Who is Getting Shanghaied in Trade?

The Christian Economist | Dave Arnott

Trade with China makes Americans richer, but China is likely using the profits from their exports to build a military that the US will fight someday. In the 19th century, if a sailor got too drunk in a port city, he might wake up the next day on a ship steaming toward Shanghai. The noun became a verb, and he had been “Shanghaied,” but in the current US-China trade relationship, who is getting Shanghaied? Trade with China makes us richer, but they might be using those profits to build a military that we will fight someday. I’ve often said, you won’t find a one-armed economist because we will always say, “On the other hand.” Trade with China reflects this conflict. Trade makes us richer, but it also makes China richer. What do we do? I think it would be difficult to find a scripture that encouraged market discrimination against a people group, just because they are from another country. That’s where Christianity and Economics support each other. They BOTH call for open markets and trade, among all people groups and all countries. Trade is Good Of course, trade is good. The entire Adam Smith economic legacy might be neatly tied up in a two-step process: First, increase production via specialization, then trade your surplus. Trade is Good is one of the Ten Commandments of Economics that I found with my co-author Sergiy Saydometov, when we wrote the book titled Biblical Economic Policy. If we didn’t trade, we would be very poor. I’m pretty good at giving economics lectures and writing, I’m an average farmer, a lousy tailor, and even a worse auto mechanic. I couldn’t make a car if my life depended on it. Instead, I specialize in writing and speaking, and I trade for food, clothes, and cars. That little economic system works at the national level too. This is still Adam Smith territory: he noticed that the French were better at making wine, but the Scots were better at making Whiskey. That’s why some wines, like Champagne and Bordeaux, are named for the region where they are made. I’ll presume you know why they call it “Scotch Whiskey.” In the first nine months of this year, China exported to us $210 billion more in goods than we exported to them. That’s the FRONT part of the equation that they explain to you on CNN and Fox News. The back part of the equation is a little more complex, so you only find that in the Wall Street Journal and The Economist. That’s where you find this Chinese businessman holding a million US dollars and trying to exchange it for something. He ends up buying a shopping mall in Cincinnati, or a wheat farm in Kansas because that’s where the US dollar is honored. That back side of the equation is where you hear people complain “The Chinese will own the US someday.” That’s chicken little economics. I heard the same thing about the Japanese in the 1990’s. If the Chinese buy $210 billion worth of real estate in the US every year, there really is not even an ESTIMATE of how long it would take them to own a meaningful percentage of US assets. Recently, there have been reports that they are buying land near military installations. That’s concerning. Trading Avoids War There’s something called the Golden Arches theory of Conflict Prevention that goes something like this “No two countries that both have a McDonald's have ever fought a war against each other.” It was first proposed by Thomas Friedman in a New York Times column, then became part of his book titled The Lexus and the Olive Tree, which I read years ago. Maybe it was disproven by the UK’s struggle with Argentina over the Falklands, and the current Russian war on Ukraine, but the concept is still valid. Trading avoids war. Part of the reason that Imperial Japan attacked the US was because the US stopped trading oil and steel with them. OK, the US had good reason. They were responding to Japan’s atrocious treatment of the Chinese, just across the Japanese border. That’s interesting to think about: My podcast today,