Return of the Yellow Peril

By Kevin D. Williamson

Thursday, April 22, 2015

Congressional Democrats have been working overtime to find a reason to kill the Trans-Pacific Partnership (TPP), and, having failed to do so, are scheduling another matinee showing of The Fiendish Plot of Dr. Fu Manchu.

Who needs economics when you have the Yellow Peril?

China is not a signatory to the TPP; indeed, the unspoken raison d’être for the trade pact is to organize Pacific-facing U.S. trade partners and allies into a bloc to counter Beijing’s economic muscle. But Senator Debbie Stabenow (D., Mich.) insists nonetheless that a monetary-policy provision aimed at China — which is, to repeat, not a party to the agreement — be included, while Senator Charles Schumer of New York declares: “We need to do more against China.” Republican senator Rob Portman of Ohio has brought discredit to himself by joining Stabenow, Schumer, et al. in this foolishness.

The TPP is mainly an agreement among rich nations — the United States, Canada, Australia, New Zealand, Brunei, Singapore, Malaysia, Chile, etc. — along with Vietnam and Peru, both of which are looking to continue bettering their economic positions through trade. Free (or more nearly free) trade may or may not help GM sell a few more Buicks in Asia, but the case for liberalization goes far beyond the interests of trade-oriented American firms and price-conscious American consumers: From national security to humanitarian concerns, the United States has good reasons to be invested in the advancement of the TPP countries. And given that the United States has a high-wage, capital-intensive economy that exports mainly high-end goods, our own economic advancement is contingent upon the ability of U.S. firms to connect with high-income buyers in markets around the world. Poor people do not buy a great deal of what Americans make.

The protectionists’ loathing of all things Asian is deep-rooted. U.S. labor unions founded the Asiatic Exclusion League and the Anti-Jap Laundry League in the early 20th century. The Canadian branch of the Asiatic Exclusion League conducted a pogrom in Vancouver in 1907, and the largest mass lynching in American history was not suffered by African Americans in the South but by Chinese immigrants in Los Angeles. Rhetoric from the age of “Yellow Peril” panic was, at its root, not radically different from what one hears from Democrats today: The problem with Asians, this school of thought goes, is that there’s just so damned many of them, and they’re so poor and accustomed to low standards of living that no white man could be expected to compete.

The belief that American workers are being undercut by poor Asians lives on even as the supply of desperately poor Asians runs low — Singapore, one of the TPP countries, has a per-capita GDP that is 50 percent larger than our own. But the scheming Oriental looms large in the xenophobic imagination, and so we have Senator Stabenow et al. preparing to derail an important trade pact over the specter of Chinese currency manipulation — which is to say, a non-issue relating to a non-signatory.

To be accused of currency manipulation by a member of the U.S. government is the equivalent of enduring a homily on how to treat a lady from Jack the Ripper. Every country with a central bank and a monetary policy — i.e., practically every country — is engaged in currency manipulation. That is what central banks are there to do. The Chinese stand accused of using their central bank to keep down the value of the renminbi relative to the U.S. dollar, thereby goosing their exports. Whether the Chinese currency is in fact undervalued is a matter of some dispute, but let us say, arguendo, that it is. Beijing’s critics estimate that its central bank was in 2013 spending some $40 billion a month to keep the renminbi low. While that was going on, our own Federal Reserve was spending some $85 billion a month on so-called quantitative easing, having exhausted its ability to manipulate financial markets through interest rates. Unless we imagine that there is some magical exception to the law of supply and demand where the U.S. dollar is concerned, quantitative easing, like Chinese central-bank intervention, put downward pressure on the value of the dollar. (Which is not to say that the dollar need necessarily decline relative to other currencies, only relative to where it would have been without intervention.) And, indeed, despite a recent uptick, the dollar has been on a long-term downward trajectory, having shed about a third of its value relative to other currencies since the middle 1980s.

Beijing is accused of trying to influence consumer-goods markets; the Fed’s stated purpose is to influence financial markets. If we are to regard it as criminal when a central banker uses monetary policy in the purported interest of the national economy, then we need to put Ben Bernanke in stocks.

If Beijing is guilty of manipulating its currency to make its exports cheaper, then what it has done is to artificially lower the Chinese standard of living to subsidize the American standard of living, reducing its people’s purchasing power to increase our own. You do not have to be Machiavelli or Milton Friedman to appreciate that as a long-term strategy that has its obvious limitations.

There is scant evidence that currency manipulation in Beijing is a significant factor in any development in the American economy. The main problems with the American economy have to do with policies originating in Washington, not in Beijing. There is no Oriental boogeyman to blame. It’s bad economics but good psychology.

Part of this is a matter of perception. Chinese exporters excel in providing consumer goods, while American exporters excel in providing capital goods. Americans going into a Walmart see a lot of plastic toys marked “Made in China,” but they do not see the machinery used to make those plastic toys, a great deal of which is labeled “Made in the USA.” You’d rather own the company that makes the industrial equipment than the company that manufactures the squirt guns, but as a consumer you see the latter rather than the former, thus the myth that “we don’t make anything here.” In real (inflation-adjusted) terms, we manufacture four times as much today as we did in the 1950s, and we do it much more efficiently, having trebled per-worker manufacturing output over the past 40 years. We export more, and our exports are more profitable. With a better investment environment, more intelligent regulation, and — senators, please note — better trade conditions, we could do even more.

About once every generation, Americans are convulsed by fear of being dominated by Asians. In the days of the Asiatic Exclusion League, that meant being overrun by impoverished hordes from Japan and Korea. As the Asian powers developed, our fear mutated and took a new form: the Asian economic superman. In the 1980s, we were sure that the Japanese were going to be running the world, and the predominance of all things Japanese remains an enduring feature of science fiction even as nonfiction Japan continues to founder. How the mighty have fallen! In the Reagan era, the Japanese businessman was regarded as a modern samurai in a charcoal suit. Today, Japan is the land of rent-a-cuddles and weird porn. In the current issue of Monocle, the editors inquire: “Can cute and kooky kick-start team Nippon again? Does Japan want to be taken seriously or will it become the Italy of Asia, a bit too slow for real global success?” In China, we have a hybrid of the horde and the superman — a billion potential factory workers under the command of a ruthless hierarchy sneakily admired by the American elite. For about five minutes there, India was going to be the new Asian superman, but the usual suspects — democracy, liberalism — got in the way.

So China is it.

None of this is to say that the rulers in Beijing are anything other than malevolent. China’s government may be the world’s worst, but currency manipulation does not rate very high on the litany of its sins, which include operating gulags, harvesting organs, engaging in summary executions, and practicing repression of every imaginable variation. But, contra Senators Stabenow and Portman, the American Rust Belt isn’t rusty because of Oriental perfidy. It’s rusty because of home-grown incompetence.

Free trade should not need apologists. Free trade should be the presumption, the normal situation for free people. Rather than having to make the case for free trade, those who would seek to interfere with trade should be the ones obliged to make their case. That means, among other things, making the case that Senators Stabenow and Schumer know more about how capital should be allocated and what the price of a pair of sneakers should be than the other 7 billion people on Earth — combined.

Good luck with that.

In the United States, the role of our government is to enable us, not to send officials to stand between us and our own ends with their hands out, as though we lived our own lives and conducted our own commerce at government’s sufferance. If the senators really believe otherwise, then they have a great deal more in common with the elderly gentlemen in Beijing than they are letting on.