Is America Surrendering to China's Trade War?

With no shock and awe and little pomp and circumstance, China has declared war on the world. Having watched the Gulf Wars on CNN, Americans are accustomed to wars fought with jets, battleships, tanks and infantry. We constantly are on the look out for foreign enemies on our soil and the vigilance of our citizens has thwarted numerous terrorist attacks. Unfortunately, Americans are not accustomed to recognize international weapons of economic mass destruction. In the modern world, exports, deflation and economic competiveness are weapons far more powerful than cruise missiles.

Naive to this new deadly threat, the US government has launched wave after wave of assaults on the competiveness of American business. Healthcare and financial service “reform” is driving business operating costs higher and credit availability down. The soon-to-expire tax cuts will result in the largest tax increase in American history. It should not be surprising that China would use tactics akin to economic guerrilla warfare to attack when our nation is most vulnerable.

China’s supply of young workers entering the labor force is peaking this year and will decline by one third over the next dozen years due to decades of population control. But big increases in rural farm productivity are pushing huge numbers of the young off the farms and into the factories on the coast. With factory worker suicides rampant and labor striking over wage rates too low to buy food, China panicked last year and increased its money supply by a spectacular 40% to quell dissent. Given the threat from a sinking economy creating a revolutionary environment at home, communist China chose to invade world markets by exporting almost 40% of its gross domestic product.

Statistics just released have obliterated any hope that a meaningful economic expansion is under way in Europe, Japan or the US. Business confidence, factory orders, auto sales and consumer product purchases are plummeting. Meanwhile, Chinese exports grew a blistering 22% rate for the second quarter of 2010. With their exports equaling 5% of the world’s gross domestic product (GDP), China’s capture of another 1% of the world’s economy will force producers in other countries to cut employment by approximately 10 million jobs.

The American public is waking up to the rising threat China poses and adopting a newfound appreciation for the dangers of debt. With the ratio of U.S. household debt to disposable income still standing at a historic high of 126%, consumers are cutting back on spending and becoming savers. Recent surveys show that demand for personal loans and residential mortgages is contracting.

During America’s heydays from 1950 to 1985, the household savings rate averaged approximately 9%. For the next 28 years, the rate steadily declined. By 2007, the rate actually went negative, as many homeowners became self-deluded that their homes were automatic teller machines. That downward trend is over. The U.S. personal savings rate has quickly climbed to 5%, about halfway back to its normal level of 9%.

Europe is responding to the Chinese export blitzkrieg by reigning in deficit spending and adopting more pro-business policies. European labor unions took to the streets in Greece, Spain, France, and Italy in outrage to protest austerity budgets, public pension cuts, and privatization of large swaths of government run services and industries. Their reward has been public opinion scorn and repudiation as terrorists. Desperate to save their own hides from voter retaliation, European politicians are even beginning to talk about tax cuts to spur domestic investment and corporate competitiveness.

The U.S. Government on the other hand has been clueless to the Chinese threat as Federal bailout spending just hit a total of $3.7 trillion dollars. Current deficit spending is running at $9.90 per working hour for every taxpayer in America, a rate 20% higher than the minimum wage of $7.75. With China’s exports growing at a record pace, and American retailers over-stocked here at home, U.S. producers will again slash costs and unemployment could soar.

U.S. Economic performance numbers for the 3^rd quarter are set for release just four days before the November 2nd mid-term elections. With this year’s economy treading water in the 2^nd quarter and now beginning to drown, tax and spend politicians are likely doomed to the equivalent of a court-martial by voters.

America was caught flat-footed in Pearl Harbor and 9-11. There should be no confusion this time around. China, with one fifth of the world’s population and a failed domestic economy, has launched a Trade War to export its problems. The U.S. public understands the dangers and is increasing saving to sustain for the battle ahead. Chinese intelligence operatives read the New York Times and watch CNN. What they see in the media is a country staggering under debt, undermining business competitiveness, mired in deflation and ready to surrender its economic independence to China’s export onslaught. Are we?