Our So-Called Foreign Policy: Why Establishment Thinking About Containing China Remains Far from Serious

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allies, American Enterprise Institute, Asia, burden sharing, China, Daniel Blumenthal, defense budget, East Asia, entitlements, foreign policy establishment, free-riding, Japan, Our So-Called Foreign Policy, RealClearPolitics.com, South Korea, taxes, tech transfer, Trade

Congratulations to the American Enterprise Institute’s Daniel Blumenthal for coming up with some genuinely new insights into the U.S.-China balance of power and especially its relationship with the evolving economies of the two countries. Unfortunately, Blumenthal’s new essay for RealClearPolitics.com also shows that gaping blind spots remain in establishment thinking about the China challenge its members claim to be analyzing seriously.

For the purposes of this post, let’s grant Blumenthal’s mainstream assumption that it matters greatly to the United States which great power dominates East Asia politically. I disagree, but the point here is that if America does want to fend off a China challenge, greater policy changes will be needed than Blumenthal and other conventional wisdom-mongers seem ready to contemplate.

The author’s main theme is that the United States has no legitimate reason to doubt its economic capacity to prevent China from becoming Asia’s kingpin, and his new wrinkle involves measuring economic power by looking more at national wealth, and less at national economic growth. Since the U.S. wealth levels are both much greater than China’s, and since the gap has just resumed growing according to statistics he cites, America can easily afford the military forces needed to put China back in its place. And he blames China’s recent and impressive catch-up on this score on Americans’ recent (Blumenthal doesn’t specify the time frame) political decision to skimp on military spending while continue to devote exorbitant sums to entitlement spending – which has indeed long dominated the budget outlays (along with, as he’s noted, interest payments on the resulting ballooning national debt).

According to Blumenthal, Americans and their leaders as a result have chosen to elevate “the intergenerational transfer of wealth” over national security. Strictly speaking, he’s right. But other interpretations of national priorities seem just as legitimate.

For example, as the author briefly notes, the U.S. population is aging. So a major national retirement funding challenge will face even the most defense-minded politicians. That doesn’t let American leaders or the recipients of these entitlements off the hook in terms of making sacrifices needed to safeguard national security. But it’s bound to raise the question of whether the burden of sacrifice should be limited to middle class Americans. The great increase in national wealth mentioned by Blumenthal makes clear that the nation has many other resources on which it can draw to fund a bigger military – especially since the private economy’s wealth has led the surge. In other words, why not tax the rich or corporations more heavily to pay for new personnel and weapons?

One obvious rejoinder is that modest levels of taxes on wealthy Americans and on American companies are needed to ensure the economic growth needed to keep national wealth levels robust. But even accepting the doctrinaire trickle-down economics underlying this assumption, should upper-level individual incomes and business profits be completely exempted from any responsibility to pay for the military? If so, why? And wouldn’t that policy greatly loosen the relationship between national wealth and military capability emphasized by Blumenthal?

The author also neglects another big pool of resources that can be brought to bear on countering China: the wealth of America’s regional allies. Stunningly, after decades of American pleading for greater burden-sharing, countries with a far greater stake than the United States in resisting Chinese regional domination continue free-riding on U.S. defense guarantees. Why should American entitlements recipients see any reduction in benefits before Japanese and South Koreans pay at least as much for their own security (relatively speaking) as the much more geographically distant United States does? And their contributions could be immense. Japan alone, for example, is the world’s third largest national economy (behind the United States and China, respectively). 

Finally, as with nearly all the rest of the establishment, Blumenthal completely neglects the opposite side of the U.S.-China defense resources equation: The decisive extent to which American economic policy continues enriching China, and therefore continuing to enable it to afford lots of both “guns and butter” (as economists and political scientists have dubbed military and social spending). Thanks in part to literally trillions of dollars of earnings from the trade surpluses it’s long run with the United States, the Chinese pie keeps expanding strongly (that’s the economic growth whose importance Blumenthal softpedals). As a result, more new resources are generated for whatever priorities or combination of priorities the Chinese government chooses.

Even worse, as I’ve long noted, recklessly lax tech transfer policies on America’s part have for decades given the Chinese much of the knowhow needed to turn out increasingly advanced weapons and other military systems. Some signs of official concerns about this outflow have appeared in Washington lately, but U.S. leaders (and the rest of the establishment) remain woefully behind the curve.

When America’s East Asia security strategy stops bolstering the Chinese threat it depicts as such a huge concern, when it insists that local countries act like they have at least as great a stake in remaining independent of China as does the United States, when the wealthiest Americans are required to devote more of their recent immense windfalls to the common defense, and if all of those changes still leave China closing fast on the combined forces of the United States and its neighbors, it would become legitimate to ask Main Street Americans to start shouldering greater burdens. Until then, the U.S. working and middle classes will be entirely justified in demanding that the nation’s Asia strategy pass a minimal seriousness test first.

Following Up: Link to Today’s CNBC Interview

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American Enterprise Institute, Bill Griffith, CNBC, Following Up, G20, James Pethokoukis, Kelly Evans, Trade, Trump

I’m pleased to present the link to the video of my appearance today on CNBC discussing the Trump administration’s precedent-breaking performance at this past weekend’s big global economic summit.  Click here to see a great discussion of this possible landmark event, and its possible implications, among anchors Kelly Evans, Bill Griffith, James Pethokoukis of the American Enterprise Institute, and yours truly.

And keep checking back with RealityChek for notices of upcoming media appearances and other news.

Im-Politic: Mainstream Conservatives’ Sovereignty Concerns are Way too Selective

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American Enterprise Institute, Buy American, Constitution, COOL, Financial Stability Board, food safety, free trade agreements, G-20, Im-Politic, NAFTA, regulation, sovereignty, The Wall Street Journal, TPP, Trade, Trans-Pacific Partnership, Wall Street, World Trade Organization

Ever since the NAFTA negotiations launched the current era of U.S. trade policy 20 years ago, critics on both the left and right-wing fringes (and I’m not using the word pejoratively) of American politics have complained that many new trade deals have threatened American sovereignty. Joining this chorus over the years have been voices from the far right that have detected the same danger from international organizations like the United Nations. These critics, who typically finger one-world-er American officials as co-conspirators, invariably are dismissed by mainstream journalists and pundits as a paranoid “black helicopter crowd.”

So imagine how strange it is to see a member of the U.S. government’s Securities and Exchange Commission (SEC) co-author an op-ed for The Wall Street Journal claiming that Washington has secretly outsourced some key financial regulatory authority to a little-known international body called the Financial Stability Board (FSB). According to SEC Commissioner Daniel Gallagher and former senior Treasury Department official Peter Wallison, the Obama administration :

“has consistently moved to implement the FSB’s decisions without telling Congress, or the public, that it regards the FSB’s decisions as binding. There’s a reason for this lack of candor. Congress has never endorsed the idea that FSB decisions are binding on U.S. agencies. The FSB’s authority, if any, flows from the G-20 [a grouping of the world’s 20 biggest economies]. Allowing its decisions to dictate U.S. policy means that an American president can create authority to issue domestic regulations simply by making an agreement with the G-20 or other foreign leaders.”

The purpose of this post isn’t to evaluate whether Gallagher and Wallison are right in contending that “This is a dangerous precedent. The FSB’s decisions cover the financial system. But there is nothing to stop similar agreements about the environment, telecommunications and other crucial matters if the precedent is allowed to stand. The result would unravel the separation of powers and the role of Congress in the U.S. constitutional system.”

Rather, the point is to ask where these two, and other establishment conservatives, have been for the last two decades – during which nearly any American laws and regulations having any effect on U.S. trade flows have been vulnerable to the decisions of the World Trade Organization (WTO). And to wonder whether they will finally take off their blinders?

The WTO technically cannot strike down U.S. policy decisions. But it can bring about their elimination, and prevent their enactment, by authorizing countries claiming to be victimized by these measures to respond with tariffs versus American goods and services aimed at their markets.

Nor is this a theoretical possibility. For example, the WTO right now is ruling on whether Washington can require food producers to tell U.S. consumers whence their products come.  And its rules helped President Obama and the offshoring lobby defeat proposals to broaden the Buy American requirements governing federal purchasing policies – which would have greatly increased U.S. production of real world goods and services, and employment in those sectors, at the depths of the Great Recession, when they were desperately needed. (In fact, they still are.) Stronger and wider Buy American rules would have limited multinationals’ ability to supply the U.S. government from their foreign factories and other facilities – at U.S. taxpayer expense.

Moreover, other U.S. trade agreements have generated the same dangers, thanks to dispute-resolution systems that give all signatories equal say and votes, even though the American market is invariably the largest single national market at stake.

In principle, Washington’s submission to these global organizations is constitutional, because American membership and participation were expressly approved by Congress. But how many legislators do you suppose actually read the full texts? And how many do you suppose believed then-U.S. Trade Representative Mickey Kantor, who championed the WTO’s creation with a classic piece of Clinton-style parsing: “[T]he WTO does not require the United States to change any law, regulation at the federal or state or local level as the result of any decision made under this use — dispute settlement process. That’s up to the Congress or other legislative bodies, whether or not they wish to take that act. We’ve not given up any sovereignty in that regard.”

Now of course, President Obama is asking Congress to approve another major trade agreement – the Trans-Pacific Partnership (TPP) – that because of its sweeping regulatory scope arguably contains more threats to America’s sovereignty than the WTO. Yet both the Wall Street Journal editorial page staff that published the Wallison-Gallagher piece, and the American Enterprise Institute that employs Wallison, strongly favor TPP ratification. Which makes it hard to avoid concluding that they think it’s more important for the Constitution protect Wall Street than to protect American workers and the rest of the nation’s productive economy.