China Syndrome

I admit I bought it.  The whole yard.  Bring China out of its seclusion and agricultural society and welcome it into the family of nations as a developing country.  Never mind that the Chinese financial and social infrastructure is still third world.  Never mind that the Chinese Communist Party is a little rough around the edges. New York Times columnist Thomas Friedman praised China  Nobel Prize winner Eugene Fama asserted that as China got richer, a middle class would emerge, demand more freedoms and the CCP would have to grant more freedom (quite the opposite has occurred).  When I had lunch with libertarian economist Deirdre McCloskey (whose work I greatly admire) two summers ago, she strongly asserted that the tariffs were “stupid, just plain stupid.”

Now we see that we have been led down a primrose path.  

These people were all dead wrong.

But based on those faulty assumptions, we rolled merrily along.  Private equity did deals for years in which manufacturing companies were bought up, the manufacturing stripped out and the jobs shipped off to China, leaving whole swaths of industrial America denuded towns as Agent Orange denuded forests.  We were smarter.  Let China become the manufacturing floor of the world.  We will do more heady things like finance and internet network things.  You know, as Mike Bloomberg would say, things that take more gray matter. 

We overlooked things until they could no longer be overlooked.

The intellectual property theft was rampant and when Obama threatened to take them to the WTO, the Chinese resorted to coercion. They forced U.S. companies to transfer IP into entities controlled by China. Give us your IP or you can’t do business here.  I often remarked that if China pirated tangible goods on the high seas the way they pirate intellectual property, our response would be swift and immediate and would involve guns.  And the intellectual property is much more valuable.

China also stole intellectual property, data, and conducted corporate espionage through hacking and infiltration of academia.  Reports of actual hacks and hacking attempts from corporate America are legion.  The Chinese stealth fighter is modeled on plans for the F-35.  Most egregiously, during the Obama administration, Chinese hackers raided the Office of Personnel Management and swiped the human resources records of all government employees.  If there was a response from our government, I didn’t hear about it.   Recently, the head of the chemistry department at Harvard, and several other academics were arrested for failing to make required disclosures about their Chinese contracts.  The government now knows that the infiltration of Chinese spies in academia is rampant with agents transmitting data or running parallel labs duplicating cutting edge research. 

The bottom line is that good trading partners don’t steal each other’s stuff, and we now know without question that China is a kleptocracy and has been all along.

We suffer some 30,000 deaths a year from synthetic opiods, mostly fentanyl, and much of that comes from China.  Fox contributor Eric Bolling and cartoonist Scott Adams both received the horrible call that their sons were dead after an accidental fentanyl overdose.  The streets of Chicago are now littered with young homeless kids hooked on opiods.  It took Donald Trump much haranguing to get the Chinese to even make fentanyl a controlled substance and the Chinese know who is making this stuff and has done little to control it.  The CCP is literally killing our kids.

The official Chinese response to criticism over its handling of COVID-19 was to accuse the U.S. military as its cause, and to accuse the U.S. of racism in Trump’s labeling it the “Chinese virus” or others that labeled it the “Wuhan virus.”  These ludicrous statements echo of the Soviet statements in the initial aftermath of the Chernobyl disaster. The official statement from TASS was deliberately designed to combat what the Central Committee’s official spokesman called “bourgeois falsification…propaganda and inventions.”  Sound familiar?

I believe that COVID-19 and China’s handling of it is a watershed event in geopolitics.  It remains to be determined whether the virus emanated from its bioweapons plant or its wet markets, but the Chinese coverup is well documented, despite the expulsion of U.S. journalists and silencing of Chinese ones.  The pandemic is only a symptom of the real Chinese virus—the CCP’s desires to supplant the U.S. and the West as the pre-eminent global influencer.  It has now demonstrated beyond doubt that it is not a good trading partner, that all assumptions about its evolution were wrong.

Now that much of the wealth that accrued because of trade with China has been crushed out like a cigarette butt, it’s time to do a hard reassessment of what our relationship with the dragon should look line.

Last summer I read Graham Allison’s book, Destined for War: Are the U.S. and China headed for War in which Allison asserts that a military clash between an established power and a rising power is likely but not inevitable.

Has it already begun?  In my next post, I will put forward steps we should take now.