The focus has shifted from the typical initial totally perverse justifications for the current unprecedented (historic) spending plans, e.g., to “stimulate GDP” (a measure of spending) and “create jobs” (work is what we do to consume, not an end in itself) to meeting and defeating the threat posed by China’s expanding economic and military might. This is precisely the policy the Chinese would have demanded of their Manchurian candidate in return for their billion dollar Air Force 2 Hunter Biden “investment.”
America’s real casus belli (Thucydides provided three in 400 BC, fear, honor and interest) is part fear but mostly economic interest. China after a seven century hiatus is once again a rising imperial power following a traditional mercantilist approach of accumulating wealth through trade, simultaneously accumulating and investing in gold and a global belt and road trading system while restoring lost honor.
Foreign policy, totally ignored during the 2020 Presidential election, is now front and center, with the Biden Administration, which initially kowtowed, now beating the war drums louder than did the Trump Administration. War is a continuation of politics by other means, and the politics among nations generally reflects their imperial interests. America’s Founding Fathers may have been libertarian theoreticians, but their complaints against the King related to the right to exploit America’s vacant land and resources. England may be “an island of coal surrounded by fish,” but the Admiralty of the Navy Winston Churchill recognized that England’s control of the seas required conversion to oil and that required control of the Middle East. The landscape had barely begun to recover from the Great War “to end all wars” when the same parties rearmed for the rematch.
WW II wasn’t fought over political Ideology: The fascist National Socialists first allied with the socialist communists, then attacked them. Imperial Britain allied with Imperial Russian in WW I and socialist Russia in WW II. The US allied with socialist Russia to fight the fascists in WW II, then joined Britain and formerly fascist Germany in a cold war against the socialists after that. The end result was US imperialism supplanting British Imperialism just as FDR allegedly plotted.
Imperial wars are won primarily through economic strength. Socialist Russia (aka the Soviet Union) won WW II by reverting to nationalist sentiments (patriotism) and terror losing 27 million people. Socialism has eventually failed everywhere due to the diminishing returns to coercion and terror. The Axis defeat didn’t reflect the weakness of fascism as an economic tool of war: the Allies had twice the economic and demographic might of the Axis, and the US employed similar fascist methods.
The US generally supports trade based on comparative advantage, open markets and open transportation routes, and seeks allies that do the same. But trade outside the US, The British Commonwealth and Western Europe is mostly in commodities needed by these importers under the political control of the exporters. Hence the political intervention by both parties during the Cold War in these exporting countries to guarantee access to and the price of these commodities. In addition, poorer countries generally implicitly import pollution and export cheap labor.
The US hope that the collapse of the Soviet Union would induce a politically weak Russia to open it’s vast resources to foreign exploitation under the guise of joining the US global trading block was never very likely. American military support for the former provinces of the Soviet Union and border states was a sure way to restore Russian nationalism and re-militarization. With no history of representative government, Russia instituted an essentially one party democracy.
China started economic liberalizations in 1978, and by the 1990s had substantial exports to the US. As the decade wore on, it was clear they weren’t going to open their economy and political system to the west. Following the 1995-96 Clinton Administration’s provocation in the 81 mile wide straights of Taiwan, a Chinese speaking island, China built the biggest (if not the heaviest) navy in the world. (Parenthetically, when the Russians armed the Spanish speaking island more than a hundred miles from the US coast, the US imposed an embargo and threatened nuclear war. Cuba supplied really good cigars and a better base for the mafia than Las Vegas.)
Then Clinton reversed course and supported Chinese entry into the WTO, considered at the time the disaster it has since become, leading to a mammoth trade deficit. China has largely supplanted US manufacturing, while importing (or stealing) US technology, importing raw materials and miss-priced water from drought stricken California (almonds), pollution and historically recyclable trash.
The stated reasons for supporting Chinese entry to the WTO were twofold. First, to foster a democratic China, a lost opportunity (“Wilson’s abandonment of his own ideals spurred China to turn away from American Democracy and toward Soviet communism.”) But contemporary American democracy reflects the first part of Churchill’s quip while individual liberty, the original source of American moral superiority, is gradually being usurped by the state. Second, to defuse the conflict over Taiwan, which provides 92% of the global supply of super computer chips, a vulnerability of US imperialism.
Why Kowtow Now?
Henry Kissinger believes war is inevitable for the same reasons as Thucydides: China is the rising imperial power while America is the declining imperial power, like England fighting rising German imperialism in the Great War. America’s global influence has been declining for decades, and continues under the current administration. Hollywood knows this. From the default on the convertibility of the dollar to gold a half century ago, the cornerstone of the international trading system, to the cancellation of the Keystone pipeline on the first day of the Biden Administration, America’s willingness to honor contractual obligations to its trading partners, including the value of its currency, is in question.
When will China’s economy overtake the US? That depends on the relative supply of labor and capital and how productively it is deployed.
China has a population 60% greater than the US, Europe and Japan combined. Its people are generally smarter, as evidenced by the discrimination of American Universities. They are more industrious as China was arguably less socialist than the US even before socialist Bernie Sanders took control of the Senate Budget Committee. And they are generally entrepreneurial everywhere.
China saves about half its income, more than ten times that of the US over the past few decades. The Chinese government influences investment decisions, but “America’s Muddled Industrial Policy” is arguably worse, especially with political earmarks.
America’s out of control deficit spending is predicted to bring back 1970s stagflation. China’s paper dragon is learning to breath fire while the US is becoming a paper tiger at war with itself. Nobel economist Michael Spence argues the global system can benefit all without conflict if we kowtow now. Good advice.
Kevin Villani, Chief Economist at Freddie Mac from 1982 to 1985, has held senior government positions, has been affiliated with ten universities, and served as CFO and director of several companies. He recently published Occupy Pennsylvania Avenue on the political origins of the sub-prime lending bubble and aftermath.