"The China Price" is China's Price for joining the Core

■"'The China Price': They are the three scariest words in U.S. industry," by Peter Engardio and Dexter Roberts, Business Week, 6 December 2004, p. 102.

■"Does It Matter If China Catches up to the U.S.? History says it won'tóif political stability allows trade to flow freely," commentary by Michael J. Mandel, Business Week, 6 December 2004, p. 122.

■"Wal-Mart's China inventory to hit US$18b this year," by Jiang Jingjing, China Business Weekly, 29 November 2004, pulled off website www.chinadaily.com.cn.

■"Chinese Premier Signs Trade Pact at Southeast Asian Summit," by Jane Perlez, New York Times, 30 November 2004, pulled off nytime.com.

■"China Hurries to Animate Its Film Industry," by Howard W. French, New York Times, 1 December 2004, p. B1.

I bought a six-pack of Tsing-Tao beer Tuesday night to drown my sorrows over the canceling of C-SPANís taping of my aborted brief in Norfolk, and as the guy rang me up at $8.39, I remarked, ìI thought everything from China was supposed to be really cheap!î

Well, almost everything.

ìThe China priceî is a truly revolutionary phenomenon in global economics, and itís shaking up the U.S. manufacturing industry while making significant in-roads into all sorts of higher-tech and white-collar venues (animated films being just one of the latestóso watch out Pixar and Disney!).

Chinaís revolutionary impact on globalization is, as my friends at Cantor Fitzgerald predicted years ago, changing the very core rule sets of the global economy. Itís changing them to the point where Americaís conventional wisdom on trade and globalization (i.e., that itís fundamentally good over the long run) is under attack.

Not to make light of anyoneís economic angst, but it reminds me of when America decided to let NBA players start playing in the Olympics while the NBA simultaneously started luring star players from other countries to join the league. Everyone on our end was like, ìYeah, now weíll show them what real competition is!î But by globalizing the NBA and filling its ranks with foreigners, we leveled the playing field over time to the point where now, NBA players are playing on almost everyoneís national Olympic team, so guess what? Now we canít win gold medals with ease anymore even when we stock our ìdream teamî with NBA stars!

Chinaís rise is like that, I think. Economists who went on and on about globalization always being good for America seem somewhat flabbergasted to admit now thatógeez!óitís actually going to make things awfully hard and competitive for the U.S., meaning it will force dramatic internal changes (all desired and needed) upon us or weíll suffer in the end. So globalization has gone from being a big win for an America that didnít have to change itself much at all to one in which itísóat bestóa tough victory for an America only if its willing to revamp things like how it thinks about debt (both personal and public) and how it educates its people throughout their lives (and not just at the beginning).

Economic competition within the United States, the worldís oldest and most successful economic and political multinational union, has always been fierce. By replicating that source code across the Core as a whole in this era of globalization, weíve enlarged the playing field dramatically, pulling in all sorts of previously ìfrontierî areas full of people who are desperate for better lives and willing to work their asses off to achieve it. Trying to deny their entry is a lose-lose and we all know it, but clearly weíll have to adjust not just our economic and political rule sets to accommodate that new competition, but those of the Core as well.

This is why I say that Americaís number one strategic relationship for the next twenty years or more will be Chinaóand to a lesser extent India. Adjusting the Coreís rule sets to accommodate those two statesí integration into the global economy is the most important foreign policy andófranklyónational security task that we face right now and for the foreseeable future.

Yes, I want to transform the Middle East, but thatís a secondary goal to securing both China and India as long-term strategic partnersóeconomic partners, political partners, security partners.

Chinaís rise is very similar to that of Americaís at the beginning of the 20th century. Thatís why a Wal-Mart will let its workers there remain in unions even though it doesnít here at home. I know that flabbergasts some people: ìBut Chinaís communist for crying out loud!î No, it isnít. Itís very capitalist while still have a significant state sector. In the capitalist portions of its economy, it very much resembles the rough-and-tumble labor world of the U.S. at the beginning of the 20th century, and thatís why it still makes sense for unions to exist. I mean, donít you want those unions to force Wal-Mart (and every other manufacturer there) to pay their labor better there so the goods they produce/sell cost more and thus reduce Chinaís ìpriceî over time? Of course you do.

Chinaís ìpriceî will grow less competitive the more it integrates with the global economy. It happens to everyone. So, in reality, Chinaís rise is less a threat the more it unfolds, so long as we donít fix to make them our enemy for lack of imagination. China will dominate Asia, and that domination will lead to the rise of an EU-like entity there in which China will be the obvious center of gravity. We want that to happen, because it secures China in the Core and makes Asia a peaceful, prosperous place.

But for that to happen, there will have to be a NATO-like entity there to mitigate and ultimately eradicate lingering security issues, and getting that process to unfold and to include a U.S. as a founding member is another key task of U.S. foreign policy over the next two decades.

But as you know, alliances rise either out of shared fears or a common victory. There doesnít seem to be enough shared fear right now, so where do you think we might achieve a common security victory in Asia right now?

Hmmmm.