This weekend, I was quoted in The Weekly Standard about what Mitt Romney and Paul Ryan need to know about what is happening in China. It begins by noting that Paul Ryan, Romney’s surprise VP pick, came out swinging the other day on President Obama’s handling of China:
“Free trade is a powerful tool for peace and prosperity, but our trading partners need to play by the rules,” Ryan said. “This challenge focuses on China. They steal our intellectual property rights, they block access to their markets, they manipulate their currency. President Obama promised he would stop these practices. He said he’d go to the mat with China. Instead, they’re treating him like a doormat. We’re not going to let that happen. Mitt Romney and I are going to crack down on China cheating and we’re going to make sure that trade works for America.”
Soon after the Ryan pick was announced, I had an email exchange with my old boss Bill Kristol, editor of the Weekly Standard and one of the most prominent voices to urge Ryan’s selection. In it, I outlined a few key points that are likely to shape the discussion about China in the months ahead and in the next president’s first year in office:
1) China’s economy is not just slowing, it is entering a serious correction. The investment bubble that has been driving Chinese growth has popped, and there are no quick “stimulus” fixes left. There is the very real possibility of some form of financial crisis in China before year’s end.
2) China is in the midst of a once-in-a-decade leadership transition that has not been going smoothly. The transition will take place, but it has paralysed the Chinese leadership’s ability to respond to the country’s growing economic troubles. China’s leaders believe time is on their side; they do not “get” how serious and urgent the situation is, and that what has always “worked” is no longer working.
3) China’s economic problems spell trouble for the U.S. on several fronts.
- First, China is flirting with devaluing its currency to boost exports—a move that will put it in direct conflict with Mitt Romney’s commitments on this issue.
- Second, China is already dumping excess capacity in steel and other products onto the export market, a tactic that is likely to inflame trade tensions and reinforce imbalances in the global economy.
- Third, in a worst case scenario, China may be tempted to provoke a conflict in the South China Sea to redirect popular discontent onto an external enemy.
My advice is not really partisan in nature. The points I outline are equally relevant for any other candidate, Republican or Democrat, to take into account. Nor are they meant to inflame China-bashing rhetoric. In fact, they reveal that fears of an unstoppable Chinese juggernaut are misplaced or outdated. What we really should be worried about is a China that is stumbling badly and doesn’t know what to do next.
There’s an interesting personal history here as well. Back when I worked for Bill Kristol in the early ’90s, Paul Ryan — who is my age and, like me, was fresh out of college — was my counterpart working for Bill Bennett and Jack Kemp at Empower America. We were colleagues, and I always thought he had a bright future ahead of him.
At the time, it occurred to me that there were really two issues that would define America’s future in the 21st Century, which were worth devoting oneself to. The first was entitlements. The second was China. The former poses the greatest internal challenge to America’s potential and its place in the world, the rise of the latter poses — for better and for worse — the greatest external challenge. Paul’s mastery of the entitlements debate has taken him far. My path led me to China — “far” in a more literal sense. It certainly is interesting, where life’s paths lead.
Apologies to readers who have been waiting patiently for the next instalment (s) of my in-depth analysis of China’s summer real estate “rebound.” I have been busy writing several articles for publication and — I admit it — enjoying summer with my family. It is coming, and (I hope) will be worth the wait.
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