China and the American Middle Class

My uncle Mario was a bright-eyed young twenty year old when he entered the U.S. Navy in 1944.  After basic training as a new Quartermaster, he was assigned to the destroyer USS Halligan at Pearl Harbor, which shortly joined a task force for the invasion of the Philippines. This was memorialized by that famous photo of General Douglas MacArthur wading through the surf to claim victory.  Unfortunately, the next stop for the Halligan was the Battle of Okinawa where she hit a moored mine head on and was sunk. Half of the crew of 300 made the ultimate sacrifice for their country, Mario Fini among them.

I am the genealogist in my family and freely admit the Ancestry.com is a guilty pleasure of mine. It struck me as I was reviewing the short history of my uncle, that in WWII, the United States fought alongside China and Russia as allies. Fast forward nearly 75 years, and the tables have flipped. Our former Japanese and German foes are now our allies, China is the rising power that threatens Asia-Pacific, Russia is hacking our elections and challenging Europe.  I hope I’m not the only one that sees the frightening irony of this.

The good news that the United States has enjoyed 75 years as the preeminent global super power, where it created and enforced a system of open but rules-based global trade with the US dollar at the center of it. The bad news is that this leadership position is under siege from several sources, most notably China. It has modified it’s communist authoritarian economic model to include a form of capitalism, and over the past several decades achieved predictable results: rapid economic growth with better lifestyles for a larger portion of its citizens. Since 1950, its GDP has grown to the second largest economy in the world behind the US.

However, we shouldn’t be fooled into thinking that China’s rise was solely due to the ingenuity and hard work of its people.  Theirs is a state-sponsored capitalism, more in the mercantile model of the old British Empire. The communist party has the final say for anything it wants at the largest and most important companies. In exchange for this fealty, the government provides endless debt financing and the requirement that companies must continue to employ as many people as possible. There is nothing that authoritarians fear more than millions of hungry peasants with pitchforks and torches.  In order to keep factories humming in an economy where the government is willing to finance deficits, many companies have a huge amount of excess capacity that they dump of global markets for cheap. 

This is good for consumers in the importing countries who can buy cheap stuff at Walmart and Amazon. It’s bad for middle-class workers at companies that cannot compete with cheap Chinese goods. After all, Uncle Sam doesn’t typically write checks to finance private companies to continue to employ workers in markets in which it cannot fairly compete.  In contrast, free-market capitalism let’s millions of buyers and sellers, employer and employees compete based on the value they add to the economy with the overall effect being a rising standard of living for most.  No other economic system in history has come close to the power of free-market capitalism in improving the living standard of the average Joe.

There were great expectations for China when President Clinton sponsored its entry into the World Trade Organization which provided free access to world markets as long as members play by the rules.  The problem is that China doesn’t play by the rules when it is in its interest not to do so. Instead, it steals intellectual property from the US and other nations, and protects it’s domestic companies from foreign competitors.  Unfortunately, for decades politicians on both sides of aisle have been complicit in this system of trading cheap goods for American jobs.

Then in 2016, we elected a US President whose key policy initiative was to enforce trade rules, especially with China. Like him or not, Trump recognized a root cause of our shrinking middle class and has taken action.  Like the child in the fairy tale, “The Emperor’s New Clothes”, Trump has shouted out the truth about China. The result has been an awakening on both sides of the aisle to the threat China poses to freedom and prosperity.  Despite it’s economic success, China is an authoritarian police state that constantly spies on its people using the most sophisticated technology, courtesy of some of our most important American companies.  China has imprisoned more than one million Muslim Uighurs in modern day gulags where children are forcibly “re-educated” to renounce their religion and pledge loyalty to the Communist Party.  They are reneging on an agreement with Britain to keep Hong Kong politically independent for forty more years. China’s cultural conformity diktats represent ethnic cleansing on an industrialized scale rarely in the history of our species.

It’s time for American foreign policy to match the awakening of the military and economic threats China poses to the free world. These new policies must protect American interests by prioritizing the bedrock of American strength: middle class working people. Our founders put in place a constitutional architecture that brilliantly harmonizes the powers of economic and political freedom, to create a middle-class nation that is also middle-ground politically. We need a foreign policy that protects the prosperity and security of our middle class because it is in our long-term national interest to preserve, protect and defend our unique form of governance as a model for the world.

This doesn’t require that America be the world’s policeman or that it create a world of democracies. Neither of these approaches, advocated on both sides of the aisle, is realistic or necessary. Rather we need to prevent any other country from becoming a global hegemon that dominates or dictates to us in any important region of the world. We need our middle-class economy to be able to trade and engage with other nations on free and equal terms. Instead, we have spent the decades and trillions trying to achieve unsolvable peace in the Middle East through failed wars and nation building.  Meanwhile, China has steadily become stronger at our expense by stealing American jobs and intellectual property, abusing World Trade Organization rules and militarizing the South China Sea to project its power across the Asia-Pacific region. America cannot be subject to the whims of China in order to provide access to international markets for our farmers, manufacturers and consumers.  Just look at China’s recent arm-twisting of the NBA over the comments of one it’s owners on human rights as an example of what’s in store if we don’t take action now.

Let’s start with stop trying to re-make the world in our own image and focus on the threat from Beijing.  This means de-emphasizing the Middle East, which has become far less strategic given America’s emergence as the global energy leader. We must reinforce our traditional alliances with Japan and South Korea and bring other nations like Vietnam, the Philippines and Thailand into that alliance.  This means reversing the mistaken policy of President Trump of renouncing America’s leadership role in the Trans-Pacific Partnership. In Europe, we must expect our allies to do more for their own defense to resist a resurgent Russia. We must reverse the growing percentage of Chinese nationals in our universities as students and professors who are easily corrupted as spies for the communist regime.  I would strongly encourage American consumers to pay attention to the country of origin for the products they buy.  Next time you’re in a big box store, look at the product tags and you’ll be hard-pressed to find stuff NOT “Made in China.”  Paying a little more money for our stuff is a fair trade for bringing back some middle-class American jobs and protecting our independence.

Some of you reading this may conclude that what I am proposing is really an unfree world where certain nations we don’t like are excluded from trade.  To those I would ask, “Would you leave your home unlocked in a neighborhood with frequent crime? Would you knowingly put your family at risk, in favor of being open and inclusive?” Of course not.  We need to craft our foreign policy based on reality, not Utopian dreams. If someone consistently demonstrates they cannot be trusted, eventually you exclude them from your network until they play by the rules. This is natural and necessary behavior to support a sustainable society.   Our founders warned us about foreign entanglements and, historically, America hasn’t endeavored to dominate the world.  Rather, we have tried to stop others from dominating in order to protect our freedom, and make the world safe for democracy. These are lofty ambitions but ones that must again be preeminent in our culture.  The fate of our middle class and therefore our country, depends on it.