Betting on China | Thu Feb 17, 7:33 AM ET | Op/Ed - USATODAY.com
By Ted C. Fishman
Bill Gates (news - web sites) is betting on America's decline and putting his money on China's rise. Or so the Microsoft founder seemed to say last month at the World Economic Forum (news - web sites) held in Davos, Switzerland. "I'm short the dollar," he said. "The ol' dollar is going down."
At the same meeting, Gates linked his pessimism about the United States to optimism about China. He commended China as the great "change agent" in the world over the next 20 years and praised its "brand-new form of capitalism."
Gates isn't the only titan talking down the dollar and linking it to America's decline. Warren Buffett (news - web sites), Gates' friend and the world's second-richest man, has been bad-mouthing America's financial house and currency for two years. A panic in the greenback could conceivably net both men more than the cumulative lifetime earnings of thousands of their U.S. workers.
If the dollar drops like a rock, the greenback could well lose its prized place as the world's reserve currency. The dollar's special status gives it extra value around the world. Billionaires who talk the dollar down may ultimately cause harm to U.S. workers that far outweighs the growing trend to ship jobs abroad or outsource production to foreign companies. They risk America's global political clout.
Clout of currency
Without the reserve currency, the United States could fall into the debt trap long suffered, for instance, by Latin America. One immediate effect: Foreign investors would pull out of their American investments.
China held $191 billion in U.S. debt in 2004, but may not have been as willing to play banker to America were the dollar not the reserve currency. "Americans may discover abruptly that interest rates climb and the value of the assets ... declines," says Jeffrey Frankel, an economist at Harvard's Kennedy School. "When other countries have gone through similar crises, people panicked. Whether such a crisis might lead the U.S. to also lose much of its political power, it is hard to say. It is certainly possible."
On the bright side, Gates and Buffett may be doing Americans a big favor by waking us up to a fact so cold it may soon freeze our standard of living. That fact is that the Chinese economy has been on a 20-year growth spurt unprecedented in history.
China's promise looks so magnificent to big U.S. corporations and the super-rich that U.S. national interest and the long-term health of our economy count little. Indeed, they are contributing to huge outflows of U.S. money. This year, the U.S. trade deficit with China may top $170 billion, up more than 27-fold over the past 16 years.
A study released last month by the U.S. China Economic and Security Review Commission links the loss of 1.5 million U.S. jobs directly to our growing trade deficit with China. Far from taking only low-wage jobs, China is emerging in such fields as semiconductors. As China moves up the economic food chain, our deficits will grow and put strain on the dollar.
The Chinese, of course, do not create our deficits. The U.S. government and consumers overspend and overborrow. To get a piece of the Chinese market, U.S. companies spend billions to help build a Chinese economy that can churn out goods at prices U.S. manufacturers cannot match. Too often, they also help Chinese competitors who usurp U.S. jobs and technology. The Chinese government, in fact, has engineered a system in which companies can acquire high technology at exceedingly low cost. Often, without fear of consequence, they simply steal it.
Piracy common
Gates should know. More than 90% of his company's products that are used in China are pirated. And yet, Microsoft invests heavily in its Chinese business, and, like so many U.S. companies, is helping China build the cheap juggernaut economy that now poses the greatest challenges to us. Though Gates may be playing the world currency markets based on the vulnerability of the United States, it may be our very vulnerability that turns into our greatest strength.
China is far more dependent on U.S. consumers to buy its vast industrial output than on any others. Exports to Wal-Mart stores alone account for about 1% of the Chinese economy. Our unique position gives us the power to act to preserve our economic strength.
Reining in our budget and trade deficits is a start. Using our position as No. 1 customer gives us leverage to press for rules that give our companies a shot at the Chinese market without having to transplant pieces of our economy to their playing field. At home, we have the power to rein in U.S. companies that willingly shift homegrown technology abroad. One possibility might be to tax the goods such companies ship back to the U.S. market.
Conceding China's rise does not have to mean conceding to China. If the United States does not act forcefully to protect its economy and to keep its currency from losing its reserve status, the damage may take generations to reverse. We have the might to take the necessary steps, but only if we act now. Already, our greatest businessmen think we are doomed to fail.
Re: Come next year...
Originally Posted by Virgil K. Saari
Come November 3rd... *Figures such as 144,000 may be seasonally (political season) adjusted after sixty plus days. Not that the numbers would be as the WMDs in Iraq, non-existent--just "massaged". In the coming Ownership Society the State will own the Statistics still.
