China Buys the World, Pays in USD

“Lots of countries have policies that aren’t in our interest: France wants to buy oil from Iran, China wants to sell us toys made of lead, Russia wants to extinguish the Sun…” –Aasif Mandvi

When dealing with the February PF topic that “Resolved: On balance, the rise of China is beneficial to the interests of the United States,” it should be immediately obvious that the previous discussion that the earlier discussion about Chinese pollution in Not Emitting Moral Obligations is relevant here — and it’s even in the news currently as a shroud of smog smothers Beijing. But there’s also a book — several actually, but one specifically that I read when the topic was announced — that covers the ups and downs of China’s rise: Dr. Dambisa Moyo’s Winner Take All. She’s an Oxford-educated macroeconomist who has worked at Goldman Sachs and the World Bank, and while her narrative is a bit muddled and some of her numbers are questionable (that is: large and without methodology) the core concepts are clear and there’s a good set of PF evidence to be extracted from the book. So with that in mind, references to her work will be noted as “WTA.x” where x is the chapter number.

The irony in the leading line from Aasif Mandvi (which was to contextualize Egyptian policies) is that China is actually doing all of those things: buying oil from Iran, making toxic toys, and blocking out the sun with smog. But we’ll get to the highlights in the neg case, which goes like this:

Negative Synopsis: The US is growing slower than China and China’s sheer size creates a demand for commodities that drives prices up, diminishing the spending power of the US. Above and beyond that, China’s reckless disregard for the environment will have dire consequences for the world.

As Aasif Mandvi explained last year, “Lots of countries have policies that aren’t in our interest: France wants to buy oil from Iran, China wants to sell us toys made of lead, Russia wants to extinguish the Sun…” (The Daily Show 11/30/2011) So the notion that “rise of China is beneficial to the interests of the United States” is actually the anomalous idea in this room, especially when you consider that China’s explosive demand for limited supplies leads to global inflation and mitigated standard of living, or worse and Reckless Chinese pollution makes climate change mitigation unfeasible. Let’s look at these two issues in more detail.

1: China’s explosive demand for limited supplies leads to global inflation and mitigated standard of living, or worse.

[China’s] demand for finite commodities could … raise resource prices and spawn inflation that pushes worldwide living standards down… With specific regard to China, there is another danger. As the “owner” of assets across the globe, China could become reluctant to share or sell commodities—a risk that rises as resource constraints become ever-more binding. Such a scenario almost always leads to political instability, expropriation, and even outright conflicts, as different countries fight to access resources. [WTA.7]

This is simple economics, right? If we can only get so much oil out of the ground per year and demand — especially from a rapidly-developing super-sized nation like China is growing, then the price of natural resources are going to go up as all of the people bid against each other in attempting to buy it. Now this is true for many types of natural resources — water, copper, food — but oil in particular is a special scenario. Oil’s place in the growth of China plays out like this:

To place China’s specific energy needs in context, let’s compare the two largest economies in the world by GDP. China is home to approximately 1.3 billion people—around 20 percent of the global population. With roughly 310 million people, the United States represents less than 5 percent of the world’s current population of nearly 7 billion. Yet the US population guzzles 25 percent of today’s global oil consumption while also contributing roughly 20 percent to world GDP. This translates to America consuming around 20 million barrels a day, or 25 barrels per person per year. Meanwhile China consumes just 9 percent of the world’s oil […and…] between 2000 and 2009 growth in oil consumption went up 50 percent in China… [WTA.3]

Put simply, because we, as the United States, are paying for the largest national portion of oil on earth, we’re going to pretty quickly see the inflationary effects of increased demand in the oil market. Recall AAA’s report that 2012 was a record-high year for gas prices in the US and we can see the obvious initial effect which is detrimental to our national interests of having cheap fuel for our economic and lifestyle activities. But there’s a second, more pernicious effect and it has to do with which nations we’re willing to buy from:

Of course, the United States has restricted alternatives, and it doesn’t help that China is competing for African oil as well. Africa now provides about one-third of China’s oil imports, second only to the Middle East, which provides about 50 percent (with Iran being the main source of imports). [WTA.3]

China is actively buying from the nuclear-ambitious Axis of Evil enemy we’re trying to economically isolate and, what’s more, they’re doing it with our blessing as reported by the New York Times (among other sources) at the end of June 2012. Now we could claim that China makes too many products that we’re interested in buying, or that the trillion-and-then-some of US debt they hold could be easily weaponized against us if we were to sanction them, or even just that we didn’t want to see even more inflation in the oil market if we were to pressure China into moving their demand away from Iran and to other nations we’re currently doing business with. But the inescapable point is that China is buying oil, the rise of China has China buying a lot of oil, and this results in them buying a lot of oil from Iran — directly harming our objective of economically isolating Iran — because the alternative would be to buy even more of the oil we’re trying to buy — which directly harms our domestic economic interest, increasing inflation and undercutting our standard of living.

2: Reckless Chinese pollution makes climate change mitigation infeasible.

Ye Qi, a professor of environmental policy at Tsinghua University and director of the Climate Policy Initiative, both in Beijing, said China has made enormous strides over the past five years in both reducing energy intensity and developing renewable energy capacity… But, he said, China’s overall energy use has skyrocketed along with its growth, keeping renewable sources just a sliver of the country’s overall share. Meanwhile, he said, China’s emissions, which were 20 percent higher than the United States’ in 2010, could be as high as 49 percent more by 2015… “There is no question now China is the largest emitter, and the gap between Number 1 and Number 2 is enlarging,” Qi said as part of a Brookings Institution panel discussion on China’s low-carbon development. (ClimateWire, Feb 3 2012 — reprinted by Scientific American)

So while China continues to hide behind its status as a “developing nation” at climate conferences from Rio through Kyoto to Durban to defend its wanton disregard of the environment, the simple fact of the matter is that they’ve ascended to be the most toxic nation in the world and they’re not slowing down. But a lot of Americans don’t seem to believe in climate change, so let’s talk about some direct effects:

Although some of the environmental effects of China’s energy-intensive growth are horrific, the economic activity of every country contributes some sort of pollution, and the whole world is also subject to its negative effects. Emissions of noxious gases like mercury are released into the air or into oceans by China’s factories but end up sullying the atmosphere thousands of miles across the Pacific on the US West Coast. [WTA.9]

US West Coast… hey wait, that’s us. China’s heavy metals are polluting our clouds, our water, and our fish — which is a direct harm to my interest in eating tasty tasty sushi. And while I should probably be more concerned about rising sea levels flooding New Orleans and New Jersey and the San Francisco airport and such… it’s also really fantastic sushi. Point is, our interests are harmed by China’s pollutants.

To recap, China’s massive economic growth is undercutting our standard of living economically — and providing economic support to our enemies — while blowing away any hope we have to contain climate change, and making lunch toxic. While we have no doubt that they’re well-justified in their pursuits and actions, we can’t possibly agree that China is providing net spillover benefits to the US.

Given that, what’s the flip-side look like?

Affirmative Synopsis: The US can’t even act in its own interests; blaming China for our national incompetence is not productive.

Commodity availability may be a concern, but China’s purchasing power isn’t.

As advancements to boost resource supply stall and global commodity demand skyrockets, a scarier picture is emerging, one in which the resources on which we depend today—many of them nonrenewable—are depleting into nonexistence or are so poorly matched that their demand and supply might never be able to meet. Yet…, China seems to be the only country that’s preparing for this eventuality in a sustainable and deliberately constructive way, by making friends across the globe and systematically and continually investing across the commodities complex… China has nothing if not lofty ambitions, and these are what fuel its rampage on global resources. To meet this challenge, China has already, between 2005 and 2011, engaged in over 350 foreign direct investments valued at more than US$400 billion, much of which is in natural resources. [WTA.1]

But let’s put this into perspective,

The total US military expenditure in 2010 was around US$700 billion (almost 5 percent of GDP), making it the largest spender by a long shot. By contrast, China, who holds second spot in GDP terms as well as military expenditure, spends around US$100 billion (around 2 percent of China’s GDP). [WTA.10]

The primary point is simple: A mere tenth of our military spending from 2010 could be directly competing with China’s notorious commodity-acquisition scheme. Instead, we’re going over fiscal cliffs — we were over, the legislature did miss the deadline — and continually re-arguing about the debt ceiling. But there’s a secondary point in there as well: China is only spending one seventh of the amount of actual cash (and less than half of the relative cash) on its military. So if we, with our $700 billion juggernaut military industrial complex are feeling that our ambitions are threatened by China’s whispers of aggressiveness, then I would suggest that our first problem is that we’re not spending our defense budget wisely — which we’re probably not doing if we think the real problem is China’s, frankly, modest commodity purchases. The problem here isn’t China, the problem is that our government has decided that it’s interested in spending too much on the military and not enough on securing resources for our future; it’s a lack of actual, meaningful, visionary leadership in our government:

The United States’ gridlocked political system is representative but hardly atypical. At a time when we should be learning to manage the whole earth’s resource flow, the elected representatives in the world’s most militarily powerful country can’t even seem to manage states or cities or, for that matter, the nation’s debt woes. Rather than make friends across a rapidly changing world, America has tended to (inadvertently) make foes. Or put another way, China looks to military options as a last resort, whereas the United States seems to consider them as a first port of call. (Diplomacy has not always been America’s strong suit.) The resource crisis simmers on while American lawmakers rattle sabers, perhaps hoping the commodity explosion will come long after they are out of office. This is decidedly not leadership… Faced with a potential commodities calamity, self-interest and myopia rule the day, especially in those regions and among those governments that should be leading the charge. [WTA.10]

Heck, congress couldn’t even bother to vote on an aid package for hurricane-ravaged tax-base-providing New York and New Jersey over two months after the fact, earning the Republican leadership an extreme and public tongue-lashing from also-Republican New Jersey governor Chris Christie to start the new year.

“Last night, politics was placed before oaths to serve our citizens,” Christie added. “For me, it was disappointing and disgusting to watch… shame on you. Shame on Congress.”

That. Is Not. China. It’s us. And if we continue wallowing in our ineptitude, it’s only going to get worse:

[B]ecause the challenges that the world faces are universal, membership must be broad so as to capture a more comprehensive view of the situation and find more all-encompassing solutions… China will have to play a prominent role, but the world needs economic leaders like the United States to get involved in a friendly, all-encompassing, collegial way. A peaceful world with accessible resources at reasonable prices is also in America’s interest. China alone is not enough—even the Chinese authorities recognize this. … In a January 2011 Financial Times article entitled, “The World Should Not Fear a Growing China,” China’s vice-premier, Li Keqiang, reminded us, “The progress China has made in development is tremendous, but it is still a developing country, facing grave challenges and has a long way to go before it can build a moderately prosperous society and achieve modernization. China’s development will not be possible without the world—and world development needs China. We are committed to work even more closely with other countries to create a bright future for all.” [WTA.10]

So let’s talk about how the rise of China is good for the US: they’re working on actively developing Africa so that its resources can be exported to the world market. We’ll have to bid against China, yes, but the resources will be available and in the mean time there will be fewer failed states that are breeding grounds for terrorism and piracy on that continent.

In his opening ceremony address President Hu Jintao told his audience, “In all these years, China has firmly supported Africa in winning liberation and pursuing development. … China has trained technical personnel and other professionals in various fields for Africa. It has built the Tanzam Railway and other infrastructure projects and sent medical teams and peacekeepers to Africa.” Now, China would strengthen its Pax Sino-Africana ties still further, in the form of new trade initiatives, agricultural cooperation, debt relief, improved cultural ties, health care, training, and some aid… Poor countries (and rich countries too) need jobs to stem the risk of social despondency that could escalate the risk of political unrest and insurgency. By building factories and rolling out infrastructure projects and opening mines, China is helping to create those jobs in countries with resources to sell. China has also won friends and plaudits for its efforts in building health care centers and schools. Across the world the most impoverished countries—those that lack both adequate medical and educational facilities and the cash to invest in them—are only too happy to accept China’s largesse. These monies help the host governments roll out hospitals and schools that help meet demand in a meaningful way. In countries across Africa, where the incidence and prevalence of disease burdens and literacy rates have significant room for improvement, China’s generosity is often preferred to the hectoring that tends to accompany financial support from traditional (Western) aid donors. The 2005 decision by the Bush administration to cut aid funding for condoms across Africa in preference for programs espousing and promoting abstinence is only a dramatic example of a continuing trend that, to many Africans, smacks of hypocrisy and paternalism. [WTA.4]

China is actively enfranchising the nations of the world that we’ve failed to really connect with, and often paying for it in US dollars. They are reaching out to, as Dr. Moyo put it, “the Axis of the Unloved” and bringing them into the global community which is where we want them. Sure, we’d have been happier if they’d shown more kowtowing appreciation for our hypocrisy and paternalism, but that wasn’t going to work out regardless of what China was up to. So instead of holding a grudge over it, I think we should be happy that China is working so hard to get the rest of the world developed such that this good Earth’s resources are more-fully available for the care and sustenance of the 7-billion-and-growing-fast people living on it. That’s in our interest as humans, and humans are what constitutes “We the People.”