China's Bad News Is Ours, and Maybe Taiwan's

At RealClear Markets, John Tamny ably discusses the prospect of what an economic downturn in China -- specifically due to a return to communist policies -- could mean, and rightly offers the following warning:

Image by CRCHF, via Wikimedia Commons, license.

[W]hile some may contemplate a wrecked, economically retreating China with glee, the view here is that they're not thinking very expansively. And they're not thinking much at all about what a Maoist scenario for China would mean for the United States. The economics of such a lurch would be very harmful for the U.S. economy. In other words, a declining China would very much pull down the U.S.

To see why, consider the aforementioned ubiquity of American restaurant brands in China's cities. As the economy has grown in China thanks to rising freedom, the prosperity of its people has surged. And they in many ways went on an all-things-American buying spree. There are 3,700 McDonald's restaurants in China, over 4,000 Starbucks locations, hundreds of Carl's Jr.'s. Assuming a lurch back toward socialism or communism, American companies with large footprints in China will suffer in a big way. And that's only part of the story.

This is true, and I agree with most of what Tamny says about this looming problem, with one major exception.

While Tamny holds that such a change "would also take a strike on Taiwan off of the table," I am not so sure.

Certainly it would, long-term, but China has a large military now, and a great deal of manufacturing capacity that hasn't been hobbled yet, and might last long enough to cause a problem.

I've heard countries like this likened to batteries, in contrast to capitalist generators, and I think the comparison is a good one. And if the CCP is so clueless as to make good on its threat, I don't see it taking a lesson when that causes economic problems.

In fact, the situation reminds me of something Ayn Rand once said regarding the relationship between freedom and war:

Statism -- in fact and in principle -- is nothing more than gang rule. A dictatorship is a gang devoted to looting the effort of the productive citizens of its own country. When a statist ruler exhausts his own country's economy, he attacks his neighbors. It is his only means of postponing internal collapse and prolonging his rule. A country that violates the rights of its own citizens, will not respect the rights of its neighbors. Those who do not recognize individual rights, will not recognize the rights of nations: a nation is only a number of individuals.

Statism needs war; a free country does not. Statism survives by looting; a free country survives by production.

Observe that the major wars of history were started by the more controlled economies of the time against the freer ones. For instance, World War I was started by monarchist Germany and Czarist Russia, who dragged in their freer allies. World War II was started by the alliance of Nazi Germany with Soviet Russia and their joint attack on Poland. [bold added]

To make matters worse, the troubles with Evergrande, which I have seen compared to a Ponzi scheme, could both jump-start the process and provide ideological cover for (and economic blinders to) the CCP: Capitalism will get blamed for whatever occurs because of that, regardless of whatever state interventions made it possible in the first place, and whatever China might attempt to soften the blow if it follows a "too big to fail" policy of mitigation.

-- CAV