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    Greater China
     Apr 12, 2008
COMMENT
US candidates ride the China bogey
By Dmitry Shlapentokh

In the recent in the speeches of some candidates in the United States presidential campaign, China emerged in a way almost as the replacement of the USSR of the old days.

It became the dreadful "evil empire", the major enemy of the US in the long run. Still, there is a difference. While the USSR had threatened the US with its missiles, China poses a threat by its huge reserves of US dollars.

Elaborating on this threat, Senator Hillary Clinton provided a scenario in which China could hamper the US's foreign policy. She presented the hypothetical picture of China invading Taiwan and the US contemplating moving its fleet to protect the island. At

 
the same time, China would threaten to dump its huge holdings of US dollars and thereby wreck the US economy. And this, Clinton stated, might, indeed, prevent the US from acting as it should.

Clinton was not wrong, not just in elaborating on a possible scenario but in another important aspect: in the present world, economic power - in the case of China, a huge currency reserve could indeed be used as a direct weapon. And Clinton's call to stop this situation is pretty much justifiable. However, the point is that she provided no concrete plan on how to do this. She provided no plan on how the US would end the flow of dollars abroad and no plan on how the dollars already in the hands of foreign powers could be brought back to the US without damaging the American economy.

The continuing US trade deficit with China is one of the major reasons for the continuous flow of dollars out of the country; and here the inefficiency of the US economy is a key. These statements could well be challenged; and those who point to the low cost of Chinese goods vis a vis US goods usually underscore the lower cost of Chinese labor.

This argument does not hold, and some historical examples could well illustrate this point. Nineteenth-century British workers definitely did not live well. Still, the wages of Indian workers were much lower than in UK and the cost of shipping cloth to India by sailing ships was expensive and time-consuming. Yet, as Marx stated, the plains of India "became white with the bones of the starving Indian weavers" who could not compete with British goods. If the situation with US goods is different than it was for the British, it is not because of the cheapness of Chinese labor but because of the basic inefficiency of the USís social and economic arrangements. There are a variety of manifestations of this inefficiency.

Of prime significance are the layers of often absolutely useless but lavishly paid bureaucracy that are often seen as the way of "improvement". Their stress is on advertising, on the way to sell things - from goods to education - not on actually improving the products. In fact advertising, financial speculation and similar activities themselves become not just a "product" but the major "products" of the US economy, duly recorded by statistics that for years have boasted about the "high" economic growth of the US. This was already the case during Bill Clinton's presidency, the golden era to which Hillary Clinton appeals.

It is the arrangement of insurance companies, doctors and the drug industry that makes the American medical service not just of dubious quality but extremely expensive. It is also the arrangement of US education, in particular of higher education, where the escalating cost has not led to visible improvement in teaching and research; in fact, quite a few Americans receive payment for supposed research without publishing for years.

All of these arrangements make US goods and services (such as education) not just extremely expensive but of dubious quality. The recent purchase of planes by the US Department of Defense, not from Boeing but from a European firm, is telling. The Pentagon clearly understands that giving preference to foreign firms for the major purchase of high-tech equipment would lead to public outcry and that the dollar-euro ratio would make the purchase prohibitively expensive.

Still, the purchase was made, indicating that overall quality is so high that it overrode all other considerations. It is inconceivable to assume that with such a low quality of overall products and their high cost, the US could avoid trade difficulties and increasing reliance on foreign loans.

Moreover, the US could hardly induce foreign governments to reduce their holdings of US currency without much damage to US dollars. Indeed, even if the US would reduce its borrowing, it still would be influenced by huge numbers of dollars in the hands of foreign governments, so called "sovereign funds".

To start with, the US needs to induce the foreign holders of dollars to buy US products. Buying US products would keep the value of the dollar higher and would prevent foreign buyers from accumulating too much US currency. Still, the US usually could offer little to foreign buyers, outside of a few strategically important US corporations or companies still attractive to China - the major holder of US dollars - and other non-friendly governments. Yet the US government makes it hard for China to buy them.

The logic here is simple: control over the major "command highs" of the American economy would increasingly lead to economic and then political control over the US by foreign entities. In fact, in the past, the US and other Western powers did precisely that in the Third World: control formally independent governments through control over the nation's economy. This was often called "neo-colonialism".

The US still could extricate itself from a "neo-colonialist" or decaying scenario; but this would require such a dramatic intervention of the state in its social and economic fabric that it would entail something similar to the "New Deal", which, at close inspection, is quite similar to what was done in Nazi Germany or fascist Italy.

This alternative hardly pleases the majority of the US electorate. And this is the reason why both Clinton and Barack Obama, with all of their rhetoric, avoid naming the problems - the inefficiency of the entire system and the structural similarities in the economic performance of all segments of society - and pointing to tough medicine. They still, as Clinton's speech so indicated, prefer to talk tough but be "quite responsible" in action. Until, of course, the acute economic and social pain will compel the leader - whoever he or she may be or what philosophy he or she would preach - to walk the walk.

Dmitry Shlapentokh, PhD, is associate professor of history, College of Liberal Arts and Sciences, Indiana University South Bend. He is author of East Against West: The First Encounter - The Life of Themistocles, 2005.

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