Regrettably, the lobbyists for American businesses also do not really grasp the problem. Ever anxious to preserve and expand relationships with their sensitive Chinese hosts, these lobbyists quickly dismissed the potential effect of the Schumer legislation and said the key was getting China to play nice with expanding imports from U.S. manufacturers. That is, at best, a sorely naive formula.
The Chinese, because of a demographically toxic “one child policy,” are facing catastrophe. The Chinese dependency ratio is on a relentless course to severely invert — far too few workers to support too many retired elders — and is notoriously in a “race to get rich before it gets old.” There is an edge of desperation to the way that China is gaming our rules.
But the gaming is bad both for China, where its policies are blowing up a bubble, as well as for America. It is bad for the relationship between these two historically friendly nations.
Americans instinctively understand that China doesn’t play fair with the renminbi. But America, not China, made, and makes, the rules that China is gaming. The “monetary house that Nixon built” badly prejudices both America and China. America gets all the toys in the world, cheap, and China gets all the toy factories, jobs and trillions of dollars.
Under the current system, these trillions of dollars simply are automatically reloaned to the U.S. Treasury. This misallocation of capital deeply prejudices our private sector, finances wasteful runaway federal spending and turns both the American and Chinese people into slaves of a grotesque caricature of monetary policy.
Republicans should not be demanding punitive trade measures. That’s flirting with a shameful formula for a new world depression. Republicans, both on the Hill and in the presidential contest, should be screaming to end the reserve asset status of the greenback.
Republicans should be demanding a real, not phony, solution: the restoration of the kind of neutral reserve asset recently called for by Nobel Laureate Robert Mundell, the original architect of Reaganomics, one founded on something that is “nobody’s liability” and “has a strength and confidence that people trust.”
It is time for Republican presidential candidates to stop cracking jokes about their neighbors’ dogs and start making proposals about America’s trade and monetary policies. It is time for Washington, as already is happening in Accra, Tehran, Mumbai, Moscow and London, to examine the implications of the Lehrman analysis and to consider tearing down and replacing “the house that Nixon built.”
Ralph Benko is senior adviser on economics for the American Principles Project.