China’s handling of the coronavirus outbreak is evidence, if any further evidence is needed, that the totalitarian regime would rather run roughshod over the community of nations and more perversely over its own citizens than to act with the transparency, honesty, and integrity expected of a presumed superpower.Chinese medical professionals who tried to sound an alarm about the virus when it first sprung were seized by police and muzzled so as not to embarrass the mandarins who run the Communist bureaucracy. President Xi Jinping, who should have been statesmanlike and above the fray, made sure the State-run media omitted any mention of the outbreak for months.

How many Chinese died while the subterfuge was under way will likely never be known. Of more immediate concern, consider that roughly three million Chinese tourists visit the United States annually. Do the math. That means that something in excess of eight thousand Chinese tourists come to the United States each and every day. How many Chinese visitors potentially infected with the virus came to our country before China was met by President Trump’s travel ban? That, too, will likely never be known.

The Chinese propaganda machine at first caught back on its heels is now on the offensive alleging that the virus was first introduced to China by members of the United States Army who attended the Military World Games in Wuhan in October, 2019. No evidence has been found that the American service members tested positive for the virus but the dissembling by the Chinese apparatchiks continues.

HOW DID WE GET HERE?

The former leader of the People’s Republic of China, Deng Xiaoping, enunciated his famous maxim of tao guang yang hui. Interpreted variously, the maxim is meant as a foreign policy directive that regardless how muscular the nation might become economically, geopolitically, and militarily it is always best to keep a “low profile.” And, it is China’s deft execution of Deng’s maxim that has lured the United States into a state of economic dependence that borders on an unbreakable addiction.

Cars, iron, steel, plastics, apparel, furniture, toys, computers, phones, electrical equipment, footwear, power generation equipment, rare earth metals, pharmaceuticals, and a much longer list of products is exported from China to the United States.  China is now, by far, the largest exporting nation in the world with about $2 trillion worth of exports.

The United States has racked up an accumulated trade deficit of approximately $10 trillion during the last four decades. The trade imbalance with China is especially appalling. Of the $10 trillion trade deficit the United States has accumulated, better than 50% or $5.2 trillion comes courtesy of China. The upshot of that imbalance has amounted to millions of jobs lost, the depression of wages, thousands of factory closures, the contraction of R&D, and the export of capital which would better have served our domestic industries. Tragically, it was the worker who lost his job that, in effect, financed the trade deficit. This, while one administration after another in Washington turned the other cheek to our trading partners who excelled at cheating.

The goods and services trade deficit with China is on the order of $400 billion annually. But that is the tip of the iceberg as China purloins roughly $225 billion, at the low end and as much as $600 billion at the high end, annually in counterfeit goods, pirated software, and theft of trade secrets from the United States.  Which is to say, that the United States is in the hole with China to the tune of about $1 trillion each year.

As grim as the numbers above are, however, they do not tell the whole story. China’s protectionist policies include a list of hundreds of products which ban our producers from exporting products such as stethoscopes, refrigerators, digital cameras, video games, and television sets. And, it isn’t just products that are proscribed. On the Internet front, China has built yet another Great Wall to keep companies such as Facebook, Google, Twitter, and YouTube from operating in the country. This Wall doesn’t just aid and abet China’s censors but it limits foreign competition so that homegrown companies like Baidu, Alibaba, and Tencent can thrive in monopolistic markets. In a feeble attempt to justify their misbehavior, the China Ministry of Commerce alleges that China is still a “developing” country. And, for those who argue that President Trump’s recently imposed import tariffs are, in effect, a tax on U.S. citizens they need to sharpen their pencils as the nation’s trade imbalance has saddled citizens with a “tax” that makes the effect of import tariffs miniscule by comparison.

THE SUPPLY CHAIN TO CHINA: A GEOPOLITICAL THREAT TO AMERICA

In the face of the coronavirus outbreak assailing our shores the United States needs to reconfigure its supply chain not so much for the production of toys and games and baby strollers but for critical medical equipment and supplies such as masks, ventilators, gloves, and pharmaceuticals.  In the case of pharmaceuticals, 90% of antibiotics, and anti-inflammatory drugs such as ibuprofen and hydrocortisone come from China. The production of penicillin and the blood thinner heparin is similarly dominated by China.

The manufacture of synthetic opioids is also firmly in the hands of the Chinese. China, is the source of 97% of the fentanyl which enters the United States. The drug is the opioid of choice for drug abusers – 50 times more powerful than heroin and 1,000 times more powerful than morphine – and was responsible for the deaths of over 31,000 Americans in 2018.

The extraction of rare earth metals – a group of seventeen chemical elements – is similarly monopolized by China. The United States is dependent on China for about 80% of the rare earth elements needed for the production of not just consumer products such as pollution control catalysts, and electric car batteries but for Defense Department applications such as precision-guided weapons, projectiles, and guidance systems.

The United States faces a military threat from China in the South China Sea where it is being challenged by a territorially aggressive and technologically advanced Chinese Navy. Already, an armada of sophisticated dredging vessels is reclaiming land from the sea for the sole purpose of building military airfields and naval port facilities. The centralization of America’s supply chain in China for products critical to our economy, our well-being, and our national security, however, poses a far more insidious threat and is perhaps China’s most powerful weapon pointed in our direction.

Raul Pupo

Management Advisor