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October 22, 2018 | China Builds Infrastructure, US Drops Bombs

Mike 'Mish' Shedlock

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Obama bombed 7 nations. Trump threatens Iran. Meanwhile, China builds infrastructure. Its foreign policy makes sense.

The American Conservative asks Is China Waiting Us Out?

The subtitle “While the U.S. bombs, Xi Jinping is building—one power play at a time” provides the answer, but let’s investigate the details.

The one constant in recent U.S. foreign policy—regardless of which party occupies the White House or controls Congress—is that it prioritizes military intervention, both covert and overt, to advance its interests overseas. While President Barack Obama vowed to move the U.S. away from its “perpetual wartime footing,” by the end of his presidency he had overseen the bombing of seven countries and had greatly expanded the drone war. In his last full year in office, the U.S. military dropped 26,171 bombs—an average of 71 bombs per day.

Candidate Trump railed against the invasion of Iraq during his campaign, at one point blaming George W. Bush directly and saying, “we should have never been in Iraq. We have destabilized the Middle East.” As president-elect, Trump continued to promise a very different foreign policy, one that would “stop racing to topple foreign regimes that we know nothing about, that we shouldn’t be involved with.”

China has not engaged in a foreign war since it invaded Vietnam in 1979, a war which lasted less than a month and in which the Chinese overreached and underperformed, suffering an estimated tens of thousands of casualties in 27 days. After heavy fighting against the battle-hardened Vietnamese, Chinese forces withdrew, cut their losses, and declared victory (as did the Vietnamese). Their leaders appeared to be acting on the advice of the 6th century BC philosopher and general Sun Tzu, who wrote in The Art of War, “there is no instance of a nation benefiting from prolonged warfare.

Since then, the Chinese have pursued a more cautious foreign policy and focused the lion’s share of their resources on internal development. As a result of this relentless effort, they have accomplished in 39 years what even the most daring and optimistic China expert would have thought impossible. The government has lifted 800 million of its citizens out of poverty and has set the country on a trajectory that, if maintained, will see its economy overtake the U.S. in terms of GDP by 2032. If purchasing power parity is taken into account, China has already surpassed America as the world’s largest economy.

By contrast, Washington’s chief investment in the last two decades has been the war on terror, which has greatly contributed to its ballooning national debt. Since 9/11, the Watson Institute for International and Public Affairs at Brown University estimates that America’s wars have cost the country $4.6 trillion, not including an additional trillion for meeting military veterans’ medical and disability requirements through 2056. Nor does that total take into account the trillions of dollars in interest payments—much of which will be paid to Chinese creditors—that will be required to service the debt.

Meanwhile, domestic infrastructure is crumbling, sometimes literally, rating a D+ according to the American Society of Civil Engineers (ASCE), which estimates that the U.S. will need to invest $4.5 trillion in its failing infrastructure by 2027. President Trump, like his predecessor, promised big spending on infrastructure, which he called “third world” during his campaign. However, his 10-year, $1.5 trillion plan is riddled with flaws and has little support in Congress.

Biding Their Time

The American Conservative concludes: “The Chinese will bide their time, do what they can to avoid conflict, grapple with their internal problems, invest in their infrastructure and citizens, build external alliances, and wait for the U.S., through continued overreach, to weaken and—finally—exhaust itself.”

Wasted Time and Money

  • Chinese leadership thinks long term. The US doesn’t look beyond next year.
  • The US has blown at least $4.6 trillion in stupid wars.
  • The US invaded Afghanistan in 2001. We are still there. Why? What good has any of it done?
  • The US invasion of Iraq lead to the creation of ISIS. It further destabilized the entire Mideast.
  • Both Republicans and Democrats have expanded war efforts and military spending.
  • Trump looks to cancel nuclear treaties with Russia. Look for more military spending as a result.

The demise or decline of nearly every great economic power in history has been due to unwarranted military expansion.

We are on that path but the outcome is not set in stone. The US has many advantages.

US Advantages

  1. The US has the largest and most free capital markets in the world.
  2. The US has excellent research institutions and universities. The Chinese come to the US to study, not the other way around.
  3. The US has property rights. China does not have property rights or human rights.
  4. Unlike the EU, it does not take 27 nations to agree to do something to get it done. Unlike the EU, the US does not routinely support breaking up great companies.
  5. Unlike China, no one tells US companies what to do. US companies figure out what the market wants and needs, then they deliver it.
  6. We have Google, Amazon, Microsoft, and Uber and numerous technology companies for reasons 1-5.
  7. China is backsliding on political freedoms. Pollution is enormous.
  8. The US is nearly energy independent. China isn’t.

China, despite all its progress is still a command economy, led by de facto dictators.

The military and spending path we are on is clearly not sustainable. Yet, it has always been a huge mistake to write off the US.

Mike “Mish” Shedlock

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October 22nd, 2018

Posted In: Mish Talk

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