Alice Green | Aug 1, 2022 | 4
America’s dangerous dependency on China
We see a lot in the news about China having evolved from a weak and isolated third-world adversary of the United States during the Cold War. Its only strength was nuclear weaponry. The same was true of the old Soviet Union. The relationship with Beijing changed with what was called “the opening of China” during the Nixon administration.
China shifted away from its failed hardline and brutal communism to embrace many capitalistic policies. China prospered — proving again that free-market capitalism is by far the most beneficial economic model in history. Although the China version was not as politically free as we see in western nations.
Because of many years of suppressed wages, China entered the world of international trade and commerce with a huge advantage – cheap labor. Almost overnight, China became the go-to manufacturing center of the world.
Coincidentally, China’s relationship with the United States warmed significantly. If not a full ally, China had become a very friendly nation to the United States. Trade, tourism and student exchanges were almost – that’s almost – as comfortable as America’s relationships with our allied nations in Europe.
The flow of money into China enabled the nation to swiftly build the most successful economy in the world with the highest growth rate. That also enabled the Chinese to purchase critical natural resources from around the world. They were able to exceed the United States in the development of technology. They joined the space race. They became the Artificial Intelligence leader of the world. They built arguably the second most powerful multi-force military in the world.
Less recognized, China became the world banker – especially for the United States. As America relied on more and more debt to maintain the country’s voracious appetite for government benefits, China was covering more and more of that debt. It currently has more than 20 percent of the internationally held treasury bills, notes, and bonds.
Enter Xi Jinping.
Xi came to office as President of China much like Russia’s Vladimir Putin – with an aggressive ambition to dominate the world in business, military, and cultural influence. Also, like Putin, Xi has reversed the more democratic policies to establish himself as dictator-for-life. Unlike Putin – who presides over a bellicose third-world country – Xi has the levers of world leadership in almost every category.
Taking America’s business to China made a lot of sense in the 1980s, 1990s, and even into the first decade of the 21st Century. With the relationship with China chilling and becoming more adversarial, the reliance on China has become a serious threat to America’s world leadership – maybe an existential threat.
America cannot afford to fully respond to China’s aggression – whether it be in the South China Sea, with Taiwan or in China’s expansion of global influence. To put it simply, Uncle Sam is now too dependent on the whims of China to maintain world leadership. That is because we are no longer the world leader in many critical areas.
More than 20 years ago, I wrote an opinion piece based on my years of experience in dealing with China. In that commentary, I warned that unless the United States changes course, the 21st Century would belong to China. They had all the latent advantages – a growing industrial base (including many American factories), unlimited natural resources, cheap (hard working) labor, advanced technology, mountains of cash (including US dollars) and a huge domestic market to offer world exporters.
America has been proud of our high wages, but that is what sent all those manufacturers overseas. We bragged about having the highest paid auto workers in the world. Because of that, we lost dominance in the auto market. General Motors currently has 17 percent of the American auto market – Ford, 13 percent. Both are declining.
China has been using all those benefits strategically to its advantage. In many ways, they are using the American model of the mid-20th Century –using our economic and military might to force or buy our influence over foreign nations. It was sometimes characterized as the “ugly American” era. Today we have the “ugly Chinese” era – in which they are exerting or buying influence over nations in Africa and South America.
Today, the United States is seriously dependent on a nation that is increasingly adversarial to American interests. With Washington going bonkers with debt-financed spending, America needs China to service some of the debt. Next to the United States, China is the number one foreign holder of U.S. dollars.
Even worse, we have farmed out many of our essential industries to China. When the Covid Pandemic hit, America was short of critical supplies, such as N95 masks, hospital garb, and medical equipment. All being produced in China.
While Uncle Sam is pounding his symbolic chest over the development and distribution of the Covid vaccines, most of the ingredients necessary to produce them are sourced from China.
Because they are a big rich country now, the nations of the world are gradually shifting under the influence of China – doing business with China is not a priority.
If you want to see the negative impact of having so much of our manufacturing base in China, you just need to look at the supply-chain crisis that is encumbering imports of both retail goods and more critical supplies – and will not be solved for more than a year, if then. Theoretically, the clog in the supply chain would not even exist, if those goods parked offshore were produced in America.
All those ships anchored offshore with trillions of dollars of goods are there because we did not produce them in America. Minimally, we should have been more protective of essential goods. These shortages – along with reckless spending in Washington – are producing inflation in the United States.
The worst part of the situation is that it is not solvable in the short run – and maybe not solvable at all. It could get a lot worse if relations with China deteriorate. It is very arguable that the United States is now totally dependent on China for survival – and largely incapable of stopping the Middle Kingdom from being the most powerful and influential nation in the world – if they are not already.
So, there ‘tis.