China's Muscle Flexing

My reaction on reading Paul Krugman's article on China exploiting its globally-dominant position in rare-earth metals was an interesting one: laughter. While I have no especial reason to side with China in this or other trade disputes, I can only smile as they use tactics that other countries have used themselves for decades or even centuries, and in particular the US, which is unsurprisingly where Krugman is located.

The thing is, countries which have a strong military or economic position tend to exploit it to their own advantage. Trade is merely one aspect of that power relationship. The US used its power to do everything from opening up Japan to international trade in the 19-th century to creating the so-called banana republics in Central America to gain favorable access to tropical produce to imposing advantageous (to them) rules on exports of softwood lumber from Canada. This is simple power politics. Yet we are still able to maintain a positive overall impression of the US.

When a new power comes on the scene it is expected that the old powers will squirm at least a little bit. It is good for China, and us, that its per-capita wealth is growing and that the country is now in a position to trade with other countries on a more equal basis. Trade goes both ways, so while we import products from them, we also have a new, large export market. For Canada the situation is not too far different from the one with the US since in both cases the trade partner is big, aggressive and wealthy. Whether it is US petroleum money in Alberta's oil patch or China mulling over Saskatchewan's potash industry, the concerns for us are pretty equivalent.

In regards to the recent dust-up between Japan and China over sea rights, Krugman extends the threat to that which China could exercise over rare-earth metals:

On one side, the affair highlights the fecklessness of U.S. policy makers, who did nothing while an unreliable regime acquired a stranglehold on key materials. On the other side, the incident shows a Chinese government that is dangerously trigger-happy, willing to wage economic warfare on the slightest provocation.

I would suggest that China is no more trigger happy in these sort of dispute that the US has been in the past century; it is simply that China has some newly-acquired muscle and they are not afraid to use it. They are certainly being aggressive, but they are not going to war with anyone. In diplomatic circles this is called "sending a message". I say that it worked: China has succeeded in waking up some sleepyheads around the world, and in Washington in particular.

This sort of muscle flexing by China will continue, and it will be felt in all areas of trade and international business. This ranges from their wide-ranging mining and resource activities throughout Africa -- too often ignored by others -- to what I believe will be an assault on the the high-value end of the economic spectrum as evidenced by their growing pursuit of patents.

The bottom line is that China is a major world power that is increasingly in a position to flex its muscle. Like other powers that came before, they will naturally find that balance point between passiveness and aggressive expansionism since its optimizes their net benefit. That is, they refuse to be exploited as they have so often been in the past, nor will they overuse their military prowess to become an international pariah.

Their muscle-flexing causes perhaps more qualms than would another country since their government does not express the same fundamental themes of individual freedom and democracy. We could ourselves do better at this, yet China clearly does worse. There is good reason to believe that they will do better in the future. I am hopeful that China will in time become a more gentle giant than they are currently exhibiting as their growing pains create frictions with those they rub up against.