Economy

Check Your “Priors”

By Chris Scott  |  October 29, 2019

Welcome to another installment of “Why Everyone Is Wrong About China.”

Last week, I talked about the fact that, while China’s top-down, part Stalinist, part market-driven Frankenstein’s monster of an economy is doomed to fail, it’s not going to collapse anytime soon.

Why? Because contrary to the current regime’s designs, China’s cultural heritage is one of decentralized governance, imbued with strong bottom-up entrepreneurial spirit.

That tradition was awakened over the past four decades of incremental economic reforms. And, despite Xi Jinping’s success at stamping it out, the embers will continue to burn as China asserts itself – and Chinese assert themselves.

China Is America’s True Rival

In the grand course of history, the U.S. didn’t really replace the British Empire as the center of the world. The Commonwealth was a flash in the pan, a first act to the main event, which is the United States.

America really switched places with the Middle Kingdom, which reined as the world’s largest economy for centuries. They want that throne back. They are already close in terms of gross domestic product (GDP). They can smell it.

And they’re not going to capitulate in a trade war just because the Donald threatens tariffs on their exports…

Is China another failed Communist experiment teetering on the brink of collapse at any moment? They’ve been making that argument for decades, more out of wishful thinking than for any real reason.

At the same time, there’s no denying Xi Jinping is turning back the clock to the Mao Zedong era. And his policies would see China and the United States enter a new, more extreme version of the Cold War. Holding out hope that Beijing will see the light and return to a gentler form of “socialism” is wishful thinking, too.

Fatal Flaws? Yes, But…

Sure, Communism doesn’t work. If we put China on a spectrum ranging from “brutally repressive Stalinism” to “an experimental, partially open Socialism,” it’s now lurching full steam ahead back to Stalinism. That will ensure it lags behind America in the long run.

This is a country with glaring vulnerabilities teaming with potential risks to the economy – even more so than the U.S., which, of course, is hurtling towards its own kind of crisis.

But China’s economy is still more robust and more dynamic than it was 10 years ago, and most Chinese are more supportive of the government than they were in 2009.

They perceive that their country has become more powerful and wealthy under Xi Jinping, and they like it.

Everyone in China Is Wrong About the U.S.

There is a very, very dangerous mutual misperception flourishing on both sides of the Pacific.

The Chinese think that Americans are decadent, undisciplined, arrogant, and – get this – brainwashed. Well, they may be partly right on that last part – though that’s a stone thrown from a glass house.

Americans, meanwhile, generally don’t think Chinese are up to the task of modernizing and innovating to the point of presenting a real challenge. But the biggest mistake we make is thinking that the average Chinese person wouldn’t like their government or would come to love American freedom when they come here to work or study.

This couldn’t be further from the truth. Millennials from the rising power come here in larger numbers than did previous generations – but they are more supportive of their government, and they are less enamored with America. Go figure.

Why are they turned off by our system? Because we’re stuck in hyperpartisan echo chambers that prevent us as a country from get anything done.

But the view that a democracy’s fecklessness will ultimately be its downfall is also a grave misperception. Democracies can rise to the occasion when challenged, and strong bipartisan support behind challenging China is evidence of this.

This theme of both sides believing the other is weak should sound familiar; Pearl Harbor and the battle for the Pacific, anyone? The new film “Midway” will surely jog your memory…

Trade War Update

There have been enough “trade deal” headlines to warrant another decoding exercise this week.

The “phase one” trade deal, which would be the trade deal “lite” that China wanted to strike several times in the past, is still ostensibly on track. The Donald said as much when he hailed that it would be “ahead of schedule.”

The president’s trusty trade sidekicks are considering extending tariff exemptions, but it’s unclear if that will be enough to satisfy Beijing.

As the Donald’s favorite China advisor, Michael Pillsbury, told the Donald’s favorite China-hating TV pundit, Lou Dobbs, “There’s the prospect that they will renege, again, between now and the summit in Chile.”

“The Chinese are either bluffing that their economy is not in trouble, or they really believe that their fourth quarter is going to be back to 6.2% again,” Pillsbury added. “They don’t act like they’re panicked or afraid, but they were quite surprised back in May when the president punished them for reneging… We may be looking at another round of this kind of punishment.”

Pillsbury shouldn’t act so surprised. When I spoke with him and one of his close Chinese think tank counterparts, Henry Wang, more than a year ago, Beijing’s confidence was already clear.

When I chat with Wang, who’s also an advisor to the Chinese government, he never wavers in his view that the Trump administration’s demands are unreasonable and that his country is on sound economic footing. “Not growing at 6% (if that’s the real number)? What’s the big deal? 4% is fine. The U.S. is happy to hover around 2%.”

That’s how Beijing has viewed the situation for the duration of the Trade War, and, despite poor economic data of late, it’s still how they feel.

Revealed: What Really Goes on Behind Closed Doors in D.C.

Former White House Budget Director, David Stockman is stepping forward in his new project, The Stockman Letter to warn everyone about the serious danger facing our country! Click here to find out the… Read More