At a Turning Point with China?

by Ray Keating

The Keating Files – May 22, 2020

Economic freedom is critical to development, growth and prosperity. And it tends to play a key part in boosting political freedom as well. How far that last point goes, though, is being tested by communist China.

Nobel Laureate economist Milton Friedman made the link between economic and political freedom. He noted in his book Capitalism and Freedom: “Economic freedom plays a dual role in the promotion of a free society. On the one hand, freedom in economic arrangements is itself a component of freedom broadly understood, so economic freedom is an end in itself. In the second place, economic freedom is also an indispensable means toward the achievement of political freedom.”

The link between economic freedom and economic growth is not surprising, given that individuals are set free and incentivized to pursue their hopes and dreams, and to start up and invest in businesses. And they have access to ideas and resources. They are able to work and create to make better lives for others, for themselves and for their families. It follows, as history shows, that economic freedom ensures human rights, and improves quality of life across the board, including health care, education, literacy, the environment, and so on. 

As for economic freedom helping to bring about greater political freedoms, two nations serving as examples are Taiwan and South Korea. Economic freedom enhanced prosperity and boosted public pressure in the mid-1980s for expanded political freedom. In turn, political freedom further enhanced economic freedom and growth.

Taiwan and South Korea previously were authoritarian regimes, that is, political power was held by one person and/or party. However, China is a communist totalitarian regime – meaning that the person and/or party in charge controls all aspects of life, both public and private. 

Regarding the Chinese communists opening up parts of their economy in the 1990s, the hope, of course, was that economic freedom would expand, and that would be followed by an expanded desire and pressure for true political freedom. The question was: Would a totalitarian regime react like the authoritarians in South Korea and Taiwan did, or would the Chinese communists work to maintain a stranglehold on life?

For years, progress seemed to be occurring. But the latest, deeply troubling signals point in the opposite direction. Under President Xi Jinping, the Chinese communists exhibit no interest in increased political freedom. Instead, they appear bent on expanding and strengthening the Party’s control. 

That includes news in recent days about Beijing violating the agreement that was struck when the British relinquished control of Hong Kong. Under the “one country, two systems” arrangement, Beijing had pledged legal autonomy for Hong Kong, including basic freedoms, such as speech, assembly and press, for 50 years, that is, from 1997 to 2047. But communist China now seems focused on breaking its promise by imposing national security laws on Hong Kong, including setting up state-security bodies. This comes after pre-pandemic protests in Hong Kong regarding fears that citizens could be arrested and sent to China for trial. 

Make no mistake, this is meant to crush dissent and opposition to the Communist Party and the State, at behest of Xi. It’s a clear step toward ending “one country, two systems.”

But there’s more. The communist regime in China also has no use for Taiwan President Tsai Ing-wen, who was sworn in for a second term this past week. According to CNBC, she said, “Cross-strait relations have reached a historical turning point. Both sides have a duty to find a way to coexist over the long term and prevent the intensification of antagonism and differences... We will not accept the Beijing authorities’ use of ‘one country, two systems’ to downgrade Taiwan and undermine the cross-strait status quo. We stand fast by this principle.” She also said, “We have made the greatest effort to maintain peace and stability in the Taiwan Strait over the past four years ... We will continue these efforts, and we are willing to engage in dialogue with China.” Beijing, which cut off dialogue with Taiwan when Tsai was first elected, responded by declaring that “reunification” was a “historical inevitability.”

To amplify its point – or threat – as Reuters reported last week, “The Chinese military is planning to conduct a large-scale landing drill off Hainan Island in the South China Sea in August to simulate the possible seizure of the Taiwanese-held Pratas Island in the future, Chinese sources familiar with the matter have said.”

Finally, there is the fact that China’s Xi chose lying and secrecy over public warnings and early containment efforts regarding the coronavirus and its origins in Wuhan. That’s typical for communist leaders who care little for their own people, never mind those living in other countries, and only come sort of clean when overwhelmed and in need of help. (Of course, that doesn’t excuse inaction by the U.S. and others in the West, particularly given that Taiwan issued warnings and began screening people from Wuhan at the end of December.)

Meanwhile, China’s expansiveness faces no substantial check at this point. The U.S. unfortunately has retreated from the world stage in all serious ways under President Trump. For example, the obvious benefits of the Trans-Pacific Partnership (TPP) trade agreement between the U.S. and 11 Asia-Pacific countries (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam) not only would have included major economic positives for the U.S. and our trading partners by reducing governmental barriers to trade, but it also would have solidified relationships with those nations and made clear that the U.S. would be a major counter for freedom in the Pacific versus China’s desires. But that was wiped out by President Trump’s very first action in office, which was withdrawing the U.S. from the TPP. And then there’s his subsequent erratic behavior, lack of strategy, and general disinterest in foreign affairs and national security.

Looking ahead, serious problems and threats loom with China. On the economic front, U.S. firms have long had to weigh the uncertainties and risks of doing business with and in China versus the potential benefits of having access to the Chinese market on both the consumer and producer fronts. Those uncertainties and risks have now grown significantly. This requires a sober, informed analysis, as opposed to assorted investors appearing on financial news shows and merely assuming that “Chinese leaders have to understand that confrontation is not in their interests.” In reality, confrontation can very much be in their interests.

As for U.S. foreign policy, coherence and reasserting leadership are critical – not just for ourselves but for our allies around the Pacific Rim and beyond. That means expanding our naval power and reach. And on the economic front, the U.S. needs to reassert its leadership role for expanding free trade in the area (and around the rest of the world), and making clear that China needs to behave on assorted fronts in order to fully participate in the benefits of free trade. For good measure, reaching out directly to the Chinese people in a more organized fashion with a pro-freedom message makes sense.

We are at a turning point on policy toward China, and the carrot and the stick must be manifest.

But it will require serious work to undo the damage done by the past two U.S. presidents, that is, President Obama’s foreign policy and trade indifference for most of his administration, and President Trump’s isolationist and protectionist inclinations, not to mention his tendency to be hostile toward longtime allies and inconsistent on international matter in general.

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Ray Keating is a columnist, economist, podcaster and entrepreneur.  You can order his new book Behind Enemy Lines: Conservative Communiques from Left-Wing New York  from Amazon or signed books at RayKeatingOnline.com. His other recent nonfiction book is Free Trade Rocks! 10 Points on International Trade Everyone Should Know. Keating also is a novelist. His latest novels are  The Traitor: A Pastor Stephen Grant Novel, which is the 12^th book in the series, and the second edition of Root of All Evil? A Pastor Stephen Grant Novel with a new Author Introduction. The views expressed here are his own – after all, no one else should be held responsible for this stuff, right?

Two of Ray Keating’s Pastor Stephen Grant novels deal with relations with China. Check out Deep Rough and The Traitor. 

Also, tune in to Ray Keating’s podcasts – the PRESS CLUB C Podcast and the Free Enterprise in Three Minutes Podcast