Gareth Jones Journal Staff
China has been following a highly controversial and risky policy in recent years. China’s annual GDP growth in the last decade has hovered around an unprecedented eight percent yearly increase, even at the height of the global recession two years ago. This is in large part a result of the massive levels of cheap exporting that the Chinese economy operates on; the reason “Made in China” has become a familiar phrase in American life.
Cheap labor, and the infamous sweat shops with awful working conditions and amazing production figures are the draw that many multi-national corporations seek when looking to China for their manufacturing needs. This has been good for the Chinese economy, and is largely the reason that China’s GDP in 2011 was second only to that of the United States in 2011.
However, exports are not a long term solution to economic growth. Workers begin to unionize, protest, and seek better wages elsewhere as time goes on, and multinational corporations begin to look elsewhere — where wages stay so low that they offset the sunk costs of building a whole new industry. South East Asia is already teaching China this lesson, as countries like Vietnam, Laos, and Cambodia begin to chip away at the cheap labor monopoly long held by China. Already, the average monthly salary for a manufacturing industry worker in China is roughly $276. Compared to a mere $76 monthly salary in Cambodia, and combined with increasing civil unrest in mainland China, many more manufacturing giants are making moves towards relocating away from China.
To avoid, or at least prolong the effects of this export boom, China has done something unique, yet relatively simple thus far in the international political climate. They keep the value of their currency down, by keeping the value of the American dollar high. By continually buying up US dollars wherever possible, (usually through American government bonds, but also through investment and hoarding) China prints money. Lots and lots of it. Meanwhile, the American dollar becomes scarcer, and thus more valuable, as more and more 100 dollar bills are bundled up and hidden away in vaults deep beneath Beijing. Speaking strictly on a short term basis, this is not harmful to either economy. China keeps their export boom artificially relevant, and the American government enjoys the flood of Chinese money into their capital strapped economy. It is thus the long-term effects that have spectators nervous across the board.
Chinese loans are still loans, and the interest rates can be high, especially when discussing trillions of dollars, which is how much we owe China. A number quantitated at exactly $1.2 trillion, according to the Federal Reserve. To give you an idea, private Americans own slightly less than $1 trillion dollars, meaning the Chinese government owns more of the American government than the entire American people. So what happens in ten years? In 20? What happens when China comes to collect?
This artificial devaluation cannot go on forever. China will have to start looking elsewhere to spend their Yuan as the American dollar begins to crash, and regardless of economic policy, the Chinese worker will become tired of making cheap stuff for cheap paychecks, and foreign export firms will abandon China, leaving massive unemployment issues that the strict single party state will have trouble containing. On the American side, when China stops giving us money, who is going to start?
This is where our military machine comes into play. American’s do not share well, as the now defunct Soviet Union can tell you. The U.S. has enjoyed 25 years of uncontested world domination, with no other military or economic power able to stand up to us. This is still the case, and probably will be for another decade, but China is rising. In 2011 Chinese GDP was half of the U.S. GDP, at $7 Trillion and $14 Trillion respectively. But growth levels in China make American growth look like bad joke, and the level of debt this country enjoys is really too distressing to put in print. In short, as you’ve surely heard often, China is coming.
But what happens when they get here? There are relatively few options. Firstly, the US could find a ton of money in the next few decades, pay China off completely, and both countries will move along, happily sharing power. If you consider yourself even mildly skeptic, that last sentence made you laugh out loud.
To look at it more realistically: suppose the US decides not to pay China back for logistical or sentimental reasons. Is China the market for debt forgiveness? Possibly, but not likely. So then what, war? The one thing America will have till the day she dies is a military machine that could conquer the entire civilized world in less than a year. Somewhere deep in the Pentagon are plans outlining the best military strategy for invasion of every other nation in the world. Even Canada, the 51st state, and especially China. China knows this, and despite continued efforts to increase defense spending, China realistically stands little chance in an outright war. And this is where our salvation lies.
You hear terrified politicians point trembling fingers at China, citing our debt to them as reason to panic. I’m not so worried. Sure, they have the potential to own my grandchildren one day, but a simple trip down memory lane shows that this is just not likely. The United States has exercised an aggressive, intrusive, self-motivated, and self-interested foreign policy since 1918. Why would owing China a ton of money do anything other than perpetuate this aggression? Here’s what I think the plan in Washington is, if there is one at all.
Navy Seal Team six storms Beijing while all 200+ of our ships sit in the South China Sea raining glorious justice down on every militaristic enterprise with a Chinese flag on it. U.S. Marines hand out Big Macs and Capri-suns in bags made out of American flags to the eternally grateful Chinese people while carrying every single stack of $100 bills between the Great Wall of China and the Dali Lama’s house back to Washington. For good measure we overthrow the Communist Party and install a puppet democracy whose transition is run by Bill Clinton. Ambitious college kids can stop getting migraines over trying to learn Chinese, and the U.S. economy is flooded with money that was erstwhile spent trying to prolong the inevitable. Problem solved all around. Tune in next week to read about how a few well-placed assassinations will bring peace to the Middle East.
Caitlin Lezell Journal Staff
A major international concern in this year’s presidential election season has been the Chinese and their role in the international economy: whether or not the Chinese government has been manipulating its currency, the Renminbi, and what the United States should do about it, if anything.
By manipulating their currency, the Chinese would be essentially devaluing it. This means intentionally keeping its value in the free market lower than it should be, especially when compared to the United States’ Dollar, printing more of its currency and using said printed currency to buy American debt. Through making their currency artificially weaker, Matthew O’Brien of the Atlantic points out, the Chinese would provide themselves with “cheaper and more competitive exports” while “[keeping] prices from falling too much.”
Now, currency manipulation is not legal, but there is currently not enough proof for international organizations such as the IMF and the WTO to directly accuse China of such actions. And China is far from the only country to have done such a thing (see, Switzerland, South Korea, or Japan), but in these other countries at these other times, it was done for reasons of defense, or at least more transparently.
Lack of proof has not deterred Mitt Romney, the Republican Party’s presidential candidate. He claimed that, , he would take a very pro-active stance in this situation, directly confronting the Chinese government on the issue of currency manipulation.
Many experts disagree with this approach. Annie Lowry of the New York Times has written that Romney’s aggressive plan could very well come back to hurt the United States, “[setting] off a trade war, leading to falling American exports to China and more expensive Chinese imports.” The action has the potential to prevent future growth for the Chinese, to some extent, but it does not guarantee greater American growth. This would just lead to unnecessary tension with one of the United States’ most important trading partners and investors – keep in mind, China currently holds roughly $1.5 trillion of American debt and has huge stakes in many of the most important American businesses. Is this a can of worms that this nation necessarily wants to open right now?
The United States is certainly, to some degree, stuck. It would not be wise to directly accuse the Chinese of such practices without substantial proof. Nor can the United States retaliate with similar measures: the United States has been the world’s reserve currency for a number of decades, and the importance of the American dollar in the international economy cannot be denied. By attempting to manipulate the value of the dollar, the currency itself would suffer, both domestically and internationally.
This is not to say that the United States should sit back and allow the Chinese to blatantly manipulate its currency, but taking direct action as Romney has proposed is not guaranteed to make the situation any better than it currently is. Chances are high that it will yield primarily negative consequences.