Americans can live frugal and beat China — or live high under China's boot

Americans can live frugal and beat China — or live high under China's boot
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The day has come, the day we’ve feared and prepared for since 1949. A Chinese invasion force masses on the Taiwan Straight. The only thing standing between it and ‘rogue province’ is the U.S. 7th Fleet. But that fleet suddenly backs off, and it isn’t a military threat that turns them. No subs or planes or even carrier killing missiles defeats the most powerful military in the world. It’s a single phone call from Beijing to Washington. The conversation is short. The warning is clear. “Back off Taiwan or we crash your economy.”

That’s how the People’s Republic of China (PRC) can defeat us without firing a shot.

Chinese financial blackmail might be an old worry, but recently it’s entered an entirely new phase. As the Pentagon pivots from small counterinsurgencies to large state-on-state rivalries, White House Spokesperson Sarah Huckabee Sanders declared that this new policy will give us “the strongest military we’ve ever had.”

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But that “strongest military” comes with an extra $80 billion price tag. And with a new trillion-dollar tax cut, the big question is: who’s going to pay for that? The very country we’re trying to protect ourselves from?

 

Next to Japan, China is our #1 creditor, holding $1.5 trillion in debt. If China were to suddenly sell off those securities in a single, dramatic dump, it would dilute the dollar, smash our bond market and possibly trigger another Great Recession.

Many have argued against this possibility. Some claim that all those free-falling bonds would be purchased by third parties. The question is, with what? If the dump does trigger a recession, previous bargain hunters (both state and private) will have to worry about their own financial stability.    

Other detractors have argued that, in a pinch, the American people can be called upon to patriotically purchase bonds. But again, with what? Even today, in these supposedly booming times, American savings are at such an all-time low that fully one-third of our population is living paycheck to paycheck.

Last, but not least, the final argument against a trade war is the philosophy that continues to prevent a nuclear war: mutually assured destruction. Crippling us, their main market, would cripple China just as badly. We need each other, and to threaten that co-dependence would be, literally, mad.

Unless we remember that China has always had very unique survival policy: out-suffering the enemy. That’s why, during the dark days of the Cold War, Mao’s defense strategy was to absorb more punishment than either the U.S. or U.S.S.R. In his own words: “I’m not afraid of nuclear war. There are 2.7 billion people in the world; it doesn’t matter if some are killed. China has a population of 600 million; even if half of them are killed, there are still 300 million people left.”.

This same philosophy, the ability to out-suffer an enemy is the backbone behind China’s Orwellian “surveillance state.” They may not want a recession, but they are ready for it.

Unlike us, they don’t have to worry about bad press, or winning elections. And they certainly don’t have to worry about protests in the street. That’s why their internal security budget now stands at over $100 million, and it’s probably not a coincidence that the People’s Armed Police, 1.5 million strong, just came under direct control of the military. We’ve seen what happens when Chinese citizens dare to challenge their government. Just ask the ghosts of Tiananmen Square.

This doesn’t mean that our republic is at a disadvantage to their police state. Our victories in the Cold and World Wars proved that. But do the leaders of this republic have the courage to call for the kind of service and sacrifice our grandparents showed? Since 911, all they’ve asked us to do was pray, hug our kids, and “participate in the economy”. Would any of them dare risk that economy today?

Hocking our financial foundation is nothing new. We’ve been living above our means since I was a kid in the 1980s. But now, with American power challenged on multiple fronts, we’ve managed to paint ourselves into a dangerous corner.

We can have a massive military or massive tax cuts, but we can’t afford both anymore. Sooner or later, we’re going to find ourselves standing across a flashpoint with the PRC. It might be Taiwan, it might be the South China Sea, or it might be any number of Middle Eastern or African Countries that Beijing is gobbling up. But when that flashpoint happens, we may find our greatest bargaining chip, our vaunted military, utterly paralyzed by our own shortsighted greed.

Max Brooks (@MaxBrooksAuthor) is a nonresident fellow at The Modern War Institute at West Point and a senior nonresident fellow at The Atlantic Council. He is also the author of the New York Times Bestseller “World War Z.”