Hu's Your Daddy?
April 22,2006

China’s President Hu Jintao spoke at Yale University after meeting with Bush and business leaders during his week-long goodwill mission (I thought Harvard’s color was red?). There were many photo opportunities and dog-and-pony tours aimed at softening American opinion toward the increasingly powerful Red Giant.

Jintao promised to grapple with issues most upsetting Americans such as currency manipulation and copyright abuses – both aimed at reducing the enormous trade deficit. Protests were generally more about human rights abuses and Taiwan independence. This visit was symbolic, but may be remembered historically as the time China first had to confront public opinion as a threat to its livelihood.

Don’t get us wrong, we believe China truly controls its own destiny. China is all about control – of its people, its territory, and its economy. Even if it were not so, China would still believe it’s in control – the Politburo would see it no other way. However, the economy has posed a new wrinkle. Controlling capitalism is almost oxymoronic and to be successful, China must continue to gradually relinquish its coveted control lest it risk losing the demand-side of the economic equation in the U.S. and elsewhere. This is what we mean by a historical turning point – China may find itself needing to allow personal freedom and the strengthening of intellectual property law in order to facilitate its economic growth plans.

But how long will we wait? There’s a price to pay for pushing reform prematurely. Mutually assured destruction no longer means nuclear annihilation. China needs the U.S. and others to continue consuming in order to continue its 9-10% annual growth. Many argue the trade deficit is irrelevant because in exchange for America’s fertile market, China invests billions into our markets and currency.

Wal-Mart’s goods are 80% Chinese and the overall U.S. cost-of-living and low inflation rests on Chinese imports. China’s not stupid and understands a strong Chinese economy requires a strong American one. This is a delicate balance that requires the U.S. honor an unwritten agreement to keep its markets wide open. If tariffs were passed to penalize China for any of its morally and ethically questionable practices, the resulting tit-for-tat would cripple us both. More than Taiwan, North Korea, human rights, or any other issue, it’s the economy that could trigger World War III.

Is that overly dramatic? Maybe, but it sure isn’t far fetched. Contrary to popular belief, the Civil War and World War II were economically triggered. In the end, we must stand-up for what we value and continue to press China for reform. PurpleThinkers don’t have the stomach for torture, the lack of intellectual property rights, and currency manipulation. But, we see that free markets are beginning to bring other freedoms. We hope our leaders have enough faith in liberty that we don’t risk Armageddon to win the culture war with China.

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