China for World super power in next 40 years, page 2

George W Bush�s economic policies seem to be emanating from a fiscal and historical vacuum. The current issue to which I am referring is the US reaction to China. First I will outline the problem, then I will outline some of the solutions Bush is trying to work through. Then you can make up your own mind.
Following the dramatic collapse of the USSR and the hideous social destruction visited upon that country by the now infamous �shock therapy� tactics proposed by Sachs and Aslund, China recognized that remaining in economic isolation indefinitely was tantamount to national suicide. However, wishing to avoid the Russian nightmare, China chose to proceed slowly. Throughout the early 1990�s, China began to allow international investment to flow into the country. American corporate culture - positively salivating over the prospect of a billion new consumers being primed to suck up US goods and services - was happy to pile billions of dollars in investment into the country, as China lobbied (unsuccessfully) for entry into the World Trade Organization. But then in 1997 a crisis in Asian markets sparked by speculative foolishness in Japan rolled through, highlighting many weaknesses in China�s fledgling banking system. The economic hardship that followed would be named �the Asian Bug�.
Far from rolling over, China learned from its mistakes and slugged on, gradually rebuilding its wounded banks and rebuilding confidence in its markets. It worked. In 2001, in response to the September 11 attacks, the US finally allowed China to enter the WTO (it had been the sole veto voice for the last ten years, stubbornly refusing to de-link trade from human rights; is this because America is such a moral country? I think not). The idea was that by involving China in the world economy, it would help ease the instability in US markets. It worked, but not quite the way the US imagined. Rather than suddenly opening up new markets for US goods, China pegged its Yuan to the USD at approximately 10.2:1. This ratio is ridiculously low, and remains so to this day, much to the chagrin of the US. This is essentially �cheating�, although that is not a moral judgment; the US cheats all the time. That is just part of international business.
China is the world�s economic miracle. Its economy has been growing at unprecedented levels (as high as 10% per annum) for over half-a-decade now, and is not showing any serious signs of slowdown. For a bit of insight into what this kind of growth entails, I will provide to you with a couple of very interesting numbers:

1. Over half of the concrete (55%) poured in the world in 2003 was poured in China.
2. Over one third of the steel (36%) consumed in the world in 2003 was consumed in China.
3. Nearly one third of coal (30%) burned in the world in 2003 was burned in China.

The fact that China refuses to revalue its currency (or at least let it float to more reasonable levels) has been described as an annoyance to the US Administration. That could well be the biggest understatement since somebody called the US military �pretty strong�. China�s policy is essentially crushing both the US economy and its industrial capacity, as the world flocks to China to purchase its manufactured goods which enjoy the double benefit of being built with cheap (read: slave) labour and being traded internationally with an artificially low currency. Simply put, American manufacturers cannot compete with the �China Price�. Factories are shutting down.
Now lets investigate the Bush response to the China threat.

GWB Response #1
First, in order to spur exports, Bush abandoned (to the dismay of the international community) the traditional strong dollar policy, wherein the US would act as the consumer of globally made goods. Bush allowed the dollar to slide.
Now this at times is a good policy. For instance, Winston Churchill should have taken that approach in 1946 in Britain. But this is not Britain. It is also not 1946. And George W Bush is no Winston Churchill. The problem with this policy here and now is that no matter how much the USD devalues, the Chinese Yuan goes down with it, because the Yuan is pegged to the dollar. It doesn�t matter how much the USD goes up and down to China, because they keep the Yuan pegged at that approximate 10.2:1. The only rationale for GWB�s move is that he is perhaps playing economic �chicken� with China, hoping that if the USD falls far enough it will be forced to revalue the Yuan. So far, however, China shows no sign of budging.

GWB Response #2
Have you heard about Operation Summer Pulse �04? It was only the biggest US military exercise ever conducted in peacetime, and it happened in - you guessed it - the South China Sea. After playing hardball with Iraq to ensure that its economic will be followed, America thought it would be a good time to show China a little bit of its muscle. It should be noted that this exercise failed to elicit the desired response. Instead of rolling over and seeing the errors of its ways, China performed a major budget overhaul declaring that by 2014 it would be capable of defending against seven full battle groups (it currently has the defensive infrastructure to counter no more than two; America has twelve). Many on the left have speculated that this exercise took place because America has the moral responsibility to defend Taiwan, but this is poppycock. This opinion is derived from the simple fact that America�s progressive left has eliminated the concept of economics from all intellectual discourse. Economics is seen by the progressive left as a tool of the wealthy, and solely in the dominion of the right. This has resulted in the blinding of the progressive left, who seem to have forgotten that one of the most important economic theorists in the history of the modern world was a man named Karl Marx. Nobody has ever accused Marx of pandering to the right. America does not act out of moral responsibility, but purely out of fiscal responsibility.

GWB Response #3
Since China appears to be unfazed by either America�s dangerous fiscal policy or its military might, GWB is now resorting to more crude forms of persuasion: protectionism. In early November this year, Mr. Free Trade himself decided that China�s rising control over the US economy could only be checked if it resorted to tariffs, and indeed it has done so, citing a special �safeguard� clause it inserted into the 2001 WTO entry agreement. I searched a couple of American news sites for information on this decision (CNN, Fox, ABC) and much to my surprise (I am being sarcastic) there was nothing there. It was as if the meeting - another escalation in this scary entente - never happened. The question is: how will China react?

The answer is that yes, China is on its way to becoming a superpower. Whether or not it overtakes the US, however, has very little to do with China itself, and much more to do with America and her flaky economic policies.