Ahem -- Not All of Us Were Wrong About China (or About Wall Street, Either)

AP Photo/Andy Wong, Pool

A camera monitor shows Chinese President Xi Jinping speaking during a ceremony to commemorate the 90th anniversary of the founding of the People's Liberation Army at the Great Hall of the People in Beijing. 

In the late 1940s and early 1950s, one of the controversies roiling America was the “Who Lost China” question. After Mao’s Communists took power there in 1949, Republicans—and not only Joe McCarthy—continually alleged that this was all the fault of President Harry Truman and his feckless diplomats, and that some of those diplomats were actually pro-Communist. (In the case of Alger Hiss, this was actually true, but Hiss had no connection to any U.S. policy outcomes, in China or anyplace else). The triumph of Mao’s revolution, of course, was actually due to the fact that some millions of Chinese were willing to fight for the Communists, and far fewer were willing to fight for Chiang Kai-Shek (who had come to personify a rather bleak status quo). 

In various ways, the Who Lost China debate is back with us again, with any number of commentators now realizing that China’s rise in global power and influence and its model of authoritarian rule (a kind of capitalist Leninism) pose a genuine threat to democratic values and to the well being of millions of workers in Western economies, particularly workers in the manufacturing sector.

A representative such commentary is that of the Brooking Institution’s William Galston, who in his Wall Street Journal column this Wednesday laments how America slept while China was eating its lunch. A number of nations, including some now in Europe, he notes, are welcoming greater Chinese investment in and ownership of key infrastructure, while the U.S., under Donald Trump, seems somnolently uninterested in any comparable investment, or even involvement. The American model, with its various virtues and warts, is in retreat. “However you look at it,” Galston writes, “the past 20 years have been a geopolitical catastrophe for the U.S.”

For this decline, Galston blames the diversion of our attention to Afghanistan and Iraq in the post-9/11 period, while the far more serious threat to American power and democratic values was gathering in China. (To his credit, Galston was one of the relatively few centrist Democrats who opposed—powerfully and articulately—our going to war in Iraq.) But he also says that we made two additional unforced errors. “Leaders of both parties dramatically underestimated the impact on the U.S. economy of China’s accession to the World Trade Organization in 2001,” he writes. “Over the next decade, a surge of Chinese imports wiped out millions of manufacturing jobs.” The second mistake was the accompanying belief that as China entered the global economy, welcomed foreign investment and became more capitalistic, “it would become a less autocratic society that posed no systemic threat to liberal democracy.”

We all made that mistake? Who’s “we,” Bill?

Only some “leaders of both parties” supported granting China “Permanent Normal Trade Relations” status in 2001, which paved the way for its entry into the WTO. The measure barely passed in the House, with the overwhelming majority of Democrats voting No. The labor movement foresaw the evisceration of American manufacturing quite clearly, and formed the core of liberal opposition to PNTR. For this, labor and liberals were condemned in the mainstream media for their backward-looking “protectionism.” 

As well, even as the PNTR debate raged, a number of China scholars and other liberals predicted that China’s new capitalist turn didn’t augur the nation’s transformation to liberal democracy. In 2001, Jim Mann authored a piece for the Prospect—the first of several he was to write for us over the years—explaining why a more capitalist China wasn’t likely to become a more democratic China. 

So who was it that argued we should welcome China into the WTO and happily invest there, since such investment clearly portended China’s ultimate democratization? Well, virtually all of American big business, most especially Wall Street and major U.S. manufacturers, who fairly slobbered over the prospect of millions of micro-wage Chinese workers making the goods that not-so-micro-wage American workers had been making. Whole sub-sectors of U.S. manufacturing decamped to China as soon as PNTR passed, which is one reason why the transit districts of American cities now have to rely on foreign companies, many of them Chinese, when they want to buy new electric or hybrid buses or rail cars. Our globetrotting companies often brought advanced technology to the Chinese while ceasing production of products relying on that technology here in the States. 

In those regions of the Democratic Party where Wall Street and corporate America had the most clout—the executive branch and the Senate—PNTR was promoted assiduously. President Bill Clinton and the Rubinistas who shaped his economic policies promoted the measure, as, of course, did his Republican successor, George W. Bush. 

And big business had its echo chamber in this debate all across mainstream media. The New York Times’s Tom Friedman, with his repeated assertions that any nation with McDonald’s or Starbucks franchises was on a fast track to democracy, was only the most egregious example. 

So—if I may—who lost China? Or rather, who provided the decisive boost to China’s rise to global power and the concomitant rise of the authoritarian model of governance and the hollowing of much of the American economy? 

It wasn’t all of us. It was American big business in search of cheap labor and a new market, and its blind ideologists who insisted that where capitalism arrived, democracy followed. As Galston points out, a more damaging mistake is hard to imagine, but as Galston doesn’t point out, not everyone—far from it—made this mistake. 

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