomes an export commodity. In this sense, the US has also lost the moral argument to One Belt–One Road, a program which implicitly requires peace and stability along its trading routes.

A solution

There is a way to peacefully make America great again, so to speak. America could inject the same amounts of capital into its consumer industrial base as it does in respect of the defence industry. If the US did this, it could in surprisingly short order (if managed properly) become a respected and respectable competitor to the dynamic economies of Asia and Eurasia, in spite of the value of the Dollar, as Japan proved in respect of the Yen.

Here though, the outsourcing acolytes among the neo-cons/neo-libs would kick up a fuss and thus far the Bannonites haven’t produced a concrete manifesto for such plans. Such plans would however be vastly more productive than the neo-con hybrid wars or Bannonite economic wars against China could ever hope to be.

The world’s geo-political realities have become America’s foreign policy problems, all because the US is too busy pointing fingers at successful economies rather than investing in its own. The fault here lies with the American political culture.

Protectionist Ross Perot once talked of a “giant sucking sound” that would take jobs and economic vitality away from America if NAFTA was signed. NAFTA was signed and while the deal is deeply flawed, the biggest giant sucking sound of all is the one coming from the Washington D.C. swamp which no one America seems capable of draining.

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By Adam Garrie
Source: The Duran