China's Free-Market
Listened to an interesting conversation this morning between Laura Ingraham and Larry Kudlow regarding China. I have great respect for both of these people, but they were not communicating well on at least one aspect of the discussion.
Laura felt strongly that the U.S. should use sanctions and other economic tools to discourage trade with China for certain unacceptable Chinese actions such as the pirating of intellectual property. Her argument was based on our success in doing this during Reagan's administration which eventually led to the disbanding of Soviet Communism.
Larry said that the two situations are not comparable, and that the reason we brought China into the World Trade Organization was to give us leverage to solve these problems over time. He pointed to areas where we are making progress in changing China's policies. I had to think why Mr. Kudlow did not see the situations as comparable and believe I have reached agreement with him.
The Soviet Union was a centrally-planned economy that was never very strong from the beginning. Reagan saw that affecting the Soviet economy with various pressures, including sanctions, had the possibility of bringing down this already weak structure. He was right!
China is a Communist country, just as the Soviet Union was, but is operating under a new paradigm: Free-Market Economy with Central Political Control. With their free-market they have many alternatives if we introduce sanctions or bring pressures to bear that the Soviet Union never had. Many of these could be very detrimental to the U.S. Economy, it seems to me.
I found it interesting to think about since we should all realize that China will take much of our attention during the twenty first century and we need to prepare while we handle the other less significant distractions such as Al Queda, Iraq, Iran and North Korea - not unimportant, but less significant in the long run!
Laura felt strongly that the U.S. should use sanctions and other economic tools to discourage trade with China for certain unacceptable Chinese actions such as the pirating of intellectual property. Her argument was based on our success in doing this during Reagan's administration which eventually led to the disbanding of Soviet Communism.
Larry said that the two situations are not comparable, and that the reason we brought China into the World Trade Organization was to give us leverage to solve these problems over time. He pointed to areas where we are making progress in changing China's policies. I had to think why Mr. Kudlow did not see the situations as comparable and believe I have reached agreement with him.
The Soviet Union was a centrally-planned economy that was never very strong from the beginning. Reagan saw that affecting the Soviet economy with various pressures, including sanctions, had the possibility of bringing down this already weak structure. He was right!
China is a Communist country, just as the Soviet Union was, but is operating under a new paradigm: Free-Market Economy with Central Political Control. With their free-market they have many alternatives if we introduce sanctions or bring pressures to bear that the Soviet Union never had. Many of these could be very detrimental to the U.S. Economy, it seems to me.
I found it interesting to think about since we should all realize that China will take much of our attention during the twenty first century and we need to prepare while we handle the other less significant distractions such as Al Queda, Iraq, Iran and North Korea - not unimportant, but less significant in the long run!
posted by Jim | 3:17 PM
2 Comments:
Good post! I think your conclusions are correct with regard to China; they are becoming a powerhouse in the world in virtually all senses. The U.S. is in a strange partnership with China economically; we buy things made in China, and they buy US Treasuries so we can keep buying their output. While some argue that this indicates our strength (that they take our debt as valuable), I think the relationship is very much mutually dependent.
I've seen stories that indicate that the Chinese economy could well take some lumps in the future due to poor investment policies (the downside of strong political control that deems some interests too critical to fail, such as the banks there). But if they are able to develop a consuming middle class, they could well begin to see the U.S. market as less critical to their success.
There are many signs that the fight for fossil fuel energy is on, and there's no doubt that China has the cash to pay. Personally I think a lot of the U.S. actions in the Middle East are a part of this energy fight (not the only part, but a strategic part).
I agree "...the relationship is very much mutually dependent." And this is why I think Laura Ingraham does not understand this inter-dependency or she would not be so quick to recommed sanctions, etc. I think this relationship is really one where we should "speak softly, but carry a big stick." And work to see that their "stick" does not become a threat to us.
The other problem with this theory is that as China is growing at a 10% clip the last few years, our economy is booming! As an observer of that phenomena, forgetting my political bias, I have to believe both good effects will continue. If 25% of their population becomes middle class consumers, that is greater than the entire population of the U.S., a hell of a market for many decades (centuries?) to come.
I do not think we are in a "...fight for fossil fuel energy...", but that is certainly the reason we are concerned about the middle east. If Saddam had violated the United Nations mandates as leader of Greenland or Madagascar, I am sure the U.S. would have approached the problem differently.
Let's let the free-market take care of the demand for fossil fuels. As there is more demand, the price will go up and alternatives will be developed. That is the way it works!
Meanwhile we do have to insure that the fossil fuel supply does not stop, and this is going to be a dirty job.
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