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Chinese Economic Policy in the New Cold War

The first pictures of the new Chinese aircraft carrier appearing on news reports across the world over the last two weeks underscores the relationship between the People’s Republic of China and the United States. It is time for the United States to acknowledge that it is in a Cold War with China. Its denial of the real state of relations between the two Superpowers is easily accounted for.

The United States faces a myriad of higher profile, external challenges in today’s world. The War on Terror is well into its second decade with little end in sight. The nuclear threats from Iran, Pakistan and others continue to mount by the day. The dependence on Middle Eastern oil can throw the U.S. economy into spasm at any given time.

Yet, all of this occurs upon a world stage where the military and economic power of China sits as a backdrop. This power poses the more subtle, yet greatest threat to America’s national security in the next decade. Traditional Chinese thought and modern Communist ideology are at the core of the current state of affairs between these two countries and the true nature of the Chinese strategy in its “non-war.”

Ancient Chinese leaders of the Han and Tang Dynasties maintained a buffer zone between themselves and their Mongol invaders to the west of their empire for their internal security. When this tactic was not effective, the Chinese turned to the tribute system. This mindset is reflected in the celebrated Chinese philosopher Sun-Tzu who wrote, “Subjugating the enemy’s army without fighting is the true pinnacle of excellence.”

Ancient Chinese emperors used their economic power to exact security and power from their adversaries. The Chinese sought to defeat enemies without a military action. This element of the Chinese psyche carried over into the modern Communist Chinese mindset. This hybrid of ancient Chinese philosophy and Maoist Communism has existed since the inception of the People’s Republic of China and has been used by the country in foreign relations and government policy for years.

Communist China’s Economic Relations with South East Asia” written by Shao Chuan Leng and published in the Far Eastern Survey in 1959 discusses how Communist China used trade and economic policy to make political and military gains in Southeast Asia. First, China trades to attain certain natural resources. Next, China trades finished goods to build up a reserve of foreign money. Third, China uses these economic feats to propagandize itself and pose as a foil to the capitalist West. Finally, China uses trade to promote “closer relations.” All of this, the author wrote, is used by China to “enmesh themselves” in other country’s economies. China, then, used this new economic power to exact political and further economic concessions.

Parts of the Chinese economic plan for Southeast Asia evolved and now apply to the United States. They no longer need the natural resources mentioned in the 1959 article. Domestically, their industries have developed. For example, they make their own steel. This emboldens their position globally. They are no longer dependent on other countries for what they need to make finished goods. Instead of natural resources, China buys foreign debt. This aspect of the 21st century economy has given them power over many of the economies in the Western world, the United States included.

The relationship between the two new Superpowers: the United States and China is evident. They are engaged in a new Cold War. A Cold War based more on economics of the international marketplace than military might. The real question is not what the nature of Sino-American relations are, but what American policy makers will do about it.

The first aspect of the remedy has to be fiscal discipline. This would eliminate the debt the Chinese are buying. A Balanced Budget Amendment is the clearest, quickest solution. In addition to this, the U.S. needs trade policy to correct in imbalance in trade. China announced on December 6th of this year on Chinese Radio International that their foreign imports amounted to an average of $750B over the past ten years and, more importantly, that they plan on reducing this import level in the future.

The People’s Republic of China must be compelled to open their markets to American products. Many fear any steps we take to balance trade will result in a trade war. However, it is clear that the start of the war is long-passed.