Saturday, September 11, 2010

Part One - China and Western "Free Trade" - Opium for Everyone!

The first of a three part posting concerning the current dilemma in the U.S. economy - "cheap labor."

Where did it come from?  What can we do about it now?

MeanMesa would like to introduce this posting with sufficient humility to at least attempt to tag it for what it is.  What can be found here is a heady mix of selected  history, echoes of a traditional international economic conspiracy and a bit of foreign relations paranoia -- all topped with our infamous, yet delicious, cynicism.  Even with all that said, we may still have a point that our visitors might wish to consider.

So, with that inflated, self-aggrandizing disclaimer parked squarely in the light, let's take a cold look at what may be our national future.

A Gushing Historical Apology
Now, Wiki begins its abbreviated time line of Chinese history around 8,000 BC (BCE for the politically correct...).  Around that early date the Chinese had begun a remarkably stable type of royal kingdom/war lord governmental structure.  The culture was doing the things that a culture must do -- domesticating farm animals and field crops, building the Chinese version of a fairly impressive Paleolithic infrastructure of roads and cities and beginning to look at its neighbors with that "wouldn't it be nice to own that property" sort of imperial avarice.

The written account of Chinese history after that date would over fill a  dozen, modern Mid-Western city libraries.  Consequently, the exact part of all this history MeanMesa would like to emphasize in this posting becomes quite selective -- and, of course, unavoidably incomplete.  Still, perhaps even this truncated glimpse can serve as a viable foundation for our point.

Please do your very utmost to generously indulge us as we begin.

A Brief Account of the Recent History of China
The Portuguese were apparently the first Europeans to  actually begin trading with the mainland Chinese around 1500.  In no time, literally flocks of western "free market" types from a variety of countries -- the usual suspects, parties to civil wars in such matters -- had "discovered" that Chinese goods could be very popular and profitable in European markets.  Porcelain, silk, tea and many other commodities developed a market rush in post Renaissance/pre-industrialized which led these earliest capitalists to an even greater international trading frenzy.

From Wiki:  (Read the entire article here.)

Official British trade was conducted through the auspices of the British East India Company, which held a royal charter for trade with the Far East. The EIC gradually came to dominate Sino-European trade from its position in India.

Low Chinese demand for European goods, and high European demand for Chinese goods, including tea, silk, and porcelain, forced European merchants to purchase these goods with silver, the only commodity the Chinese would accept. In modern economic terms the Chinese were demanding hard currency or specie (gold or silver coinage) as the medium of exchange for the international trade in their goods. From the mid-17th century around 28 million kilograms of silver was received by China, principally from European powers, in exchange for Chinese goods. Britain's problem was further complicated by the fact that it had been using the gold standard from the mid 18th Century and therefore had to purchase silver from other European countries, incurring an additional transaction cost.

In the 18th century, despite ardent protest from the Qing government, British traders began importing opium from India. Because of its strong mass appeal and addictive nature, opium was an effective solution to the trade problem. An instant consumer market for the drug was secured by the addiction of thousands of Chinese, and the flow of silver was reversed. Recognizing the growing number of addicts, the Yongzheng Emperor prohibited the sale and smoking of opium in 1729, and only allowed a small amount of opium imports for medicinal purposes.

Of course, these hardy Europeans quickly "discovered" that opium would practically market itself!  After all, it seemed that everyone liked it!  Not only did the silver which had previously constituted an early version of the "balance of trade" problem for these Europeans come flowing back into European coffers, but the new product's sudden success actually became a formidable "cash cow" in its own right.

Bayer Aspirin?  Not exactly ... Source.

A great deal of history unfolded rather quickly, at least for China and its Imperial government.  The 1729 effort to make opium illegal in China failed.  However, the problem grew worse and worse, leading to two serious wars -- the Opium Wars of 1839 and 1858 -- in which the tactical advantage of modern European armies effectively wrecked the old Imperial structure.

The Chinese humiliation was without quarter.  Even the United States joined in the fray, sending warships and military.  Essentially no one in Europe was troubled in the least by the rampage inflicted on China so long as the immense opium profits -- by now protected by occupation armies from Europe and extracted from entire provinces which had been forcibly ceded to European interests -- continued to arrive in Western banks.

A few interesting, more contemporary notes concerning the catastrophe may be in order:  (Courtesy of -- Read the entire article here.)

In the early 19th century Napoleon said, "Let China sleep --  when she wakes the world will be sorry."

In 1900, the future Russian revolutionary leader, Vladamir Lenin, said, "The European governments have robbed China as ghouls rob copses." A descriptive 1898 French lithograph showed Queen Victoria of Great Britain, Kaiser Wilhelm II of Germany, the Japanese emperor Mutsuhito and Czar Nicholas II all sitting around a giant pizza, inscribed with China, dividing it up with butcher knives. 

“This inferiority complex has been institutionalized in the Chinese mind." Orville Schell wrote. “In the early 20th century China took up its victimization as a theme and, and it became a fundamental element in its evolving collective identity. A new literature arose around the idea of bainian guochi—‘100 years of national humiliation.’ After the 1919 Treaty of Versailles gave Germany’s concessions in China to Japan, the expression wuwang guochi—‘Never forget our national humiliation’—became a common slogan.” 

And when Communist China was founded in 1949 Mao declared, “Ours will no longer be a nation subject to insult and humiliation.”

We can accept this little snippet of Chinese history as an adequate foundation for the intentions of this series of postings.  Although the history lesson may be over, the ramifications of this part of the story are far too central to be neglected as we consider the more modern dilemma we face with China.

Just a few more important dates for the events of China's more recent past may help. 

Roughly fifty years after the crippling -- and humiliating -- concession to the British in 1860, the Qing Dynasty failed in 1912.  In 1921, the Communist Party was founded, and by 1927 a full scale civil war had begun between the nationalist Kuomintang and the Communists.  The Communists prevailed in the civil war, and Mao Zedong began to rise as the accepted autocrat of the country.  The United States continued to support the losing Kuomintang until that insurgency relocated to the island of Taiwan.
In China, the Communists founded the Peoples' Republic of China (the PRC) in 1949, and the country began a decade long "association" with the Soviet Union until around 1960.  Part of that "divorce settlement" resulted in a million man Peoples" Liberation Army in China and 160 divisions of Soviet tactical nuclear forces permanently stationed just north of the Sino-Soviet border.  The newly separated partners had, well, "trust issues."

A decade after that, US President Nixon met with Mao Zedong and Chou Enlai in Beijeng to initiate rapprochement.  In practically no time, we arrived at where we are now. 

So, do we think that China "learned its lesson" from all of this?  The answer is a resounding -- and, resounding -- "yes."  China learned this lesson from top to bottom, from its skin to its very core, in every cell of its immense body, with every beat of its gigantic heart -- you get the idea.  However, perhaps the more interesting question is whether or not all us Westerners learned our lesson.

This old cultural echo lives and breathes in the modern Peoples' Republic, and it serves to explain some important facets of our current, puzzling relationship with that country.  As is always the case when "reality becomes real," we can either collapse into a comfortable illiteracy as we face our challenges or we can, equipped with more understanding, gentrify our predicament with the prospect of at least doing the best we can.

Quite predictably, the US domestic news pundits are currently introducing the idea that the Peoples Republic of China will soon surpass the Japanese as the second largest economy on the planet.  The "fear mongering" aspect of this "threat" is rather lackluster in that its approach can't rely incite the hill billies to some desirable, politically irrational, terror response.  The inevitability of such a development is too similar to the inexorable advance of a glacier to be of much use as the latest frightening torment.

Finally, although the historical treatment of China served to incite the country's current infatuation with self-defense capacity, the situation still enjoys a common thread with the US treatment of Iran.  In the case of Teheran, the toothless threats of the autocrat, W, and his servants succeeded in erecting a snarling, frightened nuclear power.  China, on the other hand, enjoyed far too many resource assets of money and troops.  The response designed by the Western powers took on a different course.

More about that alternate scheme later in this series of postings.

A Cold War Reorganization of Adversaries

Of course, we are all familiar with the Nixon/Kissinger courting of Maoist China, but how much sense can we make of events after that?  "Smilin' Hank" Kissinger successfully "separated" the PRC from its previous close friendship with the Soviet Union.  A few details of "secret negotiations" with the Peoples Republic finally emerged in 1971.

In no time, our two nations were playing ping pong.

Information challenged Americans believe that the Soviet Union finally buckled under the  bankrupting cost of competing with Reagan's Strategic Defense Initiative -- the "Star Wars" of the 1980's.  Of course, MeanMesa visitors understand that many other geopolitical economic realities were in play.  China, however, was not so eager to "take the bait." 

That country developed its own nuclear deterrent at an affordable scale, once again demonstrating traditional Chinese frugality.  With a few dozen (the U.S. still has thousands) credible warheads on its Long March ICBM series, the Chinese autocracy met this unavoidable challenge without emptying its treasury of cash resources sanely allocated for use in infrastructure and manufacturing development along with  conventional (and, usable) military procurement.

Part Two of this series of posts will describe the course of economic relations between the West and China which have emerged from this historical beginning.

Please "stay tuned!"

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