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FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Paulson’s Kabuki: Integrating China into the Neoliberal System

Politics / China Economy May 24, 2007 - 09:46 AM GMT

By: Mike_Whitney

Politics Treasury Secretary Henry Paulson is a man who knows what he wants. And what he wants is to further integrate the Chinese market into the global system — the “American-run” system.

To achieve that goal he has assembled a group of 10 cabinet-level officials—mostly from big-business – who will are expected to urge the Chinese delegation to implement "sweeping economic reforms" that will open up their market to U.S. investment.


Undoubtedly, Paulson will pay “lip service” to China's manipulation of its currency which gives it an unfair advantage in competing with American exports. In truth, the “undervalued” Chinese Yuan is a godsend for Paulson and the US investor class who see it as a good way to expand the trade deficit and keep billions of dollars flowing into the stock market. From their perspective, the $230 billion trade deficit allows America to export its inflation, which keeps interest rates artificially low and makes the economy seem healthier than it really is.

The down-side of this arrangement is that the American worker gets hammered. We have lost 3.2 million manufacturing jobs in the last 6 years while destroying America's industrial base. If there is a sudden downturn in the economy, the US will not have the ability to work its way out of the doldrums. We are now a service-oriented economy.

Paulson's real goal is to see that the financial service industry can set up shop in China and lay their hands on the $2 trillion of Chinese savings which is languishing in Chinese banks earning a meager 2% interest per annum. This is the real prize, and as the former head of Goldman Sachs, Paulson will probably push hard to access to this promising new market.

There's a misconception in the US (particularly among “protectionist” Democrats) that trade with China is a “one way street” that only benefits the Chinese. That is not the case. In fact, the real beneficiaries of the present arrangement are the US business elites who set out to destroy the American labor movement by moving factories to a country with no labor or environmental laws. The Bush administration has enthusiastically assisted this corporate exodus by creating tax incentives for “off-shoring” and by promoting a “free trade” ideology which is ruinous to America's future. As for the Chinese; consider the comments of China expert Henry C K Liu in his article “A Dialogue of the Mute”:

“China cannot expand domestic consumption because Chinese wages and benefits are too low. Yet Chinese cannot raise wages faster because real wealth has been leaving the country through export trade while the yuan money supply is expanding through the central bank buying dollar inflows with yuan. The result is a liquidity bubble, with too much currency chasing a dwindling supply of real wealth that has been exported.”

The Chinese are not to blame for our job losses or “unsustainable “trade deficit –  that's the result of the neoliberal policies which have enriched a few wealthy American industrialists and bankers at the expense of everyone else. As Liu says, “China has actually been a powerless respondent to the dysfunctional terms of trade set by US economic policies, aggressively exploited by US transnational corporations and financial institutions for unfair profit.” (More than 60% of China's trade surpluses are traded by foreign companies, many of which are US firms)

The Strategic Economic Dialogue (SED) with the Chinese delegation is shaping up to be nothing more than a lecture-series on “How to run your Economy” by the world's biggest debtor nation—the USA. Paulson has said repeatedly that the Chinese workers are saving too much of their wages. (roughly 50%) But it is precisely those savings which are so seductive to foreign capitalists.

Why not skip the doubletalk and just be straightforward?

So far, it is the Chinese who've played by the rules of the free market. They have promised aid to countries in Africa and Latin America in exchange for consideration of their vital resources. Meanwhile, the United States has eschewed the marketplace and opted for direct military intervention everywhere across the planet—creating chaos that now extends from the southern border of Somalia to the northern tip of Afghanistan. It is the “capitalists” have abandoned capitalism, not the Chinese. The Chinese are still doing business the old fashioned way – -with the check book not the gunboat.

Liberals and leftists who ignore the administration's economic maneuverings are missing a crucial point. At its heart, the “war on terror” is actually a global resource war which is being fought on many different levels with many different armies. The ultimate goal is control of the global economic system – Iraq is merely one battleground in a much larger conflict. Field Marshall Paulson is every bit as important as General Petraeus. The only difference is that one is in Baghdad and one is in Washington.

China is quickly becoming the world's manufacturing superpower. Its centralized, autocratic government provides a secure environment which transnational corporations find desirable. The fundamental question is whether China will subordinate its national sovereignty to the dictates of foreign investors or resist and follow an independent path for development.

Will China comply with Paulson's directives and be assimilated into the new world order or pursue a socialistic model that rejects the rigid requirements of neoliberalism?

By Mike Whitney

Email: fergiewhitney@msn.com

Mike is a well respected freelance writer living in Washington state, interested in politics and economics from a libertarian perspective.

Elaine Meinel Supkis (Bio) – Born at Yerkes Observatory, grew up on many observatory mountains and secret government testing grounds, burr under the saddle of the Real Rulers of America since childhood, family black sheep with three bags of wool, pulled down more than one politician in life, winner of the "Struck by Lightning Indoors" award for most hits in lifetime, three direct and seven glancing blows. Now living on a mountain with horses and cats and dogs and chickens and a husband. Yikes. http://elainemeinelsupkis.typepad.com/daily_news/


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