China. Why has that word for so long struck fear in the hearts of Americans? During the Cold War people harbored terrible fantasies about hordes of Chinese swarming over them and imposing a virulent Oriental communism. Now the Cold War is over, and although China still has a communist-inspired authoritarian government, this is not your father’s Red nemesis. Much has changed in the world’s most populous country.
Yet we remain in fear. But now it is an economic fear: China will buy up all the beef. China will buy up all the wheat. China will make all the textiles and clothing and take our jobs. China’s trade surplus with the United States will put us hopelessly in debt.
Nonsense. It’s about time we kept our heads and applied some basic economics to what’s going on.
Economically, the Chinese are freer than they used to be. Chinese entrepreneurs can raise capital, and foreigners can invest their money, to create productive enterprises. Chinese workers have far more choices than they used to have. The result has been stunning economic growth and an export boom fueled by low-priced high-quality products
Predictably, this worries some people, specifically, Americans and other nationals who make what the Chinese are now selling so successfully. This isn’t worrying American consumers, who find that, because their dollars stretch further, they have more to invest or spend on additional things.
But some people just can’t take good news. They have to look for the gray lining in every silver cloud. The success of the Chinese sellers and their American customers, we’re told, is really not good news. Why not? Because Americans are losing their jobs. Because the Chinese aren’t buying enough American goods and the resulting trade deficit puts us more and more in their debt. Because the Chinese government is artificially holding down the value of its currency in order to make exports more attractive (as if politicians know what the exchange rate should be). Because … because … because. But the what about the great deals at the stores? Their Marxist (Groucho, that is) response, in essence, is: who are you going to believe, me or your eyes?
I say believe your eyes. None of the objections is valid. A highly advanced economy always is — and always should be — losing some jobs. They are replaced by technology in some cases, by cheaper lower-skilled foreign labor in others. This is progress, because new and higher-paying jobs take their place. In 1905 lots more people were growing food than are today. Were we better off then? The Chinese inroads into the American market have made things more difficult for workers in Bangladesh than for workers here. We demanding consumers deserted other third-world producers as soon as we saw what the Chinese were willing to provide.
Let’s hear no more trade-deficit-equals-debt buncombe. First, there is no reason to expect bilateral merchandise accounts to balance. None. Second, that deficit is perfectly offset by the capital-account surplus with China: what they don’t spend here they invest here. Period. Anyone who is concerned about China’s being a creditor should direct his wrath at the U.S. government. It’s the one engaging in deficit spending and selling Treasury bills to the Chinese. If none were sold, none could be bought.
The new anti-Chinese hysteria makes less sense than the old did. When will we get it through our heads that it is good for others to get rich? It makes us even richer.