Beijing wishes to sustain its side of the U.S. – China bilateral relation, Beijing cannot afford to find itself alienated because it cannot replace an American partner. Beijing also has to recognize that it has already implicitly declared war against America. Masking that reality will require a deft statecraft worthy of any real challenger. What remains to be seen is how well Beijing is willing to push the American’s. Look for changes throughout the Pacific periphery in North Korea, Australia, Japan and the southern tier of Southeast Asia, for Beijing’s limits are exposed throughout this ring of fire.
Having hired Peter Navarro to lead the National Trade Council will only expose the deft mercantile statism that has characterized east Asian political economies since Reagan.
Here’s the dirty little secret: absent statism, the dynamism animating the Pacific rim would fall. There are geographic reasons for this, but by far, the source of this crutch is human capital. The political economies throughout the east Asian rim aren’t home to liberty. They’ve grafted on export based regimes, usually by overt mercantile policies of subsidies, currency depreciation and overt favorable labor laws that the Unites States cannot duplicate. This works for gross manufacturing, and service based economies, but not for the commanding heights of first world economies that thrive in nano-based technological breakthroughs in miniaturization, micro-biology, robotics and artificial intelligence. The theological sources of culture are unfavorably exposed for Beijing. They know it, that’s why government sponsored entities are running to invest in American capital markets, if only to offset current imbalances. What Chinese leadership knows, is this: trade isn’t the only show in town, there’s always foreign direct investment.
They cannot hope to compete with Hayek’s ‘extended order’. Ask the Russians how that went.
With surging capital controls, China’s emerging middle class cannot swap its yuan denominated monies for dollars; if it should ever be able to do that, it would destroy China overnight.
Has anyone discerned how Lincoln kept European powers out of the emerging civil war?
He threatened to kill off England’s powerful cotton industry by not honoring massive British bond holders. Here’s what Treasury knows: the U.S. Federal Reserve is capable of buying more assets than anyone; if the boys in Beijing think they’ve got the upper hand in financial mechanics as statecraft, they should think again. Beijing cannot dictate U.S. interest rates, nor the size or pace of Treasury auctions. They remain wary of dollar volatility, why? Because Chinese firms borrow heavily abroad, dollar denominated debt ratios are difficult for Beijing to manage.
Having covered their own financial exposure by heavily investing in American capital markets, the American’s need to push Beijing aggressively by enveloping Beijing from within, by waging preemptive war from Seoul, by out maneuvering Manila and establishing heavily fortified industrial bases throughout India.
If the American’s ever get serious about China we’ll do Reaganite tax reform tied to a Taylor monetary rule, effectively sinking Beijing’s ambitions.
The future trajectory of Beijing’s power doesn’t reside in its emerging middle class, it resides in U.S. domestic policy.