Memo To: Pat Buchanan
From: Jude Wanniski
Re: Exchange on China
On May 27, I posted a Memo on the Margin to Pat Buchanan, "Buchananomics," commenting on his economic observations on China's trade surplus.
He responded with a note, to which I reply:
[Dear Jude: Chinese have told Russians future arms purchases will be for "cash." Also, if they have $125 [B]illion in U.S. bonds and T-bills, we sure as the devil should cancel all future IMF, ADB and World Bank loans. On tariffs, you don't understand. Dollar-for-dollar the revenue would be used to cut other taxes, which are not currently included in price of products. Best, Pat.]
My basic disagreement with you, Pat, is that I believe we already defeated communism in China and that the Cold War is over. I gather you believe our war against China did not end with the Nixon initiatives and China in 1978 abandoning socialism in favor of the Capitalist Road. I don't know how many times you want to beat China, but I am satisfied that the Beijing Government knows it was defeated and is happy not to have to contest us again. We have their respect.
As capitalism and the spread of grass-roots democracy works its way up, China's wealth will increase and it will add to its military outlays. The more we invite conflict with the Chinese, instead of competition, they will be forced to allocate a higher percentage of their GDP to national security. As we are now spending 30 times more on defense than they, and have a security system in place that is worth a hundred of theirs, it is unreasonable of you, in my view, to worry about their purchases of a few high-tech computers, which will be obsolete by the time they get them delivered and installed. You have been complaining they do not buy enough from us, now complain about selling them too much. Am I being unfair?
As I've indicated in previous discussions with you, I can see and appreciate your point of view when you advocate higher tariffs, with revenues dedicated to cutting internal tax rates. You are derided as a "nationalist," but nationalism is a legitimate interest to be represented. Nationalism was over-represented in passage of the Smoot-Hawley Tariff Act, but I agree that Internationalism is coming to be over-represented today. The multinationals care about global profits and are happy to have the domestic economy grow slowly, to prevent too many people from going to work, thereby raising wages. In your election campaign last year, you may recall I publicly defended your economic plan as being pro-growth, although I believed it would be suboptimal. I did so only on economic grounds, saying I could not support it on political grounds because it unjustly targeted China. If you defeat a communist power because you wish it to be a capitalist power instead, you cannot complain when they behave like capitalists. You should rejoice. In my note, I pointed out for the umpteenth time to you that you are misrepresenting our trade with China. For every dollar we spend on Chinese goods, China spends a dollar on goods or bonds ~ which represent future goods. China will soon begin running a trade deficit, as it will soon have $200 billion in monetary reserves. Hong Kong's $80 billion will be added to Beijing's $120 billion. When that happens, I hope you will acknowledge that you were hasty in your current position. Your only alternative will be to complain that China is absorbing U.S. capital, which is what occurs when it runs a trade deficit with us.
On your point that we should be canceling all IMF, World Bank and ADB loans to China, I heartily concur. With a $200 billion war chest it has amassed in advance of making its currency convertible, China cannot justify being eligible for foreign aid. Indeed, I doubt that China would mind, as the loans being subsidized are meant to benefit our exporters, not Chinese importers.
I continue to believe that you should be making common cause with the supply-siders, who are as interested as you in improving the living standards of ordinary Americans. We should be doing everything we can to export ideas of entrepreneurial capitalism to the developing world, which will make them net importers of American goods and at the same time encourage their native populations to stay at home instead of migrating here in search of opportunity.
By the way, I hope you noticed that I'm doing my bit to work things out between the Vatican and Beijing. I tell my Chinese friends not to worry about the Pope playing politics once permitted to operate freely inside China, as the Catholic Church wants to have a crack at saving a billion souls, and would not risk that opportunity to play internal politics. If they did, they would be expelled. I really can't believe you are as wacko as the boys as the Beltway Standard, who want to go to war a la Teddy Roosevelt a century ago, just because it would be bully fun.