China Trade Surplus
Jude Wanniski
December 23, 1996


Memo To: Mark Shields
From: Jude Wanniski
Re: China trade surplus

Caught you on CNBC recently [December 9] and thought you were brilliant on almost all subjects, especially concern about how abstract it has become for our Big Guys in the Government without military experience to send Little Guys into harmís way. You are all wet on Chinaís trade surplus with the U.S. Wet, wet, wet! You have a perfect right to complain that we should not buy anything from China unless they adopt our Bill of Rights. I might disagree, but you would not be all wet. On trade, everything that China sells to us is paid for in dollars, with which they must use to buy something that is only for sale in dollars. Know what I mean? China can only buy goods and services with the dollars received, or they can buy paper assets denominated in dollars. In some instances, they can swap the dollars they receive with Japanese or Indonesians, in order to buy Japanese or Indonesian goods and services. But then the Japanese and Indonesians have to buy U.S. goods and services or paper assets in dollars. In the course of any discrete time segment, the dollars will be spent in the United States.

China is actually using much of the cash it takes in by acquiring U.S. Treasury bills and bonds, which it is stockpiling as monetary reserves as a means of making their currency convertible. They have now acquired a sufficient hoard, and have announced a stepped-up timetable of convertibility. This will be an enormous step on the road to freedom for the Chinese people. Currency is a form of communication, as our own Supreme Court has ruled in regard to campaign contributions. A convertible currency enables ordinary citizens to acquire paper assets that can be used to cushion a move to another country.

Your concern about human rights in China is also overheated, I think. I donít get around to see all the 1.2 billion people, but I do follow the reports on all alleged abuses as they surface, and donít find much that causes me concern. Iíve been back several times since my first visit in 1983 and have been satisfied that they have been making steady progress on all fronts involving human rights. Even Tiananmen Square can be traced to an economic contraction that was originally induced by some poisonous advice the innocent Chinese took from the evil economists at the IMF. If it makes you happy to huff and puff, itís okay by me, but thereís a lot of worse stuff going on in other spots around the world. Try Africa.