Our Friends the Chinese

We got a stiff reminder today of what it means to live in a global economy. The Chinese stock market plunges a whopping 9% and that precipitates a 415 point drop in the Dow (3.3%), not the largest one day drop but a significant hit nonetheless. And whose economy is it that is buying all of our US treasuries and propping up the Bush deficit?

But I mention the stock market news as a segue into another story on US-China relations. Brad DeLong worked for the Clinton Administration and currently teaches at UCLA; he has an excellent economics blog The Semi-Daily Journal. In a post today he responds to another liberal blogger who thinks we ought to be protecting American jobs being lost to places like China and who wonders:

Why is it that it is the responsibility of $40,000 year American working families to sacrifice their future in order to raise up the living standards of poor Chinese, when commissars turned capitalists ride around Shanghai in a different Rolls every day?

Brad responds:

There aren't many commissars-turned-capitalists.

Scratching on the back of my envelope, I find that at current exchange rates, China's GDP per worker--and there are 800 million workers--is $3,000 per year. (In 1990 it was $1,100 of today's dollars per year.) According to Piketty and Qian's guesses, the top 0.1% of China's workers get an average of $30,000 per year at current exchange rates. This elite of some 800,000 do live considerably better in their homes in Shanghai than Americans with $30,000 do--unskilled labor and the services it provides are really cheap in Shanghai because China is still really poor (perhaps at a level equivalent to $100,000 per year if you like being waited on and having a household staff; much less if you don't). Redistribute all the income of the 800,000 commissars-turned-capitalists back to the masses, and you boost median standards of living in China by 1% above current levels.

In 1877, it was the United States that was the rising superpower across the ocean to the west of the world's industrial and military leader. Today it is China. In 1917 and again in 1941 it was greatly to Britain's benefit that America regarded it as a friend and an ally rather than as a competitor and an enemy. And since 1945 it has been greatly to Britain's benefit that America has regarded it as a trading partner rather than an industrial competitor.

There is a good chance that China is now on the same path to world preeminence that America walked 130 years ago. Come 2047 and again in 2071 and in the years after 2075, America is going to need China. There is nothing more dangerous for America's future national security and nothing more destructive to America's future prosperity than for Chinese schoolchildren to be taught in 2047 and 2071 and 2075 that America tried to keep the Chinese as poor as possible for as long as possible.

This is why I am not a liberal protectionist. I think it is in our best interest as Americans, not to mention as caring humans, that poor people around the world not be poor. I think, regarding places like China, it is in our selfish best interest as Americans that we maintain friendly if competitive trading relations with China. Brad is right; it isn't going to be long before they are the preeminent world power and we don't want their children growing up believing that we were hell-bent on keeping them poor.

I am not, on the other hand a Pollyanna free-trade advocate like Thomas Friedman, who seems unable to acknowledge the ruthless reality of corporate power around the world. Corporations really don't care about the welfare of anyone except their shareholders and they will happily give the shaft to any worker any place in the world in order to maximize their profits. It is not the Chinese workers that we need to be protected from; it is the multinational corporations who are presently infatuated with places like China because they have seemingly endless pools of cheap labor. But as soon as the Chinese start to make more and get better organized the corporations will be taking away their jobs too.

The way to provide that protection is not by erecting trade barriers that close off our economy to the rest of the world. The way to provide that protection is to have a robust government that a) provides universal healthcare to all Americans so no American has to worry that losing their job means putting their family's health at risk; b) has adequate resources to provide retraining, temporary assistance, and seed monies for research into new technologies that provide the new jobs we need; c) has strong enforcement tools to go after tax-evaders, environmental polluters, the the Enron-like companies that are the natural by-product of laissez faire capitalism.

Now more than ever we need a strong government to help us navigate the perils of the global economy. And we need the Chinese to be our friends.

Update: And yes, I am completely out of my element talking about economics. But when does it ever stop a blogger to talk about things they know nothing about?