[Editor’s note: This story originally was published by Real Clear Markets.]
By John Tamny
Real Clear Markets
“The Oreo was my introduction to American food culture, and I loved the cookie instantly and fiercely – from the crinkling sound of the plastic packaging; to the frosting, sweeter than anything I’d ever tasted; to the impossibly dark, intricately embossed biscuits, which tasted only vaguely of chocolate.” Those are the words of Tejal Rao, a food reporter for the New York Times. They’re a reminder of what “America” signifies to the rest of the world. Rao’s first taste of an Oreo was more than just biting into a cookie, for him it was “about consuming something American, something cool and rare and glamorous.”
It’s all a reminder of what “America” and “American” symbolizes to so much of the rest of the world. American brands are aspirational. As this column has pointed out in the past, American fast food outlets are where individuals in African countries go to celebrate special occasions. Yes, KFC is a luxury concept in some nations.
In China, a walk or ride through its crowded cities is defined by endless sightings of American fast food brands: McDonald’s, Burger King, Carl’s Jr., Dairy Queen, KFC, and so many others. Americana captivates the Chinese people in much the same way it excites people from other parts of the world.
It’s something to think about as China’s president Xi Jinping makes increasingly worrisome comments about capitalism in the rising country. According to a front-page Wall Street Journal report from yesterday, Xi “is trying to roll back China’s decadeslong evolution toward Western-style capitalism and put the country on a different path entirely.” The report went on to say that while Xi “isn’t planning to eradicate market forces,” he “is trying forcefully to get China back to the vision of Mao Zedong, who saw capitalism as a transitory phase on the road to socialism.”
About the report, here’s hoping it proves false. That’s the case because China under Mao wasn’t just desperately poor, and populated by the starving. It was also a murderous country. The blood of tens of millions was on Mao’s hands.
If Xi truly wants to achieve Mao’s vision, then China will assuredly no longer be an economic player on the world stage. It will implode. John Lennon famously sang about the people starving in China, “so finish what you got,” which is just a way of saying that Maoist China was tragic. Let’s hope once again that Xi doesn’t really want to blast a rising country back to its brutal, depressed past.
Of course, if China regresses some in the U.S. will cheer. By their logic, a rising, economically prosperous China represents a major military threat, and by extension a threat to global American hegemony. Socialist or communist countries are by their very name very poor countries, which means “forcefully” moving China “back to the vision of Mao” would result in China exiting the world stage as a player economically or militarily.
It would also take a strike on Taiwan off of the table. Communist countries lack the means to conduct major military operations. War is expensive.
So while some may contemplate a wrecked, economically retreating China with glee, the view here is that they’re not thinking very expansively. And they’re not thinking much at all about what a Maoist scenario for China would mean for the United States. The economics of such a lurch would be very harmful for the U.S. economy. In other words, a declining China would very much pull down the U.S.
To see why, consider the aforementioned ubiquity of American restaurant brands in China’s cities. As the economy has grown in China thanks to rising freedom, the prosperity of its people has surged. And they in many ways went on an all-things-American buying spree. There are 3,700 McDonald’s restaurants in China, over 4,000 Starbucks locations, hundreds of Carl’s Jr.’s. Assuming a lurch back toward socialism or communism, American companies with large footprints in China will suffer in a big way. And that’s only part of the story.
The Chinese aren’t just in love with American fast food. As anyone who’ve ever been in the country knows well, China’s cities are also thick with Apple Stores, Nike Stores, Sunglass Huts, and all manner of other American giants. Other than the U.S., the biggest box office for American movie studios is in China. It’s all a long or short way of saying that assuming China goes collectivist, thus weakening itself economically and militarily, its retreat will bring on major economic discomfort in the U.S. Not only will American businesses of all sizes have to shed workers to reflect the loss of a huge market, U.S. equity indices will crater to reflect the loss of the biggest non-U.S. market for American companies. Put another way, to some degree U.S. equities are priced to reflect a China set to grow and grow. Assuming a retreat, get ready for the mother of all market corrections.
And then get ready for greatly reduced American dynamism and productivity. The latter isn’t some idle speculation; rather it’s Adam Smith. Smith was clear from the earliest pages of The Wealth of Nations that work divided is the path to enormous productivity advancement. In the pin factory he visited, one individual working alone could maybe produce 1 pin per day. But ten people working together in specialized fashion could produce 48,000 pins. The latter is a very blunt way of saying that any true lurch of the Chinese toward actual socialism or communism will result in substantial economic shrinkage in the U.S. Labor division is arguably the greatest economic stimulant.
Which is just a way of saying that if a rising China has you up in arms and worried, start thinking bigger picture. Indeed, if a growing China terrifies you or angers you, just wait for a Chinese collapse. Only then will you really know terror and anger.
[Editor’s note: This story originally was published by Real Clear Markets.]
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