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America and China- war? PART 3
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“This is the way the world ends. Not with a bang, but with a whimper.
1925, T.S. Eliot
The history of warfare includes disgusting realities documented from Japan’s rape of Nanking in 1937 (260,000 slaughtered);
“…One young woman, Li Xouying, ended up with no fewer than thirty-seven bayonet wounds when she attempted to resist being raped y three Japanese soldiers who found her hiding the basement of an elementary school. Seven months pregnant at the time, she lost the baby but was saved by doctors at Nanking hospital…”
and WWII;
“…Polish mothers being held by the Ukrainian Nationalists and forced to watch as their families were dismembered piece by piece; of pregnant women being eviscerated; of vivisected pregnant women having cats sewn into their bleeding abdomens…”
-Niall Ferguson 2008
The War of the World
20th Century Conflict and the Descent of the West
However, that’s pretty much where the hell that is war usually descends. Preceded by rounds of trade wars fomented by the idiocy of protectionism, truly evil episodes become the norm- and then get buried with time –before repeating themselves, no lesson learned, ad infinitum.
Today, the US $787 billion “Stimulus Package” contains a populist “Buy America” clause lobbied into existence by the steel industry and people like Dan DeMico, CEO of Nucor Steel. In the opposite corner are men like Jim Owens, CEO of Caterpillar, who see this tact is as “pouring gasoline on the fire”. In fact, US protectionism could well spark a global trade war, the likes of which we last saw kicked off by the Great Depression’s bombastic Smoot Hawley tariffs.
By now, we Americans are acutely aware that all is not well, either on Wall Street or Main Street. Some 600,000 families per month are now losing a breadwinner. The UK and Germany, as well as all of Europe are in a marked down spiral.
What has not gotten as much notice however, is Taiwan (the potential flashpoint / “turd in the punchbowl” in Sino-US relations) or China’s current economic condition. Here are the facts;
TAIWAN:
Of all nations tracked by The Economist, Taiwan is now dead last and worst-hit in terms of industrial output.
- Taiwan’s industrial output (things like semiconductors and flat screen TV’s) fell 62% in the 4th quarter of 2008.
- Taiwan’s industrial output fell 32% for the year 2008.
- Taiwan’s GDP is rapidly shrinking- worst ever. By one estimate as much as 11%
- Taiwan’s exports to China have fallen by 59% -TWICE as much as those to the US!
- Taiwan’s “official” unemployment rate is at 5% -and rising.
- Taiwan’s imports have fallen some 57%.
According to CLSA, Credit Suisse and JP Morgan, both South Korea and Taiwan have rolled out intelligence services goons to suppress analyst reports of just how bad things have gotten. All private entities are under pressure to produce only good news…
CHINA:
- China’s 4th quarter 2008 exports are down 17.5% compared to a year ago.
- China’s imports from Taiwan, Japan and S. Korea have fallen 43% in the same period.
- China’s GDP growth fell to 6.8% in the year to the fourth quarter, down from 9% in the third quarter and half its 13% pace in 2007.
- China’s industrial production has slowed sharply, growing by only 5.7% in the 12 months to December, vs. an 18% pace in late 2007.
- Chinese factories have closed by the thousands and millions of migrant workers have already lost their jobs.
“Exports in the first quarter could be 19% lower than a year ago. 2009 may well see the first full-year decline in exports in more than a quarter of a century”.
-Qu Hongbin, Economist, HSBC
China has also seen a collapse in housing construction, caused by the government’s efforts to deflate a potential bubble. This has resulted in decreased demand for materials such as …steel. Steel output was 12% lower than a year earlier.
The official mantra is that China needs to grow by at least 8% a year to avoid social unrest. AS GDP growth is likely to continue to fall during the first half of 2009, alarm bells sound. State-controlled firms account for over 30% of industrial output, and almost 50% of all investment. They have been told not to cut jobs and capital spending. Since the big Chinese banks are state-owned and their chairmen are appointed by the government, a phone call from Beijing telling them to lend more, meets with compliance. Given this state control, China’s is banking system has weathered that aspect of the global credit crunch.
There is ample academic evidence that Direct Foreign Investment (DFI) by one country in another lessons the chances of military conflict, giving credence to the “Golden Arches Theory” cited in Part 1 of this series.
“No two countries that both have a McDonald’s have ever fought a war against each other.”
Thomas L. Friedman
8 December 1996
Golden Arches Theory
Nonetheless, the arming of Taiwan is China’s central issue where the US is concerned and before military conflict, often comes economic-trade conflict.
Since 2000 China has racked up a massive trade surplus with the US. Consequently, the PRC has amassed US dollars. This mountain of trade-based (depreciating) US dollars has largely been used to buy up massive amounts of US Debt. Result: China is now America’s largest creditor.
During the Great Depression of the 1930’s the UK acted as a stabilizer. Today, the UK is in bad economic shape and it has become evident since the day of the bailout, Friday, March 14, 2008 -the US is neither inclined, nor able, to play that central role this time around. As mentioned earlier, China is now the world’s strongest economy in terms of LIQUIDITY, with over $ Two Trillion in reserves. Taiwan, S. Korea and Japan are learning just how much leverage China has over their economic circumstances.
The last thing the world needs is a steel-based trade war kicked off by the US, against China. As should be clear to by now, at this point in time, the entire world is hurting and it is no time for one major player to kick another down, -as he’s falling.
That sort of thing has a way of escalating from discussions about butter to those about guns.
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