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China’s State Directed Economy Has Largely Failed

May 10, 2019 By Richard C. Young

By GrAl @ Shutterstock.com

At The National Interest, Christopher Whalen suggests that a trade war with China is inevitable. He also argues that the “defeat of Hillary Clinton was not only a defeat for the leading Democratic contender for the White House, but also marked the end of the comfortable and very corrupt consensus around supporting “free trade” with totalitarian police states like China.” He notes that despite the supposed opportunities in China, “the country’s state directed economy has largely failed to deliver stable and sustainable growth.” He writes (abridged):

Five decades ago my father Richard Whalen published a book entitled Trade Warriors: The Guide to the Politics of Trade and Foreign Investment. Trade was a big deal in Washington in the 1970s, mostly focused on Japan. The resurgent Japanese economy and enormous flows on investment fueled by trade deficits were seen as a threat to American sovereignty. Many members of Congress, who were profiled in the book, had very specific concerns about trade, but the White House was generally the defender of free trade and capital flows that rebuilt the world after World War II.

Wind the clock forward forty years and much has changed. China, rather than Japan, is the focus of U.S. angst when it comes to trade and investment flows. Members of Congress still have concerns about global commerce, but these concerns are mostly focused on a narrative that seeks to maintain and expand global trade flows that benefit their constituents. But the big change that has occurred over the years since Trade Warriors was published is that now the White House is occupied by President Donald Trump, who largely rejects the assumption of free trade in the global economy—and particularly with China.

Since coming into office, Trump has targeted China for being an unfair, predatory trading partner. Trump has picked up the protectionist rhetoric that was traditionally the province of the Democratic Party, outflanking the pro-labor elements of the left and thereby gaining the support of the Rust Belt states in 2016. The defeat of Hillary Clinton was not only a defeat for the leading Democratic contender for the White House, but also marked the end of the comfortable and very corrupt consensus around supporting “free trade” with totalitarian police states like China.

While China is currently the largest trading partner with the United States, Canada and Mexico are a close second and third. More, while the Chinese certainly need to maintain trade relations with the United States, the American economy is far less dependent upon China. Thus, while investors may fret about a trade war with China, the biggest threat to investors may be the change in perception about China as a stable place to invest. Western analysts and investors have for decades waxed effusive about the business and investment opportunities available in China, but in fact the country’s state directed economy has largely failed to deliver stable and sustainable growth.

Read more here.

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Richard C. Young
Richard C. Young is the editor of Young's World Money Forecast, and a contributing editor to both Richardcyoung.com and Youngresearch.com.
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