Analysis
An economic Tsunami bears down on America; China watches and waits
By Michael Payne
Online Journal Contributing Writer


Jun 15, 2009, 00:19

This is a tale of two very powerful nations. One, called the world�s only Superpower, has a very aggressive foreign policy with a massive network of military installations around this planet. The other, the world�s skyrocketing economic power, has a low-key foreign policy and no real military presence except within its borders. America and China, with two distinctly different philosophies and agendas are on a collision course that will determine which of them will lead the world in the decades to follow.

China is ruled by a Communist government, but it also has a capitalistic economic system. Among major industrial nations, China has the most dynamic, fastest growing economy. Its projected growth for 2009 is 6 percent while America and the rest of the world are just trying to survive. Its military budget is miniscule, less than 10 percent of America�s. It is involved in no foreign wars. Because its economy depends a great deal on petroleum imports, it has been very active in setting up contracts and agreements for oil all around the world, including South America, with very aggressive business and diplomatic efforts.

America is a democratic republic, governed by an elected president and Congress with a capitalistic economic system. Its economy has been in a steady decline for some time as U.S. corporations have aggressively outsourced millions of manufacturing jobs. Its military budget is larger than all other major industrialized nations in the world combined. The U.S. maintains a military presence in more than 750 installations around the world and is involved in conflicts and occupation in both Iraq and Afghanistan. It imports most of its petroleum needs from foreign sources and its military is actively engaged in securing and protecting its oil interests in various parts of the world.

Yes, these are two very powerful nations whose agendas in world affairs, economic strategies, and use of military resources could hardly be more different. And, yet, these two nations are locked together in the world�s largest economic arrangement -- at least for the time being.

How did America ever get to the point where it is so dependent on Chinese manufacturing and the need to continually borrow from it to finance those purchases? How did America go from once being the premier creditor nation in the world to the premier debtor nation?

Since the 1980s, America has transformed itself from the world�s premier manufacturing juggernaut into a nation that has concentrated on outsourcing manufacturing to nations all over the world while morphing into a service economy. The long-time tenuous and adversarial relationship between unions and managements finally caused a total rupture that saw corporations put outsourcing into high gear. That enriched CEOs, increased profits and stock values, enriched investors and, thereby, initiated the demise of the American working class.

At that point, manufacturing, the cornerstone of America, began a rapidly escalating decline. This was the defining moment for an economy that relies on consumers for 70 percent of GDP. When that turn away from manufacturing and embrace of rampant outsourcing took place, it guaranteed an ongoing decline in its economy as the purchasing power of the working class Americans began to erode.

During this period, Japan was the rising economic star and began accelerating its manufacturing engine. China was not much of a real factor as a top economic player but it was beginning to show real potential power. So Japan�s presence on the American stage underwent a stage of rapid growth as it entered into US automobile and electronics markets as a major force that could provide quality products at extremely competitive prices.

How did the U.S. corporations react to this potential threat to their supremacy? They continued their process of outsourcing every type of manufacturing that they could to whatever overseas sources with cheap labor they could find. Of course, the U.S. auto industry years before had set up manufacturing plants in Europe and other nations overseas. Now they would watch as various foreign auto manufacturers, Japanese, German, and others returned the favor and set up plants in America.

So here we are, but what does the future hold? Well, China holds the trump cards and most of the aces. It patiently watches and waits as America continues to spend itself into economic oblivion with a never-ending war on so-called Islamic terrorists and the continued massive importing of products once produced in America.

China, at least for the time being, is continuing to loan us billions of dollars while watching our trade and national deficits rise to astronomical heights. Out of the nearly $2 trillion that China holds in foreign exchange reserves, about $1 trillion is in U.S. government securities. This massive transfer of wealth from the U.S. to China cannot continue unabated for it is eroding the economic foundation of our nation. What must we do?

One of the answers to this dilemma is that America simply cannot and must not allow this situation to continue to deteriorate. It must rebuild its manufacturing base and reverse the destructive outsourcing of jobs or we will never restore our economic foundation.

Robert Reich, former Labor Secretary under President Clinton and a noted economist, in a recent article indicated that we are losing routine jobs, including traditional manufacturing jobs but not to worry because they will be replaced in the future by �symbolic-analytic work� by �people who analyze, manipulate, innovate and create. These people are responsible for research and development, design and engineering or for high-level sales, marketing and advertising. They�re composers, writers and producers. They�re lawyers, journalists, doctors and management consultants.�

 Well, Mr. Reich is the economist and I am not, but I don�t buy into his reasoning at all. This appears to be the same old theory, slightly repackaged, that we heard in the 1980s about how the service economy was the way of the future for America. My point is this: you can create all the symbolic-analytic jobs you want but, if we do not have a sizable portion of the American workforce performing work that takes some form of raw materials, together with labor, to create products that are purchased by Americans and exported to foreign nations, the majority of Americans will not have the purchasing power to fuel our consumer-driven economy.

We can rebuild our manufacturing base if we can change the poisoned philosophy of corporate outsourcing that has led to enormous corporate profits and the destruction of the American workforce. Mr. Obama and the Congress must enact appropriate legislation, and they most certainly have the power, that provides tax credits to corporations that do not outsource or to those that bring jobs back. Secondly, those corporations that continue to outsource must be assessed tax penalties.

In addition to returning outsourced basic manufacturing jobs to America, a great potential lies with developing a massive new green industrial sector where government stimulus dollars and private funds create new jobs to manufacture solar panels, windmills, rapid transit systems and various new energy sources to replace fossil fuels. Besides reversing the outsourcing of American jobs, there is no better way to solve our economic problems than by the aggressive promotion of programs to develop new sources of energy.

It�s time for the American people to say �enough is enough� and demand that President Obama begin the very necessary process of reversing our extremely aggressive and expensive military presence around the world that is causing a terrible hemorrhaging of our economic base. Our national debt is increasing so rapidly that it is becoming unsustainable. Our foreign wars, occupations and the maintenance of that huge complex of military installations around the world are bleeding America dry. Our government must understand that it is now time to scale back this entire military machine before it is too late and we find ourselves entering national bankruptcy. The question is how in the world do Obama and our leaders in Congress not understand that our military actions and policies are bringing America to the edge of bankruptcy?

What will happen if we do not have the wisdom and the courage to change? First of all, our debtor position with China will reach such massive proportions that China, at some point, will announce that it can no longer continue lending America the many billions of dollars as in the past; and that, in fact, it will put a moratorium on any more loans until America puts its economic and monetary systems in order. At this point, the value of the dollar would be in distinct danger and could unravel so quickly that it would no longer be used as the world�s reserve currency.

The funding for the entire military complex around the entire world would rapidly begin to dry up. The U.S. would have to close the majority of these bases. And when that happened, what in the world would we do with the thousands upon thousands of our military that, when discharged, would have no job opportunities in a failing economy?

Signs of great concern are beginning to emerge from China. A report coming out of China states that the chairman of the state-controlled China Construction Bank, Guo Shuqing, is looking into the possibility of issuing loans to Chinese import/export companies in yuan, the base Chinese currency. This would allow domestic Chinese and foreign trading companies to use the yuan to settle their debts instead of the U.S. dollar. Also, China has been switching their U.S. treasury securities from longer to shorter terms recently.

I am not saying that China wants the American economy to collapse -- not at all, for China knows that America is its cash cow, for now, and it would be happy to continue to feed at this financial trough. However, realists that they are, the Chinese clearly see that America is headed on a dangerous course that threatens to collapse its economic foundation and they may be positioning themselves for that eventuality.

Another scenario, not a pretty one, would involve foreign creditor nations, most notably China, buying up all sorts of American corporations. In fact, this scenario is already underway with Chrysler and General Motors both going into bankruptcy proceedings. Chrysler will survive, at least for a while, with Fiat of Italy owning most of the assets and managing the operations. General Motors is shedding several auto divisions, with a Chinese industrial conglomerate buying the Hummer line of GMC. This scenario may be the model for the future, as more and more U.S. corporations fail because of bad management and greed and various foreign nations, with China at the forefront, acquiring American corporate resources for pennies, nickels or dimes on the dollar.

America has now painted itself into a corner economically. There are few signs that the Obama administration and the Congress understand the urgent need to aggressively promote a rebirth of manufacturing and rapidly reduce our military presence across the planet. If they do not have the vision and the courage and cannot dedicate themselves to the best interest of the American people, then this is what will happen: China will become the preeminent economic power in the world. The American dollar will no longer have any significant effect on world commerce and will be replaced. Our vast military establishment around the world will rapidly disintegrate, as there will be no funds to further fuel its existence. At that point, America will have forfeited its position as the world�s leading economic power and as the lone Superpower.