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Sunday, January 31, 2010

The Clash of Empires - China and The USA

The United States made a fundamental misjudgement that trade with China would necessarily bring freedom and democracy to China. To date that has not happened and trade with China, never free, has weakened the finances of the US, weakened US industry, and greatly increased Chinese power and stature.

It was an additional colossal error to have ever allowed a foreign government, especially China, to own and hold US sovereign debt. Think about it. Free trade of goods and services never ends in an unbalance. A country can export and bring in dollars by the boat load, but if they cannot buy US debt, they have to spend the dollars. Allowing China to hold US debt permitted the Chinese to export and not buy US products.

During this current period of financial and industrial decline, the US has stubbornly held onto a global military presence that is absurdly expensive and financially unsustainable. No place is that more apparent than in Asia.

We may not like what China is doing, but remember, we did this to ourselves. China would be nowhere without the foolish trade decisions made by our rulers and masters in Washington.

The maintenance of foreign US military bases since WWII should have ended long ago and will have to end in the future because we cannot afford it.

Trade, finance, and military spending are all related. It is time to rethink and remake the US in a way that will make us stronger, richer and safer for a lot less money.

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China's strident tone raises concerns among Western governments, analysts
By John Pomfret
Washington Post Staff Writer
Sunday, January 31, 2010; A01

China's indignant reaction to the announcement of U.S. plans to sell weapons to Taiwan appears to be in keeping with a new triumphalist attitude from Beijing that is worrying governments and analysts across the globe.

From the Copenhagen climate change conference to Internet freedom to China's border with India, China observers have noticed a tough tone emanating from its government, its representatives and influential analysts from its state-funded think tanks.

Calling in U.S. Ambassador Jon Huntsman on Saturday, Chinese Vice Foreign Minister He Yafei said the United States would be responsible for "serious repercussions" if it did not reverse the decision to sell Taiwan $6.4 billion worth of helicopters, Patriot Advanced Capability-3 missiles, minesweepers and communications gear. The reaction came even though China has known for months about the planned deal, U.S. officials said.

"There has been a change in China's attitude," said Kenneth G. Lieberthal, a former senior National Security Council official who is currently at the Brookings Institution. "The Chinese find with startling speed that people have come to view them as a major global player. And that has fed a sense of confidence."

Lieberthal said another factor in China's new tone is a sense that after two centuries of exploitation by the West, China is resuming its role as one of the great nations of the world.

This new posture has befuddled Western officials and analysts: Is it just China's tone that is changing or are its policies changing as well?

In a case in point, one senior U.S. official termed as unusual China's behavior at the December climate conference, during which China publicly reprimanded White House envoy Todd Stern, dispatched a Foreign Ministry functionary to an event for state leaders and fought strenuously against fixed targets for emission cuts in the developed world.

Another issue is Internet freedom and cybersecurity, highlighted by Google's recent threat to leave China unless the country stops its Web censorship. At China's request, that topic was left off the table at this year's World Economic Forum in Davos, Switzerland, Josef Ackermann, chief executive of Deutsche Bank and co-chairman of the event, told Bloomberg News. The forum ends Sunday.

China dismisses concerns
Analysts say a combination of hubris and insecurity appears to be driving China's mood. On one hand, Beijing thinks that the relative ease with which it skated over the global financial crisis underscores the superiority of its system and that China is not only rising but has arrived on the global stage -- much faster than anyone could have predicted. On the other, recent uprisings in the western regions of Tibet and Xinjiang have fed Chinese leaders' insecurity about their one-party state. As such, any perceived threat to their power is met with a backlash.

A spokesman for the Chinese Embassy in Washington said China's tone had not changed.

"China's positions on issues like arms sales to Taiwan and Tibet have been consistent and clear," Wang Baodong said, "as these issues bear on sovereignty and territorial integrity, which are closely related to Chinese core national interests."

The unease over China's new tone is shared by Europeans as well. "How Should Europe Respond to China's Strident Rise?" is the title of a new paper from the Center for European Reform. Just two years earlier, its author, institute director Charles Grant, had predicted that China and the European Union would shape the new world order.

"There is a real rethink going on about China in Europe," Grant said in an interview from Davos. "I don't think governments know what to do, but they know that their policies aren't working."

U.S. officials first began noticing the new Chinese attitude last year. Anecdotes range from the political to the personal.

At the World Economic Forum last year, Premier Wen Jiabao lambasted the United States for its economic mismanagement. A few weeks later, China's central bank questioned whether the dollar could continue to play its role as the international reserve currency.

And in another vignette, confirmed by several sources, a senior U.S. official involved in the economy hosted his Chinese counterpart, who then made a series of disparaging remarks about the bureau that the American ran. Later that night, the two were to dine at the American's house. The Chinese representatives called ahead, asking what was for dinner. They were informed that it was fish. "The director doesn't eat fish," one of them told his American interlocutor. "He wants steak. He says fish makes you weak." The menu was changed.

Tone with Europe, India
With Europe and India, China's strident tone has been even more apparent. In autumn 2008, China canceled a summit with the European Union after French President Nicolas Sarkozy met with the exiled Tibetan leader, the Dalai Lama. Before that, it had denounced German Chancellor Angela Merkel over her contacts with the Tibetan spiritual leader. And in recent weeks, it has engaged in a heated exchange with British officials over its moves to block a broader agreement at the climate conference.

At the Chinese Embassy, Wang differed on the climate issue. "China is strongly behind the idea of meeting the issue of climate change," he said, "but at the same time we think that there are some people who want to confuse the situation, and we feel the need to try to let the rest of the world know our position clearly."

China also suspended ties with Denmark after its prime minister met the Dalai Lama and resumed them only after the Danish government issued a statement in December saying it would oppose Tibetan independence and consider Beijing's reaction before inviting him again.

"The Europeans have competed to be China's favored friend," Grant said, "but then they get put in the doghouse one by one."

China's newfound toughness also played out in a renewed dispute with India over Beijing's claims to the Indian state of Arunachal Pradesh, which borders Tibet. Last summer, China blocked the Asian Development Bank from making a $60 million loan for infrastructure improvements in the state. India then moved to fund the projects itself, prompting China to send more troops to the border.

David Finkelstein, a former U.S. Army officer at the Defense Intelligence Agency who now runs the China program at the Center for Naval Analyses, said the new tone underscores a shift in China. "On the external front," he said, "we will likely see a China that is more willing than in the past to proactively shape the external environment and international order rather than passively react to it."

An example would be events that unfolded in December when 22 Chinese Muslims showed up in Cambodia and requested political asylum. China wanted to hold seven of them on suspicion of participating in anti-Chinese riots in the Xinjiang region in July.

Under intense pressure from Beijing, Cambodia sent the group home, despite protests from the United States. Two days after the group was repatriated, China signed 14 deals with Cambodia worth about $1 billion.

What the future holds
Whether this new bluster from Beijing presages tougher policies and actions in areas of direct concern to the United States is a key question, Lieberthal said. What China does after the United States sells Taiwan the weapons may provide some clues.

Even before the United States announced its plans Friday, at least six senior Chinese officials, including officers from the People's Liberation Army, had warned Washington against the sale.

Once the deal was announced, China's Defense Ministry said it was suspending a portion of the recently resumed military relations with the United States. China also announced that it would sanction the U.S. companies involved in the sale.

What happens next will be crucial. China quietly sanctioned several U.S. companies for participating in such weapons sales in the past. However, it would mark a major change if China makes the list public and includes, for example, Boeing, which sells billions of dollars worth of airplanes to China each year.

He, the vice foreign minister, warned that the sales would also affect China's cooperation with the United States on regional issues. Does that mean China will continue to block Western efforts to tighten sanctions on Iran? Bonnie S. Glaser, a China security analyst at the Center for Strategic and International Studies, said the answer will probably come soon.

France takes over the presidency of the U.N. Security Council on Monday and is expected to push for a rapid move in that direction.



47 comments:

  1. The Obama Administration will announce Monday its proposed fiscal year 2011 budget.

    The Senate Budget committees forecast a $1.35 trillion budget deficit.

    What do you think would happen if the government said no more foreign purchases of future US sovereign debt?

    What would happen to bond prices on existing debt if the supply would no longer increase?

    What disciplines would be placed on government?

    What would foreign exporters to the US do with their increased supply of dollars?

    They would have to purchase US goods, equities and services. That would be all the stimulus we would need.

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  2. We would not need a jobs bill.

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  3. Foreign exporters would need to build US factories.

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  4. China and Russia would not be able to threaten that they would dump their US bonds.

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  5. A search in the archives would produce gems from Comrade Rufus praising virtually unlimited, unregulated "free trade" as a gauranteed free lunch for all.

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  6. Socialism (and the lies that support it) Uber Alles!


    rufus said...
    And, I have absolutely NO opinion on Calif sovereign debt.

    I can get into enough trouble on my own, thank you.

    Although, I'd say 25% seems a bit high.

    Sat Jan 30, 07:49:00 PM EST

    ---

    rufus said...
    You know, I've been hearing these stories of a "bankrupt" Ca my entire sentient life. Same with N. Jersey, and New York.

    Guess what, their citizens are still among the wealthiest, best maintained, and best educated of all the states.

    Meanwhile, the citizens of those "bastions of conservatism" in the South are still the poorest, raggediest, sickest, least educated of all the Country's citizens.

    Funny how it's worked out that way, huh?

    Sun Jan 24, 07:29:00 AM EST

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  7. I gave up TV 35 years ago because it drained my brain.

    Now I spend time rebutting an ASCII text stand in mouthpiece for the Govt/Media Elite Complex?
    WTF?

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  8. In re:

    Doug said...
    Comment by MJL

    This weeks Barron’s lists California as the 10th riskiest “sovereign debt” in the world, on the same list as Dubai, Greece, etc. The credit default swaps impute a risk of default on California bonds of approx 25%. If this should happen, besides the general mayhem and imploding real estate values, what effect would there be on Proposition 13 taxes?

    ...another non-event according to the Rufster.

    Sat Jan 30, 07:34:00 PM EST

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  9. The People's Temple and Chief Dairyman of the Soviet Union

    In September 1976, Willie Brown served as master of ceremonies at a large testimonial dinner for Jones attended by Governor Jerry Brown and Lieutenant Governor Mervyn Dymally and other political figures.[46]

    At that dinner, while introducing Jones, Willie Brown stated "Let me present to you what you should see every day when you look in the mirror in the early morning hours ... Let me present to you a combination of Martin King, Angela Davis, Albert Einstein ... Chairman Mao."[47]

    Harvey Milk, who spoke at political rallies at the Temple,[48] and wrote to Jones after a visit to the Temple: "Rev Jim, It may take me many a day to come back down from the high that I reach today.
    I found something dear today. I found a sense of being that makes up for all the hours and energy placed in a fight. I found what you wanted me to find. I shall be back. For I can never leave."[49][50]

    In his San Francisco Temple apartment, Jones regularly hosted San Francisco radical political figures such as Angela Davis for discussions.[51] He spoke with friend and San Francisco Sun-Reporter publisher Dr. Carlton Goodlett about Jones' remorse regarding not being able to travel to socialist countries such as China and the Soviet Union, speculating that he could be Chief Dairyman of the Soviet Union.[52]

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  10. While perusing the archives for Ruftster gems, I came across a Coen Bros. post that I had missed.

    Let me recomend again "Humbolt" by two guys that are like younger versions of the Coen Bros.
    ...also a great inside documentary on what the hippy/drug culture in NORCAL was really like.

    One scene looks like it was filmed at a place a realtor showed us out in the redwoods:
    Beautiful, rustic redwood shelter, with a luxuriant patch of high grade grass featured prominently in the front yard.

    Like an instant rebate at harvest time.

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  11. Above all, however,
    The Dude Abides.

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  12. ...and Jeff is up for an Oscar for something this year.
    About time.

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  13. Chalmers is an interesting individual. By his own admission, philosophically, he travels with Noam Chomsky, although hopefully with less bitter rancor. Obviously, he shares Chomsky's opinion of American imperialism.

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  14. George Freeman says China is in trouble. "The overwhelming number of Chinese live in sub Saharan African poverty." It is a very poor country with 600 million impoverished citizens living in households earning less than $80 per month. Another 400 million lived in households earning less than $160 per month. He says that 60 million live in households earning about $20k per year. Economically, China is effectively the size of France and is "utterly dependent on selling it goods to the US and Europe."

    Freeman says, "The rising American savings rate is a dagger pointed directly at their heart." Out of every dollar Americans save, 25 or 30 cents do not go to China.

    Unemployment is a nightmare and the Chinese are responding with by "vigorously clamping down on any sign of dissent, taking complete control of communication and waving the nationalism card.

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  15. Freeman says there are two Asian myths. One about the power of China and the second about Japan as a weakling.

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  16. If we stop selling treasuries to foreign governments and banks and sell them as tax exempt gauranteed yield bonds to US citizens, corporations and residents, we will change the game.

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  17. Unless, America falls back into its materialist, consumer society ways, the game board will change dramatically. As interest payments on US debt consume a larger part of the budget, DC will be forced to cut back on our foreign military footprint. Growing energy independence will permit a smaller presence in the middle east.

    Of course, this opens the door to untold mischief by the Islamists and Russia.

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  18. How much car can you get for $25K?

    WSJ says "More than you might think."

    Me: Less than what I might think.

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  19. ...he shares Chomsky's opinion of American imperialism.

    Sun Jan 31, 08:31:00 AM EST

    There has to be a more suitable term than imperialism for the policies and actions of a nation that, while unprecedentedly interventionist, maintains no empire. (The period of our westward expansion would qualify, but that ended long ago.)

    As empires go we are presently a thorough historical anomaly - hyperactive and unopposed, and yet with exception of a few, very brief postwar periods, not administering any foreign lands.

    The bases we occupy as lessees are in toto territorially insignificant and are used for force projection rather than platforms from which to rule.

    It could be argued - has been argued - that the extent of our modern success as an "empire" is the extent to which we are not.

    The flipside, however, is that we do not really exercise the power that we do possess. As often as we would seem to, we are in fact extremely reluctant to do so.

    As I've said, Good Guy is our schtick and not always for the better.

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  20. I'd say the Chinese saved us a lot of money at Copenhagen.

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  21. Right now? No sudden moves.

    The price of oil is going to put the brakes on imports from China. Protectionism won't be necessary.

    It would be acceptable to tie some sort of action directly to their currency manipulation.

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  22. Rufus, if we did not permit foreign holdings of US debt, there would be no need for protectionism. There would be no trade unbalance.

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  23. the Arabs would have to sell their dollars to someone that needed to buy something from the US.

    The Chinese would have to purchase products from the US or build factories in the US with their excess dollars. Latin America would have to buy American products intead of Chinese goods with US dollars.

    The US could run 60-70% deficits during WWII because the bond purchasers were all US citizens. We could and should do the same thing now.

    We simply go to a capital budget for infrastructure and the treasury could print special dollars to pay for it. User fees for the infrastructure could be set to retire the same dollars over the economic life of project.

    US savings bonds could be issued to US companies and individuals tax exempt and freely tradable, better yet make them bearer bonds.

    Drop all taxes to 20% and you will have a rip roaring recovery. The discipline is that the amount of currency must be kept in a band that takes into account productivty economic activity and population.

    there would be no leed to worry about what China and others will be doing with their holdings of US debt. It becomes irrelevant.

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  24. Actually, there would be no trade.

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  25. You see, in the United States, trade is done, primarily, between people, not between Governments.

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  26. How do you come up with that claim?

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  27. What you're proposing sounds to me like a "barter" system. We sell you some Boeings, and you pay us in DVRs.

    Puts Boeing in the DVR retail business. Corn farmers in the retail computer business. How do you take your "change?" In weed-eaters?

    Sounds like a mess to me.

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  28. It's unworkable, Deuce. Even on a local level. In order to trade we have to own each other's currencies, and debt.

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  29. Deuce, we have the highest standard of living of any major country in the history of the world.

    One needs to be very careful about changing something that has worked that well.

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  30. As for China getting "uppity:" Well, hell, we're big boys; we can stand a little back-talk.

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  31. We'll just send Hillary over there, and have her throw a little o' that "Smart Diplomacy" on their ass.

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  32. I think you underestimate the desirability of selling in the US. The bond idea sounded good but it blew up in our face.

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  33. It is not barter. They can do what they want with the dollars. They can buy corporate or industrial bonds or bank bonds. They could buy state issued bonds, they just cannot buy US issued bonds.

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  34. Deuce, everybody gets all het up during recessions. Especially, Bad recessions. The thing is, recessions are just as natural as snow in the winter. It's indemic to the business cycle. And, actually, they're necessary. They are God's way of telling you, "oops, wrong direction, go This way."

    "Slow down for Turns."

    We've got to "make a turn" in energy. We, also, have to do a lot of "retooling," and "retraining." We, also, DO need to push China on the "Currency" issue. We've Got to get some relief, there.

    We Don't want to shoot ourselves in the foot, or the nuts, while we're doing it.

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  35. What about the Canadians, or the British? Do we allow Them to buy U.S. Bonds? Do we allow them to sell them to the French? How do we keep the French from selling them to the Italians, and how do we keep the Italians from selling them to the Chinese?

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  36. You would end up with No Trade with Any other country, Totally Isolated. No way to live.

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  37. Those who use the term imperialist in connection with the US, most often use it as a perjorative.

    If the US is imperialist, it is unlike any other imperialistic nation in history.

    If one wants to say culturally hegemonic, that's a different matter.

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  38. Deuce, what would prevent the world from moving away from a dollar standard? Would your proposal hasten that move?

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  39. I think your proposal might well result in the development of a global currency and Global Banks.

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  40. The important issue is relative economic power. The more the US has the better for the US. Those that have economic power get to set the rules.

    Military power comes from economic power.

    The two beget political power.

    Political power, law and freedom provide moral power.

    Lose your economic power and everything else will fall.

    It makes me sick to see what the Chines are doing in Latin America. It should disturb everyone.

    I hate driving thirty miles west of Philadelphia,three hundred plus miles to Pittsburg and see American industry and American workers slipping backwards.

    The world could do anything it wants with US dollars except buy US debt. They can hold as many dollars as they want.

    Anyone who holds a currency does so because they expect the value to remain constant. If they fear it is going down they wont.

    Make the US economy grow and you will see the many ways the private sectors creates instruments to hold and invest dollars.

    I want the US to be the world's greatest investor, not the greatest borrower. That will never happen with foreign powers buying US treasuries.

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  41. I believe this scam on the US workers started after the Arabs jacked the US up in the seventies with high oil prices. The sheiks didn't need anymore gold plated Cadillacs and they had to recycle the dollars.

    The Japanese took over the role,then the Koreans and then the Chinese. All to get away with protecting their industries while having access to the US market.

    Our politicians jumped on this piggy bank and here we are today. Where are American workers? 17% are up shit's creek.

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  42. "If the US is imperialist, it is unlike any other imperialistic nation in history."

    I agree. That's why I don't think empire and imperialism are apt terms, whether used favorably by those with a grandiose sense of American purpose abroad or, as you said, pejoratively by those who recoil from any such elaborate designs. They just don't provide accurate descriptions.

    "Superpower" is, I think, still entirely appropriate. Meaning not omnipotent or even unchallenged but possessing a unique set of capabilities relative other powers.

    "If one wants to say culturally hegemonic, that's a different matter."

    Sun Jan 31, 03:20:00 PM EST

    This is not true to anywhere near the extent that many Americans believe it is. A far more general, if very slow and sporadic, westernization in the developing world, yes. But there is yet absolutely no such thing as what James Fallows (IIRC) called McWorld almost 20 years ago. There is no such collectivized global culture.

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  43. In all fairness, Deuce, 13, or 14% have Always been up "shit creek."

    Again, this is God's way of telling us to "Change." Change our assembly lines to be more automated. Change our "Energy" consumption patterns. And, Fer Christ's Sake, "Keep an Eye on those BIG Damned Banks."

    Our problems ain't the Chinese. Our problems is "Us." We don't have to commit hari kari, but we do have to shed a few pounds of ugly fat.

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  44. I've been involved in a running gunfight all day over at This Blog.

    You think Doug hates me? He's my long-lost favorite uncle compared to these guys.

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  45. Doug doesn't hate you, Rufus.

    Doug and your other friends at the bar just practice tough love.

    Your new friends over at the energy blog seem extraordinarily gentle, btw. It's tempting to call them enablers.

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  46. Pejorative

    I knew when I typed perjorative, I needed to spell check it.

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