Beijing Plays Hardball and Wins!

by Patrick J. Buchanan – June 23, 1998

America had best wake up. Last week’s trade numbers were the
most ominous yet. Exports to Asia fell, as imports soared. This
nation is now running a merchandise trade deficit clocked in
April at nearly $260 billion a year, and accelerating…

On the eve of Mr. Clinton’s departure for China, Beijing decided to snap the White House to attention, with a naked threat to send the near-bankrupt economies of Asia into free fall.
China’s threat took the form of a warning: Either you and Tokyo intervene to stop the fall of the Japanese yen, or we will let China’s currency and the Hong Kong dollar collapse, as well.

China was threatening a financial Jonestown — a U.S. market crash while Clinton is in Tienanmen Square. That’s hardball.

It worked. Goldman Sachs’ wonder boy at Treasury, Robert Rubin, ditched his no-intervention-to-prop-up-the-yen line and dumped billions of U.S. dollars to arrest its fall, as the White House began to slobber all over Beijing for its “responsibility.”

Why would Rubin be terrified of China’s igniting a new round of devaluations? Well, consider the total exposure of Western banks in Asia’s “emerging markets.” According to the Financial Times, as of one year ago, U.S. banks had $43 billion at risk there; Canada’s banks had $15 billion; Japan’s, $271 billion; Europe’s, $353 billion. As a share of its bank capital, America had 12 percent at risk in the emerging Asian markets; Canada, 46 percent; Europe, 48 percent; Japan, 109 percent!

Put starkly, devaluation by China could set off a new round of currency crises that would force huge new U.S.-IMF bailouts or a string of Asian defaults that could bring down the banks of Japan and Europe in a worldwide financial catastrophe.

Query: Can someone explain what benefit America derives from the Global Economy to justify leaving us at such a risk? And what do we get from our China trade to justify giving Beijing such leverage over the United States?

Last week, Beijing demonstrated two things: China fears its own devaluation less than we do, and in any game of “chicken” the Americans will blink first.

What could we have done when Beijing issued its ultimatum? Well, we could have told Beijing:

“Devalue and be damned! And if you do, we will impose on all goods made in China the same tariffs you impose on goods made in the United States. That would mean, fellas, your export market here will be taken over by Free Asia; your $50 billion trade surplus with us will be wiped out; your 7 percent anticipated growth will be more like 0 percent; and you can face the music of tens of millions of jobless Chinese rioting in your cities. So, don’t fool with Uncle Sam!”

Americans fail to realize that we hold all the high cards in any showdown. U.S. exports to China are but one-tenth of 1 percent of our economy, but Beijing’s exports to us account for maybe 8 percent of its entire GDP. We could sink Beijing in six months. Why then dance to China’s tune? Answer: Our god is Mammon; we are thus infinitely more terrified of offending the gods of globalism.

America had best wake up. Last week’s trade numbers were the most ominous yet. Exports to Asia fell, as imports soared. This nation is now running a merchandise trade deficit clocked in April at nearly $260 billion a year, and accelerating. Last year’s trade deficit in goods came in at just under $200 billion.

Through these gigantic deficits, and World Bank and IMF loans, America is shoveling money out to nations that are capturing ever-larger shares of our home market. Asia has now begun to gear up to “export its way out of recession.” Those exports are coming our way. Tomorrow’s trade deficits will make today’s look anemic.

Not to worry, writes economist Robert Samuelson in The New Republic’s review of my book, “The Great Betrayal.” We send dollars overseas and get neat things back — “It is a good deal for us.”

Emeritus Professor David Landes of Harvard, in a book being universally hailed, “The Wealth and Poverty of Nations: Why Some Are so Rich and Some Are so Poor”– has a less cheery view.

Comparing us to Holland of centuries ago, Landes writes: “As branches of manufacturing have shrunk before foreign competition, enterprises have discharged redundant labor or moved to lower-wage areas. New workers cost less than old. … Poor immigrants have kept coming. Unions have struck, sometimes only hastening plant closings or transfers of orders to cheaper suppliers.”

The British also embraced free trade as a “matter of faith,” an “economic religion,” writes Landes, and rejected all warnings that their industrial supremacy was vanishing — for, to accept that was to accept a “challenge to the sacred.” We follow the same path and, burbling economists notwithstanding, shall reach the same end.