What the Crash of ’97 Portends

by Patrick J. Buchanan – October 27, 1997

When the U.S. merchandise trade deficit came in at near $190 billion last year, free traders had a ready retort: Trade deficits don’t matter!

Well, we’re about to find out.

Since summer, stocks have crashed and burned in Thailand, Malaysia, Indonesia, the Philippines, South Korea, Taiwan and even mighty Hong Kong. In all except Hong Kong (at this writing), the currencies have been cut free of the dollar and plummeted.

What will become of these nations? We need only look at Mexico.

After devaluation of the peso in 1994, Mexico’s minimum wage fell to 41 cents an hour, and real wages are below what they were in 1980. A similar future awaits millions of Asian workers.

But what of us Americans? Who wins and who loses from the disaster? In the short run, American consumers may benefit. At Christmas, we may see our store shelves packed with an greater abundance and variety of Asian-made goods, at ever lower prices. To earn the cash to pay down their dollar-denominated loans, the nations of the Pacific Rim are going to have to ratchet up exports.

To my libertarian brethren, some of whom appear to believe God put us on this Earth so that we might all go shopping, the new Asian competition for America’s market is wonderful news. More things to buy, at even cheaper prices. O happy day.

Asian nations, however, with their economies hammered, their money cheapened, their people’s savings looted by the devaluations, will be cutting back on purchases of U.S. goods. Add soaring Asian exports to the United States to stagnant U.S. exports to Asia, and America’s trade deficit is about to explode. Prediction: The U.S. merchandise trade deficit will be over $200 billion in ’98; by 2000, it will be near $300 billion. If Hong Kong cracks and cuts its dollar loose from the U.S. dollar, and the crisis spread to Japan, look out.

Who are the certain losers from the Asian crisis? America’s manufacturing workers. The flood tide of imports will increase the annual kill of U.S. manufacturing jobs, and wage cuts across Asia, from devaluations, will convince transnational companies to site new plants in the Pacific Rim. Downward pressure on U.S. wages will increase, as companies can tell workers: Either accept a wage freeze, or we shut this place down and build a new factory in the Far East. In the global economy, America’s manufacturing workers are the snail darters, threatened with extinction, yet largely unwanted.

The politics of all this will be interesting. If Al Gore, whose recent appearance in Iowa was boycotted by unions, thinks he has problems now from chatting up fast track and free trade — wait until the tsunami of Asian imports hits America’s shores.

But the geopolitics will be even more interesting. The most interesting reaction to the crisis in Asia will be that of China, a practitioner of “Corleonomics” — the economics of the Godfather Don Vito Corleone.

For half a decade China has been waging a trade war with its Asian neighbors for the U.S. market. Exploiting American folly, greed and addiction to the heroin of free trade, China has stolen U.S. intellectual property, forced U.S. companies to build plants in China as the price of a deal and extorted from those companies technology it cannot thieve. U.S. exports to China are subject to tariffs, taxes and trade barriers that keep U.S. sales to China about two-thirds of what we sell to tiny Singapore. China gets away with it because the American ideologues can conceive of no alternative to free trade.

Thanks to this Clinton-Republican trade policy of constructive appeasement, China’s trade surplus with the United States hit $5 billion last month alone! That is an annual trade surplus of $60 billion a year, a 50 percent increase over last year’s mammoth $40 billion surplus.

Thus has China’s American colony become its primary source of dollars she uses to pay for planes, warships and missiles, and the salaries of Russian military technicians and advisers now teaching China how to fight the Seventh Fleet. Americans buying their kids toys Made in China are helping subsidize the foundation of a war machine that may one day take the lives of their sons.

China has an immense geostrategic stake in not losing its U.S. market. All her plans for hegemony in Asia depend on a constant flow of U.S. investment dollars and huge U.S. trade surpluses.

A life-and-death struggle among Asia’s nations to retain and expand their share of America’s $7.5 trillion market is thus about to begin. Americans who believe that “what’s good for consumers is good for America” see this as delightful. So did the lazy grasshopper who laughed at the ants for working all summer long.