Monday, November 16, 2009

China Will Surprise Obama

By Alan Caruba

President Obama loves to travel. He cannot wait to descend the steps from Airforce One to the sounds of welcoming bands, honor guards, and awaiting dignitaries. On his whirlwind November 13-19 trip to Asia, however, he is likely to be sternly lectured behind closed doors from Tokyo to Beijing and Seoul. It will come as a surprise to him.

That’s because he will be around grownups who don’t much like the way the United States’ economy is being overseen and directed these days. All that splash and dash that keeps Americans thinking that everything will get better doesn’t work in Asia. Worse yet, Obama will arrive with very little to offer.

Already we have seen him in his usual holier-than-thou mode lecture the Chinese on their need to extend more freedom and be more tolerant; themes that must sound naïve to his hosts who must meet the challenge of providing a better life for more than a billion Chinese.

The most amazing aspect of the story of modern China is the way, following the demise of Chairman Mao, they threw communism overboard, except politically, in favor of capitalism.

In early 2009, observers wondered if the recession that hit the United States and rippled out around the world would also set back China. By October, however, they were marveling that its aggressive stimulus had led to a growth of its GDP by 9% by its third quarter. Meanwhile, other economies, including the U.S., saw their GDP fall.

The Chinese mix caution with risk well. As The Economist noted in October, “Until recently China’s recovery was driven largely by state spending, but thanks to a rebound in construction, private-sector investment rose by 30% in the year to August, double its growth rate in December.”

Unlike the U.S. stimulus that has barely had an impact on our economy, the Chinese stimulus was directed to new infrastructure, especially railways and roads, both of which are expected to improve future productivity, moving people and goods more swiftly around the huge expanse of that nation.

Noteworthy as well has been China’s forward thinking energy program, building coal-fired plants at a brisk pace to extend electricity and, with it the prosperity that comes from affordable energy. By contrast, Obama recently visited and lauded a $150 million Florida solar power array that will only produce electricity for an average of four hours daily.

Most of America’s “shovel ready” projects are still waiting for the first shovel while most of the stimulus money spent to date was a bailout of states to cover Medicare and other federal mandated costs.

My concern is that Obama is probably clueless regarding economic issues and realities. If it doesn’t involve unions, Obama isn’t much interested in the welfare of American industry. He has even less knowledge of agriculture.

When General Motors was bailed out before and after declaring bankruptcy, Obama made sure that it was the unions that were put in charge. Quietly, Chrysler recently announced it would not be manufacturing electric cars. The auto company that refused government assistance, Ford Motors, is thriving.

Someone has probably briefed Obama on the fact that China is both America’s key trading partner and rival. China has been paying a lot of attention to trade of late, signing what Business Week described as “a bewildering variety of free-trade pacts with neighbors.” It is even making nice with Taiwan while talks are underway to liberalize trade terms with South Korea and the Persian Gulf states.

While the U.S. trade deals cover lower tariffs they also tend to incorporate all manner of other objectives such as intellectual property rights, government procurement rules, and even labor and environmental codes. The Chinese focus on more narrow, achievable goals. As Business Week noted, “Most manufactured goods made in Southeast Asia will now enter China duty-free, but goods shipped from the U.S. will still face average duties of 9%.”

Many U.S. manufacturers will decide to set up shop in Southeast Asia in order to have better access to China. Increased exports to China cushioned Japan’s economy as its exports to the U.S. plunged.

So, what is the Obama administration doing to improve the situation at home? It has proposed a healthcare “reform” to take control of one-sixth of the nation’s economy. It has a “cap-and-trade” bill that will impose higher taxes on all energy use. The proposed cap-and-trade bill will make it nearly impossible to sell one’s home without pouring thousands into it in order to meet environmental and energy conservation standards.

The first job for all Americans these days is to survive the Obama administration long enough to rescue the nation from further losses at home and abroad.


Buzzg said...

He's going to have to face the bosses of our Finance Company, and I believe you're right Alan.
They are not at all pleased to see the current value of the debt they purchased shrinking on a daily basis.
Love to be a fly on the wall.

patpeggymcdowell said...

Alan, Truth ,and logic as always.

Guy said...

Alan, I'm glad you mentioned the ridiculous rules in the Cap and Tax bill that will affect many homeowners' ability to sell their homes. I've heard very few people mention that part of the bill, but in my opinion, those provisions could easily be the most damaging to our economy.

We were fortunate enough to build a new home last year, and I am currently in the process making ready to sell our old house. I would have put it on the market a year ago, but the downturn in the housing market hit us hard here. The property values in our city weren't over-inflated like they were in some of the bigger US cities, but nevertheless, I would have had to sell my house for at least $50,000 less than expected if I wanted to sell it last year, so I bit the bullet, paid two mortgages for a while, and tried to wait it out. Over the summer, the housing market rebounded slightly here, so I've decided to cut my losses and try to sell it now before something else happens to make things worse. The Cap and Tax bill is one of those things....

Can you imagine what will happen to the housing market in the US when these efficiency mandates require homeowners to spend ten, fifteen, or even twenty thousand dollars just to get a house ready for market? What about people who are in, or near foreclosure? Where the hell are they supposed to get that kind of money? And, what will happen if they can't come up with it? Banks, who have no real desire to foreclose on a property in the first place, will be saddled with thousands of un-marketable properties.

Meanwhile, anyone who isn't in financial trouble but is considering selling a property will list it quickly in anticipation of the new law. The market will be flooded with properties, prices will drop, and chaos will ensue. So, again, we have a government that seems hell-bent on doing exactly the opposite of what this country needs to recover. Is it any wonder that people are questioning just exactly whose side Obama is on? I know one thing ... he's certainly not on ours ....