China Doll

Rich Lowry
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Posted: Jun 10, 2005 12:00 AM

Hillary Clinton has met the enemy, and it is foreign investment. She unleashed a barnburner of a speech at a New York fundraising event the other day and reserved special salvos for China. She warned that we are ?giving up our fiscal sovereignty? to the Chinese. Our borrowing from Beijing makes it impossible to ?get tougher on China,? she said, because, ?How do you get tough on your banker??

This line runs in the family. At the Democratic Convention last year, Bill Clinton lambasted the Bushies for borrowing ?from foreign governments, mostly Japan and China. Sure, they?re competing with us for good jobs, but how can we enforce our trade laws against our bankers?? House Minority Leader Nancy Pelosi and other Democrats have made similar arguments, as they portray Chinese investment in the U.S. as a national-security threat.

We?ve been here before. All the same things were said 20 years ago about Japanese investment. Now China is becoming the boogeyman. Somehow it is always pesky ASIATICS who are the focus of this kind of populist roundhouse, which combines economic illiteracy and political demagoguery to make for an irresistible, Clintonian cheap shot.

China-bashing is rich coming from the Clintons. In the 1992 presidential campaign, Bill Clinton called ?most favored nation? trading status for China ?unconscionable.? In office, his conscience quickly gave way, as he embraced most-favored-nation status and sent his commerce secretary to Beijing to grovel for business deals. In 1996, Chinese agents helped raise funds for his reelection campaign. When the Clintons complain of kowtowing to China and dependence on Chinese money, they know whereof they speak.

By rights, Japan should still be the chief ?how dare they invest here? whipping boy, but Japan-baiting feels so 1985. Its economy is still four times bigger than China?s, and it owns more U.S. treasuries. It has roughly $680 billion to China?s $225 billion. If the U.S. economy is threatened by a foreign power it is Japan, which ? by the Clintons? logic ? should have taken us over long ago.

When other countries buy up our debt, it isn?t nefarious. As David Malpass of Bear Stearns points out, Japan owns so many U.S. bonds because its aging population wants to own safe but relatively high-performing assets. The Chinese, meanwhile, link their currency to the dollar and invest their dollar holdings in U.S. treasuries. This dollar linkage has provided a stable environment for robust Chinese economic growth. Democrats who complain about cheap Chinese labor should welcome this, since sustained growth is the only way to boost a country?s wages.

The Chinese also accumulate U.S. assets because they run a $160 billion trade surplus with us. But the surplus is exaggerated, since part of China?s trade with America is triangular, with the Chinese importing goods from other Asian countries, then shipping them to us. In any case, foreign ownership of U.S. assets (representing about $2.6 trillion of $80 trillion total U.S. assets, according to one estimate) works to everyone?s benefit. Japan and China own higher-performing assets than they would otherwise. If they found, say, French assets more attractive, it would be truly worrisome. And more capital is invested in our growing economy.

Of course, China ? the nation?s first free-market Communist state ? bears watching. Hillary aside, it?s duly being watched. Don Rumsfeld recently zinged the Chinese arms buildup. Doesn?t he know he risks offending his ?banker?? The Bush administration has been adamant about defending Taiwan and is (wrongheadedly) pressuring the Chinese to devalue their currency. How can it so brazenly cross its financial masters?

The Clinton China attack is part of a trend. The Democrats are dabbling with a peculiar multilateralist isolationism. They are reflexively in favor of international institutions, but oppose free-trade deals, suggest we cocoon ourselves from foreign capital, complain about the cost of America?s engagement in the world, and blanch at the ambition and idealism of President Bush?s foreign policy. Hillary?s speech should have come with a sign attached: ?Warning ? more demagoguery ahead.?