Monday, May 29, 2006

Trading with the Enemy? China wants to sell to us. We should be happy!

I JUST GOT BACK from three weeks in China. So I'm a China expert--by Bush administration standards. Of course, by Bush administration standards, I'm an expert on Iraq strategy, Social Security privatization, and hurricane relief. But even a fellow with a Bush administration level of expertise can take a quick trip to the Mainland and see that America's China policy is ignorant. In the great American tradition of foreign policy bipartisanship, it's stupid too. Howard Dean thinks Hu Jintao wants to steal all of America's jobs and industries. And George Bush can't figure out why his speechwriters keep making him ask, "Who Jintao?" He knows the guy, he just met with him.

The problem with America's China policy is not ideological. True, there is the difficulty of dealing with a single-party state where the entire governmental apparatus is under the control of a small, doctrinaire political elite. But the Republicans are going to lose the House this fall. The problem is that America is wrong about economic principles. And not fancy economic principles such as Income Velocity of Money, which caused some of us to get a D on our Econ 101 midterm. America is wrong about economic principles so basic that even a doddering old Commie with a high school education like Deng Xiaoping understood them.

Economic progress requires division of labor, freedom of trade, and pursuit of self-interest. One person produces one sort of thing - a sack of rice, perhaps. Another person produces another sort of thing - transformation to an ownership society, maybe.

Being self-interested, both people want both things, so they trade. The trade may not be a wise one. When Americans traded their rice sack of votes for George Bush's transformation to an ownership society, they got bungled pension and Medicare reforms and a 2006 budget deficit equal to 80 percent of the Chinese government's annual budget. But freedom of trade must be allowed. Taking the sack of rice by force destroys the pursuit of self-interest, which destroys the division of labor, which keeps anybody from doing anything about economic progress. The best minds of the nation join the Red Guards and run wild through the countryside trying to grow rice with Mao Thought while the fat, crazy peasant who had those thoughts in the first place controls the nation's minds.

Trapped in the theater of Maoism, the Chinese finally noticed the emergency exit marked "Adam Smith." China's economy barged though Deng Xiaoping's Open Door. The door smacked American policymakers in the head and they've been wandering around in a daze mumbling nonsense about the unfairness of our trade deficit with China ever since ...

Continue here (The Weekly Standard, dated 29 May 2006).