Normally, I would spare Lawrence Kudlow’s defense of Communist China’s deliberately devalued currency (and his opposition to a currency-corrective tariff) my vitriol until the next News of the Day. However, since the next NOTD is likely coming on Monday – and the weekend will almost certainly provide some news that will overshadow this – I feel compelled to given his atrocious column in National Review Online the rhetorical double-barrel today. Additionally, there are plenty of economists all across the political spectrum that agree with Kudlow on this issue, so I thought it would be helpful to debunk his column, piece by piece.
Although my opinions on purely domestic issues normally have no relevance here, I should note that I usually agree with Kudlow; in part, that’s what makes his column so utterly maddening. Kudlow makes the mistake nearly every economist makes regarding trade with Communist China: he assumes it can be treated just like any other nation. In fact, we can’t – and we mustn’t – treat the regime so.
The first manifestation of Kudlow’s folly – well, one that isn’t a flowery rhetorical device – comes in his third paragraph:
China’s economy continues to climb near a 10 percent rate, with the heretofore impoverished Chinese population slowly but surely entering the modern realm of rising global prosperity.
Putting aside the highly questionable validity of Communist statistics in general (tenth item, fifteenth item), how can Kudlow possibly believe the growth he touts will reach the Chinese people? Given the heavy reliance on prison labor, the lack of independent unions, and the corruption that is shot through the Chinese Communist Party, Kudlow should be a lot more cautious before writing blasé assertions that the Chinese people are “slowly but surely entering the modern realm of rising global prosperity.”
Kudlow then puts up what in this corner (though admittedly, not in others) is a straw man: the belief “that a higher yuan would narrow the trade deficit.” Kudlow then cites Federal Reserve Chairman Alan Greenspan’s insistence of “no credible evidence that supports such a conclusion.” I know there are many folks in support of the tariff who would disagree, but Kudlow’s point is valid. Unfortunately, he misses the larger issue. Communist China’s currency peg has not only hurt American firms, but several Asian nations as well, particularly Japan, South Korea, and Taiwan. Imports from any and all of these nations would be far preferable to imports from Communist China from a national security perspective – but Kudlow’s vision is stunningly deficient on national security, as I point out further down in this vent.
Things quickly get worse:
But the common link between the two (currencies) has given the yuan global financial confidence while at the same time giving the U.S. enormous leverage over the Chinese economy. What’s wrong with that? We buy their goods and they invest in our country through the purchase of Treasury bonds and more recently through direct investment in large U.S-based corporations (like Maytag and Unocal).
Last I checked, there was something very wrong with having the Communist-owned China National Offshore Oil Corporation acquire a major American oil firm. How Kudlow cannot see the danger of Communist China having direct control of a major player in American energy baffles – until you see the next paragraph:
Unlike the sale of defense-related technologies there’s no national security problem here. American firms like Anheuser-Busch, the Bank of America, and numerous tech firms are all investing in China. This is free and open trade for the mutual benefit of both nations. Trade and monetary cooperation also provide the basis for national security cooperation, especially in the areas of stopping nuclear proliferation in North Korea and protecting a free Taiwan. (emphasis added)
This is where Kudlow reveals himself to be a complete babe in the woods on national security. How can he possibly believe Communist China would do anything cooperative on “protecting a free Taiwan”? Communist China’s primary short-term foreign policy objective is the conquest of the island democracy. We already know they’re preparing for an invasion by – at the latest – 2012. As for “stopping nuclear proliferation in North Korea,” did Kudlow not notice the fact that Communist China sold its satellite state twenty tons of tributyl phosphate, a chemical that helps weaponize uranium and plutonium (second item)? Or should I simply revert to the question I have asked every time a leading official or pundit grasps the Pollyannaish notion that Communist China will help us disarm its own ally and puppet state? Namely, will they never learn?
Kudlow’s stunning naivete comes from a simple, and wrong, assumption: Communist China is not an enemy of the United States. No wonder Kudlow thinks “numerous tech firms . . . investing in China” is “for the mutual benefit of both nations.” Perhaps if he was aware how Communist China has helped al Qaeda launder money, aided Iran’s quest for nuclear weapons, and sold Saddam Hussein weapons components for oil-for-food vouchers, he might be a little less sanguine about this.
Kudlow then falls into the usual traps: “China is not perfect, though it has reduced government ownership of the economy from 90 percent twenty years ago to about 30 percent today.” Sure, that sounds nice, until we remember that the private “owners” are Communist officials themselves, their relatives, or their lackeys. Here’s another one: “according to a recent study by the Council on Foreign Relations, China has also changed 2,600 legal statutes to comply with World Trade Organization rules.” Kudlow may not realize this, but Communist China has passed a whole slew of laws that are essentially meaningless and cosmetic. The more important issue is the rule of law, i.e., if and how those laws are followed, on which Communist China’s record is disastrous.
Kudlow finishes with trite rhetoric that must be challenged: “Open trade and currency stability enormously benefit both the U.S. and China and may well lead to improved international relations.” Is that so? Then why didn’t we try that with the Soviet Union? Wait a minute, we did try that in the 1970s as part of “détente.” The result was the rise of Communist regimes in Angola, Nicaragua, Laos, Cambodia, and Afghanistan – the last of these came before the Soviet invasion of 1979, which was done to stop the home-grown Afghan Communists from pulling a Central Asian Tito and reaching out to the West.
As I said at the beginning, I actually think Kudlow is a good economist, but this entire column suffers from one fatal flaw – a complete lack of understanding of the Chinese Communist Party, its plans for the world, and its animus toward the United States. The CCP is not a reforming regime modernizing its country; it is a tyrannical, criminal enterprise that considers us the enemy. The sooner Lawrence Kudlow understands this, the less frequently he’ll be writing columns that force me to rip him so.