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Stick to the Middle East Tom

After recently writing a review for The Washington Post of Tom Friedman’s new book That Used to be Us, I thought I had was done for a while criticizing the flaws in Friedman’s economic analysis. But after reading his op-ed this morning I find I can’t help myself. Now he’s claiming that we shouldn’t get tough with China because it would trigger a trade war. More on that in a minute.

What’s immediately striking about the op-ed, if you’ve read That Used to be Us, is the logical contradiction. In the book he states “Our problem is not China,” and “Asia’s surging economic growth has made Americans better off.” But now in the op-ed, China is a problem since “China’s strategy of using low wages and a cheap currency to build up an enormous export-led growth engine — while using its huge market to lure and compel companies to transfer their next-generation technology to China as well — is now hurting both sides.” Which is it? Are they hurting us or not? Clearly they are.

He then goes on to make a common mistake about China and their currency manipulation, arguing that it doesn’t matter because we will never get these “labor intensive, assembly jobs back from China.” But this misses the point. There are lots of jobs we can get back from China if they stopped manipulating their currency. Let’s start with jobs from all the solar companies in America that have closed or downsized this year from Chinese competition fueled by currency manipulation. Moreover, we can significantly expand exports to China of U.S. tech products.   

And then he essentially tells us that the loss of one third of U.S. manufacturing jobs in the last decade (a rate of loss no other nation appears to have acheived) is okay, because after all, Hong Kong is now a services economy. Oh, now I understand. Hong Kong became a services economy because when it was a country it had to manufacture. Now that it’s just a city in China it can specialize in services jobs to support Chinese manufacturing jobs. We, as the largest economy in the world cannot be sustained by only services jobs. But Tom’s strategy is to invite more Chinese to come here and visit Disneyland as tourists. Good strategy if you want to replace millions of good paying middle wage manufacturing and tech jobs with millions of low-wage hospitality industry jobs.

He never has a shortage of ideas (although they aren’t always good ones). In this case he suggests that the U.S. “invites Chinese firms to invest in toll bridges and toll roads” in the U.S. “It may be the only way we can rebuild our infrastructure.” But this demonstrates a fundamental lack of understanding of our infrastructure challenge.  As former chair of the Congressionally-created National Surface Transportation Infrastructure Financing Commission, I looked at this question in great depth with the help of my fellow Commissioners. And the problem is not, as Freidman claims, a lack of capital. There are many big U.S. investment banks that manage huge infrastructure funds looking to make investments here. The problem is that our local, state, and federal elected officials don’t want to create toll projects that could be built with this money because they fear the public won’t like toll roads. The last thing we need is Chinese money to rebuild our infrastructure.

Finally, getting back to his admonition that we don’t want to create a trade war, which he claims will happen if the House passes the Senate version of the China currency bill. He warns, “Lord in heaven, do not let the House pass this bill. It would trigger a trade war in the middle of our Great Recession.” Tom, why do you think we have a Great Recession? Much of it has to do with the fact that systemic Chinese mercantilism hollowed out our manufacturing and tech base, leading to the loss of millions of American jobs. Stating that when a country systematically attacks our economy, that if we fight back it would cause a trade war misses the point. We are already at war, only we are not defending ourselves from their attack. Imagine if the Chinese were randomly sinking our Navy ships and downing our Air Force planes. Would we sit back and say “oh, we better not respond, that would create a shooting war.”  Never in a million years would we let another nation attack our military with taking appropriate, measured responses. That’s what the China currency bill does in respond to Chinese economic aggression. And it’s what America needs to do to effectively respond to Chinese mercantilism: start defending ourselves.

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