Blowback, Second Edition: The Costs and Consequences of American Empire

Before the economic crisis that began in 1997, which greatly expanded global dependency on the American market, the United States was already absorbing about 25 percent of all exports from East Asia and running annual trade deficits with the area well in excess of $100 billion. China’s trade surplus with the United States, more than $60 billion in 1998, is second only to Japan’s and growing much faster. When China launched its economic reforms in 1978, its overall foreign trade totaled $20.6 billion; by 1993 the figure was $195.8 billion, an increase of 950 percent. Some 80 percent of China’s exports are manufactured goods, and China is the world’s largest textile exporter as well as the largest source of American textile and apparel imports. The Europeans and Japanese also run trade deficits with China, but the U.S. deficit is approximately two to three times theirs.

In a sense, this “trade problem” is really a matter of “systems friction,” the clash of different forms of capitalism, exactly as one might expect given the developmental-state strategy that China is pursuing. The point of this strategy is to bend the rules and norms of laissez-faire capitalism in order to achieve national wealth and power, since economics in this view is inevitably a zero-sum game in which some nations win and others lose. China has never tried to become a “free-market economy” but rather to engage and exploit other market economies to become a great power. Economic reform, after all, was undertaken in the first place in order to preserve the Communist Party’s political control and to achieve through other means what it had failed to achieve through Stalinism and then Maoism.

The U.S. response to this challenge has primarily been to try to induce or cajole China into “reforming” its economy to give it the look of American-style capitalism. Thus, in 1994, reflecting the attitudes of Washington’s economic theorists and trade bureaucrats, the Washington Post editorialized that in order to be allowed into the WTO, China must 1) publish its trade regulations in a transparent form accessible to importers, 2) ensure that all foreign and domestic companies receive the same treatment from the legal system, and 3) stop using artificially low exchange rates to boost exports and impede imports.¹⁷ These proposals, of course, were not only culture-bound but thoroughly at odds with China’s chosen strategy of economic development as well. Even if China were to abandon its strategy of economic development, it would never do business the way the United States does.

The answer to these problems, in the sense of helping to promote China’s economic development while preventing its predatory trade policies from provoking international conflict, is managed trade. All this means is the use of public policy to manage outcomes rather than procedures. It assumes that when either public or private companies in different economic systems trade with and invest in each other’s economies, a mutually beneficial outcome cannot be assured merely through agreement on rules. Managed trade is not nearly as uncommon as professional economists imply. In 1960, at the height of the Cold War, when the United States began to trade with Poland, Romania, and Hungary, it set goals that these Leninist countries had to meet. It required, for instance, that Polish imports from GATT countries rise 7 percent per year or trade would be cut off.¹⁸

The economic challenge of China is likely to be the most difficult test not just for American economic policy but for its foreign policy in general in the first quarter of the twenty-first century. Unfortunately, Americans still remain confused by the idea that the foundations of power no longer lie in military but in economic and industrial strength. They tolerate, even applaud, irrationally bloated defense budgets while doing little to rebuild and defend the industrial foundations of their own nation. When the world economic crisis began in Asia in 1997, the United States responded with the stale formulas of the International Monetary Fund, only worsening the situation. Inadequate political leadership, inappropriate staffing of the government, and an inability to redirect the foreign affairs, defense, technological, and intelligence agencies to pay more reasonable attention to Asia in general and China in particular seem endemic problems for the foreseeable future.

JAPAN AND THE ECONOMICS

OF THE AMERICAN EMPIRE