Alarm Bells On China

CLASSICAL liberals thought that they had won the argument over free trade back in the nineteenth century. But the apologists for directed trade or mercantilism keep popping up again. Like William Hawkins from the US Business and Industrial Council.

The "global economy" is not based on the "harmony of interests" once envisioned by 19th century classical liberals, but on cut-throat competition. Winners and losers in these commercial contests impact the national societies in which they operate... There is no world community in any meaningful sense. Energetic nations rise, complacent ones decline.

So the Chinese deliberately keep their currency low in order to build an industrial base. The gush of cheap Chinese goods puts industrial corporations elsewhere in the world out of business. If the Chinese are not willing to increase the value of the yen:

it will be necessary to adopt other measures, such as the countervailing duties used to offset other subsidies.

Of course, the assumption that Hawkins makes is that the low yuan policy of the Chinese is in fact the best policy for the Chinese to achieve national power and greatness. But is it? There is a cost for the low yuan, the huge overhang of foreign exchange reserves and US sovereign debt. Hawkins assumes that this strengthens China and weakens the rest of the world.

But Hawkins is supposing that the crude power calculations of politicians is correct, that emphasizing exports is the way to international power.

More likely it is true that a more balanced growth policy is the better course. What good did Germany�s national greatness policy after 1871 do for it? It ended in the ruin of 1918 and 1945.

It could be that China is growing as an energetic nation in spite of its mercantilist policies.

Or it could be that China is emphasizing industrial growth purely as a strategy to mop up the internal migration (said to be as high as 25 million a year) from the country to the city.

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Christopher Chantrill blogs at www.roadtothemiddleclass.com. His Road to the Middle Class is forthcoming.