The Fiscal Cliff and Chinese Windfall

Posted: Nov 28, 2012 12:01 AM
The Fiscal Cliff and Chinese Windfall

Further illustrating his tireless commitment to (not) addressing the forthcoming financial meltdown, President Obama recently traveled to Myanmar, a country of minimal strategic value to the United States. There to champion the cause of democracy, the president no doubt also received invaluable economic advice from Aung San Suu Kyi. Say what you will about the president, but he certainly knows how to exercise a “mandate” in furtherance of his constitutional responsibilities.

Meanwhile, back in the nation he’s ostensibly leading, Black Friday and Cyber Monday continued our nation’s obsession with purchasing cheap goods made in China (not Myanmar), and our nation’s leaders are no closer to averting the trillion dollar tax hike that will occur if the 2003 tax cuts are not extended. The Titanic speeds towards the iceberg and the captain of our ship of state is literally MIA. We have only ourselves to blame.

In a year when Americans had the chance to elect one of the most qualified prospective presidents in recent memory, we instead chose the guy we knew with no resume, no management skills, and no achievements. President Obama’s successful reelection campaign gave us only the second two-term Democrat since FDR, but without the blue dress and political good sense to moderate.

Yet unaddressed in the campaign (in a meaningful way) and lost in the election news stories is this fact: a weak White House presiding over a weak economy makes for a weak America, which makes for a happy China. The true beneficiary of American weakness is not Russia, or the EU, or Al Qaeda terrorists. It is China. Here’s why.

Without divine intervention, taxes will go up across the board next year, employers will lay off more employees to compensate, and millions more will be added to the unemployment rolls. A weak economy requires more borrowing to pay the nation’s ever-increasing bills (e.g. Obamacare), so the United States will again make the walk of shame to the Chinese ATM after another round of fiscal binging.

Similarly, unless Congress forces the president’s hand, the Keystone pipeline will remain mired in bureaucratic red tape, and the oil development that could fuel tens of thousands of domestic “middle class” jobs will instead be routed to China. Unburdened by the environmental hysteria that impedes our exploitation of our domestic oil resources, the Chinese will gladly partner with Canada and reap the financial windfall. The irony of using North American oil revenues to purchase more American debt is surely not lost on the Chinese.

Abroad, unless the president stops outsourcing America’s foreign policy to the UN, the Middle East will continue to unravel with America on the sidelines, especially if the hapless Susan Rice becomes the next Secretary of State. From Beijing’s perspective, with the decline of American power abroad, key energy opportunities are theirs for the taking in Africa, Latin America, and the Middle East. Creating an enduring middle class in a country of 1.3 billion people is no small feat, and every instance where the Chinese can access energy without competition from the United States takes them ever closer to their goal of economic and military parity with the United States.

By most estimates, that goal is a few years off. But when it comes, President Obama’s defense “pivot” to Asia will, just like the Russia “reset,” be meaningless if the American economy cannot support the military resources needed to make the pivot more than another empty gesture.

Indeed, the two seem remarkably similar. President Obama resets with Russia while torpedoing plans for strategic missile defense sites in Poland and the Czech Republic. In the president’s hollow words, Russia sees only weakness. Likewise with Asia, President Obama’s reckless spending has brought the U.S. economy to its knees, (likely) resulting in crippling defense cuts that will reduce our nation’s ability to project anything more than presidential rhetoric.

Yet despite this seeming trend of American weakness, a further irony is that without strong American consumption, the Chinese economy suffers. The Chinese know this, as does Washington. Which brings us back to the fiscal cliff. The Chinese will tolerate the American president going to Myanmar as long as they can count on Washington’s continued withdrawals from the Bank of Beijing.

In Barack Obama, then, we have a president Americans cannot live with, and the Chinese cannot live without. The fiscal cliff is not just about American tax rates. It is also fundamentally about a world where rival nations like China are ready and willing to fill the void left by receding American influence, while simultaneously bankrolling our decline. Our leaders would do well to consider this reality when deciding whether a trillion dollar tax hike is in America’s best interest. The Chinese certainly have no qualms about lending us the money to fund our economic belly flop, with interest.

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