The following is an article posted by Kevin L. Kearns and Alan Tonelson on 1/18/11 on the website: AmericanEconomicAlert.org. Kevin L. Kearns, President of the USBIC Educational Foundation, is Editor-in-Chief of AmericanEconomicAlert.org. and a former Foreign Service Officer with extensive defense trade experience. Alan Tonelson, a columnist for AmericanEconomicAlert.org, is a Research Fellow at the Foundation. His recent book on globalization, The Race to the Bottom (Westview Press), is now in paperback. Click here to see the article online.
After the Democrats’ mid-year election debacle, President Obama reportedly began reading about Ronald Reagan for political and policy inspiration. On critical China-related issues, however, Reagan’s star pupils these days seem to be in Beijing, not Washington. For recent Chinese economic and military challenges to the United States signal that Beijing is laying a trap for America closely resembling the trap Reagan laid to help bring down the Soviet Union. And Obama’s inept responses signal that America is falling into it.
Of all the U.S. Cold War strategies to bring about either Soviet cooperation or collapse, the cleverest and most effective was Reagan’s effort to try to spend America’s rival superpower into the ground through an unprecedented American defense build-up, while denying the Soviets access to Western technology and capital that would have helped them militarily and economically.
As Reagan realized, the Soviets were primed for a fall. Their economy was becoming less and less productive, and lagged badly in the civilian technologies increasingly critical for military superiority. Moscow had also squandered enormous wealth through unsuccessful military adventures in third world backwaters, on top of mounting expenses for propping up its East European satellites.
Reagan intensified Moscow’s economic predicament in three major ways. First, he constantly pressed for tighter Western restrictions on technology transfers to the Soviet bloc. Second, he blocked Soviet access to Western capital whenever possible. Third and most important, he launched a technology-led military buildup aimed ultimately at exhausting Moscow’s stagnant resources. At the same time, Reagan moved decisively to shore up America’s domestic industrial and technology bases. He effectively combatted unfairly traded imports of semiconductors, machine tools, steel, and autos. And he devalued the dollar, ending the unfair competitive advantage held by undervalued allied currencies.
Today, three decades later, it looks like the Chinese have been paying the most attention to Reagan’s legacy. And considering the circumstances, who can blame them? The U.S. economy is wheezing, unemployment is staggeringly high, government at all levels is tapped out, large states are on the verge of defaulting, consumers are on the ropes, and vast wealth continues to be drained by wars in Afghanistan and Iraq. Record federal budget deficits have led the Obama administration to announce major military spending cuts. But maintaining superiority against a rapidly strengthening adversary will require additional resources, which will further strain our country’s finances and volatile politics.
With its massive, technology-led military buildup and bully-in-the-neighborhood stance, China is clearly behaving like an adversary to East and South Asia, and the United States. And in a 21st century twist, China’s predatory trade policies have helped destabilize the global economy. Yet in contrast to Reagan with his anti-Soviet economic strategy, and ironically, like the Soviets themselves, Obama clings to calcified, orthodox policies that keep enriching and strengthening China at America’s expense.
Last week in Beijing, Defense Secretary Robert Gates vowed to develop the weapons needed to counter China’s new stealth fighter jet, carrier-killing ballistic missile, and other emerging high- tech military capabilities. Yet alongside this seemingly off-the-cuff commitment to massive new defense spending, Gates supports substantially easing U.S. export controls. For years, the flow of cutting-edge U.S. knowhow has greatly added to Beijing’s overall military capabilities. The administration’s new proposals would only open the floodgates wider. Indeed, Treasury Secretary Timothy Geithner has just offered to relax these controls in exchange for lowered Chinese trade barriers – foolishly rewarding Beijing for simply honoring commitments it has already made. Call it the Obama carrot-and-carrot approach.
Compounding these mistakes has been Obama’s failure to combat predatory Chinese trade practices, like currency manipulation, subsidies, forced tech transfer to do business in China, and IP theft. These mercantile policies have fueled China’s astronomical trade surpluses with the United States and put literally trillions of dollars into Chinese coffers. In addition to financing China’s military buildup, these sums represent enormous numbers of lost American sales and jobs, and have helped gut our own domestic manufacturing and R&D bases.
Fortunately for Obama and the nation, America’s economic and technological edge over China remains great enough to pursue successfully a modernized Reagan strategy of our own. Washington’s new China policy must focus on countering China’s mercantilist policies, slashing its trade surpluses, staunching the flow of state-of-the-art technology to Beijing, reducing its threat to American security, and reviving America’s own domestic manufacturing and technological capabilities. But this course change is needed quickly, for America’s sake and the world economy’s alike. For thanks to a long string of China policy missteps, time now seems to be on China’s side.