Humanity’s Greatest Threat (3)

Humanity’s Greatest Threat (3) - The Root Causes of US-China Conflict

Author: Songguobuluo ft. Boss Gu, Mr. Y, translator: Mr. Y

1. Who Decides American Politics, and What Are the Root Factors of National Political Power?

Starting with Trump, the American decision-making establishment seems to have put suppressing and confronting China on its agenda. After the Democratic government came to power, supposedly thanks to Trump's efforts, being tough on China became "politically correct" in Washington.

However, one question remains: what is the root cause of this anti-China atmosphere?

Did it just happen randomly, for no reason at all? Did American politicians suddenly go collectively crazy and unanimously plot against China? China clearly hasn't sought hegemony in the world in recent years, so why this urge to confront China for no good reason?

Some say this is because Americans are jealous and envious of the rise of the Chinese nation, and sinister American politicians are trying to interrupt this great path of national renaissance for their country's long-term interests.

Others say this is the Thucydides Trap: rising powers inevitably challenge existing powers, and established powers inevitably respond to such challenges, so conflict and even war are unavoidable.

These are all common explanations.

The biggest flaw in these explanations is that they turn collective concepts into concrete entities. What really needs to be explained is why millions of individuals would think their interests are closely connected to international conflict.

A nation is not a thinking, acting person. There's no such thing as “America's interests” or "China's interests”. There are only the interests of a particular American people or another specific Chinese.

Chinese people are not monolithic, and the interests of different Americans are not only inconsistent but sometimes even conflicting. There's no collective of 1.4 billion Chinese acting as "second place" painstakingly and determinedly challenging the "No. 1" status of another group of over 300 million people across the pacific.

No American president would act for some illusory "American national interest" of maintaining the No.1 position. Every American president (in fact, every person) thinks first and foremost about his own interests.

For politicians, keeping their own power is the most important thing above all else. After they leave office, who cares if there's chaos everywhere? If America keeps its hegemony but Trump loses his power, what good does that do him? If America loses its international leadership, the economy collapses, and people suffer, but Trump's power position remains rock solid, what harm does that do him?

The analysis of Trump's interests also applies to every person.

Since everyone is competing for their own interests, vying for dominance, just like any historical account, full of blood and iron, maneuvering and scheming, plots and tricks, does that mean what determines world trends is the strategies and insights of great men and heroes? No, it doesn't.

This heroic narrative of world-creation only suits simple-minded people's understanding of history. In their eyes, Qin Shi Huang unified China; Hamilton's industrial policy created America's status as an industrial power; Bismarck forged modern Germany, and Hitler destroyed it...

Just as people think Trump single-handedly made anti-China sentiment politically correct; or that the West has a mess of domestic problems, so political elites, in order to deflect blame, and shift the focus of conflict by going anti-China.

This mindless narrative creates an illusion that the masses can be manipulated and fooled at will by politicians. If a politician's acting skills are good enough, they can point anywhere and hit anywhere, stirring up public opinion in any direction.

To understand the root of America's anti-China political atmosphere in recent years, we must raise some more fundamental questions: what is the ultimate source of political power? What grants a person or a ruling group the power of life and death? What force turns their words into inviolable iron laws? And what determines a country’s foreign policy and international conflict?

The superficial answer is easy to give: violence, military police, and aircraft carriers are the foundation of ruling power. After all, physical violence, guns, prisons...are real manifestations of rule.

More than two hundred years ago, when Hume used philosophical questioning to explore the foundation of power, he arrived at an unshakable law applicable to all regimes.

Hume asked this question: "Since rulers are necessarily the minority and the ruled are the majority, and strength clearly lies with the majority who have numerical advantage - that is, it's clearly the ruled who possess greater strength - then why would the more powerful majority willingly restrain their own emotions and preferences to submit to the emotions and preferences of the minority rulers?"

Hume's answer was: As the minority, rulers can ultimately only rely on ideas to govern the more powerful majority. Other than ideas (you can call it ideology, "brainwashing" or "indoctrination" if you like), there's nothing else to rely on. It's specific ideas that convince the majority of people and make them believe submitting to the rule of a regime guided by these ideas is more in line with their own interests. The ultimate source of power is the specific ideas that the majority believe in; it's the will of the majority that shapes the specific political form.

If force was the ultimate foundation of power, the contradiction would be obvious. A general's capacity for violence is clearly higher than that of an emperor or a president, so why does the general obey the president? Similarly, countless soldiers could easily defeat a general, but what force allows the general to command thousands of troops? Other than ideas, there's nothing else.

When more than half of the world enthusiastically supported socialism, a planned economy inevitably spread across half the earth.

Today's public opinion is tomorrow's policy. For example, we can recall the calls from various public intellectuals and overseas ideological infiltration for environmental protection and intellectual property ten years ago in China, then compare them with today's reality of environmental protection and intellectual property policy enforcement.

From this perspective, all political systems are essentially determined by the majority. Whether it's democracy, monarchy, or any other imaginable political system, no ruler can act against the opinion of the majority for long without being overthrown.

In the short term, all countries originate from military conquest, but what's won on horseback must rely on ideas and indoctrination to govern.

The Qing dynasty's entry into central China and the British colonization of India did begin with superior military force, but what ultimately helped them consolidate their rule was borrowing existing ideas and philosophies from the occupied lands.

America is no exception. It's American public opinion that nourished the soil for anti-China politicians. And anti-China sentiment among the American public comes from dramatic changes in the international trade competition landscape.

However, this anti-China sentiment doesn't represent the vast majority of American public. During Trump's trade war, the collective resistance petitions from America's major chambers of commerce still represented the attitude of the mainstream American elite towards China. The unique nature of America's democratic electoral system has allowed this anti-China sentiment - though not representing an absolute majority but growing- to take the center stage in international conflict.

The winner-take-all system brought by the Electoral College renders the opinions of die-hard Democrat or Republican supporters irrelevant; these staunch supporters receive no attention from presidential candidates. On the contrary, the squeaky wheel gets the grease. Voters in a few swing states - like Rust Belt workers, who are the losers in the wave of globalization - truly determine the next American president.

Over the past two decades, in US-China international trade, Chinese products have become increasingly competitive, American products have become increasingly less competitive. This is reflected in the massive export of inexpensive, high-quality Chinese goods to the US. The US has accumulated an ever-growing trade deficit.

Simultaneously, this has significantly "damaged" the income of American business owners and the interests of workers in related industrial manufacturing sectors.

Since Obama, US presidents have been keen to claim that "the Chinese have taken away millions of American jobs". This is true; however, the cause and effect have been distorted by political propaganda.

2. Why can't American manufacturing compete with China?

China's manufacturing industry surpasses the US simply because of its higher efficiency and lower prices.

The fact that the Chinese are more capable in supplying American consumers is not a disaster for Americans; the problem lies in why their American counterparts cannot be as capable.

When we follow Mises's explanatory framework - domestic intervention inevitably leads to decreased competitiveness, thus resulting in protectionism - we immediately see that what allows China to “steal” American jobs is not the Chinese being too unscrupulous, but rather the excessive intervention and regulation in the US domestic market.

Abandoned factories in the American Midwest

These interventions have increased the cost of American production, thus placing the US at a competitive disadvantage in international trade. This situation, in turn, demands that the US pursue protectionism on the international stage: trade wars, extraterritorial jurisdiction, hegemony, and overseas law enforcement have emerged as a result.

International conflict has thus intensified, threatening the prospects for peace.

The root of the US-China conflict lies in the fact that, at least in ​​international trade, China is a relatively freer market compared to the US.

Therefore, in recent years, we have witnessed an extremely counterintuitive trend: the so-called "unfree and undemocratic" China is more free-market and more "capitalist" than the US, at least in international trade.

However, before presenting this subversive perspective and discussing the true situation of US-China trade, it is necessary to first make some simple evaluations of public opinion within China.

3. Has China gone astray into economic nationalism?

Indeed, in recent years, domestic patriotic sentiment has fermented rapidly. Following any major international news, the figures of "wolf warriors" and "little pinks" are invariably present. They are proud of China's great economic achievements, believing that in all areas, their motherland is gradually "crushing" the West; in the double-win of "one victory after another", China is steadily marching towards the next glorious victory. They make grand pronouncements about unifying Taiwan by force, teaching Japan and South Korea a lesson, and not hesitating to go to war with the US.

These remarks have alarmed some level-headed and insightful individuals: such surging public opinion foreshadows the future disintegration of globalization and the collapse of peace.

However, these remarks are merely superficial phenomena that are not worth worrying about. These sentiments remain merely rhetorical, failing to transform to concrete action. They are simply venting of chauvinistic emotions, not economic nationalism leading to policy action or genuine disaster.

Chauvinism is an emotional inclination: it seeks to elevate the individuality and achievements of one's own ethnic group while devaluing outsiders.

This is not a complex psychology to grasp; this shallow mentality of overestimating one's own individuality while belittling others is easily observed in all those with little knowledge.

It is like regional discrimination: Japanese are perverts, Anglo-Saxons are treacherous and vicious, French are only fit to be cooks…only one's own ethnic group is the greatest.

People revel in these boastful, jubilant, and sycophantic self-aggrandizements, but after the party ends, they simply go home to sleep, not to mount up and fight.

Chauvinism is merely an emotional outburst; it lacks the powerful impetus - the economic interests of the masses - to transform rhetoric into hostile action. Only protectionism and economic nationalism can truly sway the public, making them feel that "what you gain is what I lose".

However, it's important to note that chauvinism does emotionally fuel economic nationalism. Policymakers rarely miss these seemingly fervent but actually unfounded public sentiments and may even introduce policies that cater to the sentiments.

When someone sings praises of their country's greatness, they are often just expressing emotion; they may be reflecting on their recent successes - a new car, a million -dollar bonus, a soaring stock price, a young girlfriend…

Similarly, when someone vehemently hates their own country, denouncing it as spineless and hopeless, they are not genuinely engaged in arduous political and economic research; they may simply be experiencing setbacks at work, a lack of promotion prospects, breakup, or investment failures…

False public opinion is not worth paying attention to; "wolf warriors" and "little pinks" cannot gain real power. They not only lack a systematic philosophy of action but also lack continuous and reliable motivation.

These statements are menacing, but they would dissipate in the wind at any moment. It's just that in the environment of polarized online discourse, they gained the most traffic.

Secondlyre to ask about their origins, firstly, it's clear that with economic prosperity, China's comprehensive national strength has indeed risen rapidly over the past few decades; secondly, it may be related to the proliferation of social media.

The emergence and iteration of online technology platforms such as WeChat and TikTok have rapidly ushered the Chinese into an era of populism. Previously, traditional media such as television and newspapers were the main channels for Chinese people to obtain information and shape their ideologies and ideas.

These traditional media were generally controlled by knowledge elites with a certain level of expertise. In the past, they reflected and transmitted the ideas of a small number of elites in China.

However, the internet has changed the landscape and ecology of concept dissemination. The internet enables the most radical and eye-catching content to achieve maximum dissemination, which in turn stimulates writers to further polarize their content expression.

The atmosphere of recent years has been particularly conducive to these writers who reap patriotic traffic. Thus, "Yuanfang Qingmu", "A Bad Potato", "Crow Captain," "Jiubian", "Lianyue"... these influencers who spout nonsense have become the center of shaping the opinions of most of the public (by the way, the degree of nonsense decreases in the order listed above).

4. In the industrial sector, China is more free market than the US.

I know this is a counterintuitive judgment.

But if it weren't for the prevalence of linguistic corruption and pseudo-economics, this reality wouldn't be difficult to understand. The US is no longer the market economy founded on "private property rights, private enterprise, and a free market".

In certain periods of the 19th century, the US was indeed a global model of a free market. Market vitality created unprecedented private wealth and resources for the US government to exploit, thus laying the foundation for its global hegemony during the two world wars of the last century.

However, since its founding, the free market in the US has been in continuous regression. The government has grown increasingly large, its control and intervention penetrating every corner of civil society, stifling wealth creation and innovation.

Contrary to the blind praise from intellectuals around the world, the founding of the US was itself a form of regression. The transformation from a loose confederation to a constitutional federal state was itself a strengthening of central authority, corresponding to a decline in the market economy and in people's freedom.

This paralyzing control over civil society did not happen overnight. Americans, too, have been relentlessly undermining their own systems for decades. A prime example is that, as early as 1994, economist Hope noted that the Federal Regulations, an annual compilation of all current U.S. federal government regulations, comprised 201 books occupying approximately 26 feet of library shelves, with the regulations index alone spanning 754 pages. These compilations covered everything imaginable related to production and redistribution: from labels on celery, mushrooms, watermelons, watches, and incandescent light bulbs, to stockings, parachuting, and steel manufacturing, to methods for cooking diced onions into onion rings, and even the identification of sexual assault offenders on university campuses.

Incidentally, even more perverse is Europe, with its similarly stagnant economy. If you were to go to Europe to produce a tube of toothpaste, approximately 30,000 regulations, according to EU and local laws, would restrict, control, and guide your toothpaste production. Unsurprisingly, Europe's economic performance in recent years has been even worse than that of the United States.

Meanwhile, China, since its great reform and opening, has been steadily but with setbacks towards greater marketization. The government has continuously loosened restrictions on civil society.

China's economic miracle is not an inexplicable economic puzzle (though perhaps it is perplexing to positivist economists).

All sound doctrines since classical economics clearly point to the fundamental cause of the Chinese miracle: free markets bring widespread prosperity. Non-free markets bring poverty and chaos.

So, what is a true free market?

One word encapsulates its essence: property rights. This gives us a new standard for comparing the US and China: The higher the level of protection for property rights, the greater the degree of freedom.

Theoretically, the degree of freedom cannot be directly compared.

For someone who is keen on prostitution or vehemently criticizing the president, even if their country has abundant economic freedom to start businesses, if there are no red-light districts or they are not allowed to criticize the president, they feel they are living in the darkest totalitarian state in history.

The US and China each have their own control measures and their own areas of restricted freedom. A hasty comparison and analysis of the two will only lead to more extreme divisions and pointless arguments.

Pro-Americans always find the shining points of the US: the Silicon Valley spirit, Steve Jobs, technological innovation… and they always find the disadvantages of China: higher nominal tax rates, lower rule of law, pandemic control…

Pro-Chinas, on the other hand, can list China's advantages and the US's shortcomings.

But we can understand this from a historical perspective. When we realize that economic life (improving one's material well-being) is the primary object of human activity, we can then use an indicator to measure property rights and freedom: wealth growth: wealth growth.

After all, economics also tells us that freedom and prosperity are two sides of the same coin; places with faster wealth growth are certainly freer.

Regardless of the freedoms and rights promised to the American people by the U.S. Constitution, decades of economic stagnation and declining incomes clearly demonstrate the lower degree of economic freedom in the United States.

And regardless of what the laws nominally stipulate, the robust economic development of the Chinese people demonstrates that they have a higher degree of property rights.

Otherwise, we would only arrive at a strange paradox: a country lacking freedom (lacking private property) can inexplicably enjoy prosperity (incidentally, such absurd arguments do exist, for example, attributing China's economic prosperity to enjoying a "low human rights advantage"); while on the other hand, the United States, enjoying the right to wealth and freedom, and thus a market economy, has to endure low economic efficiency.

Many statistics corroborate the above assertion. China's GDP growth over the past 40 years has clearly far surpassed that of the US. American data shows that since the early 1970s, the median real income of Americans has stagnated. During the same period, the Chinese income increased more than twentyfold.

American economist and Senator Paul Ron recalled that in the past, a typical ordinary American man could support his wife as a full-time housewife and raise three to five children with his own income. In today's American families, childless couples often work tirelessly yet struggle to pay their bills.

From a technical perspective, GDP-based statistical methods are flawed. The problem with GDP is that it only tracks the sales of final products in economic activity; the production and sales of many intermediate goods (i.e., capital goods) are completely excluded from GDP statistics.

In fact, if we understand the fundamental principles of true economics, we will realize that intermediate goods are precisely what should not be overlooked. This is because the greater the amount of capital goods or intermediate goods, the greater the per capita capital stock in society.

The level of per capita capital determines the level of productivity, which in turn determines the wage rate, that is, the income level of most people.

Therefore, I believe that the indicator that best reflects the degree of property rights, encompassing capital accumulation, is the real savings rate. Its composition is simple: the ratio of people's savings (investment) to disposable income over a certain period.

Its implications are as follows: due to time preferences, all other things being equal, earlier satisfaction is more valuable than the same satisfaction received later; and only when people anticipate greater wealth in the future will they restrain current consumption and save and invest. The higher the level of private property, the more secure people feel about planning for the future, and the more inclined they are to save, invest, and accumulate more capital.

In short, those without stable property lack a stable mind, and vice versa. Therefore, the most prominent sign of social prosperity is the rapid accumulation of capital.

However, comparing current per capita capital stock is meaningless; only incremental growth indicates development trends. After all, the amount of capital per capita in the United States is certainly higher than in China (this stems from the accumulation during the earlier, more free market period in the US); therefore, the wage rate in the US remains higher than in China.

It's like comparing a spendthrift with a 100-million-dollar inheritance to a poor young man who starts from scratch but works hard, carefully manages his finances, and diligently accumulates capital. Although the latter doesn't have 100 million dollars today and is not as wealthy as the former, everyone knows that the latter has a brighter and more promising future.

According to data provided by the World Bank and the International Monetary Fund, China's savings rate is close to 45%, while the United States' savings rate is less than 4%.

China's savings rate can be said to be far superior to the US savings rate. While the actual difference is probably not that significant.

Because the World Bank's savings rate calculation standard does not reflect what I call the "real savings rate", several items need to be revised.

First, the "cash deposits" commonly included in the savings rate calculation standard should not be considered real savings and capital accumulation. Cash deposits, which include time deposits, do not constitute genuine delayed consumption; they are merely a demand for cash. Whether you keep money in your wallet, bank account, or WeChat Wallet, it's a demand for money, not delayed consumption savings (everyone's income is necessarily allocated to three parts: consumption, savings-investment, and currency holding).

The demand for currency holding stems from future uncertainty. When the future is completely certain, no one needs to hold any currency. Therefore, higher deposits actually reflect uncertainty about the future.

The surge in total Chinese savings during the Covid-19 pandemic is a case in point; it reflects uncertain expectations about the pandemic and control policies. People simultaneously reduced consumption and investment to retain more cash to cope with future emergencies.

Second, when people invest in the future and restrain consumption, it constitutes capital accumulation; the most typical example is buying a house. Buying a house is not consumption; it is savings (investment) because, like any capital good, a house is an asset that can bring sustained satisfaction and returns in the long term.

Third, a company's retained earnings (the portion of profits earned that is not distributed as dividends) are the company's real savings and constitute the most important source of capital accumulation in an economy.

However, even after adjusting these items, the Chinese savings rate and enthusiasm for capital accumulation remain far higher than those of Americans. It is precisely in this widening gap in market economy levels that China has achieved a comprehensive catch-up with the US in terms of overall national strength.

This has also intensified the resentment of a small number of Americans who have failed in globalization.

Initially, the competitiveness of Chinese products was reflected in light industry, with toys and clothing attracting anti-dumping investigations from the US.

Later, the market vitality of China gradually extended to more industries and supply chains, thus gradually surpassing its American counterparts in more sectors.

Therefore, when the US government saw Huawei achieve a leading position in 5G communications, it placed Huawei on its export control "Entity List". Seeing Hikvision gain the global leadership in security video, they proposed banning the US government from purchasing Chinese-made video surveillance equipment. Seeing the rapid development of China's drone industry, they groundlessly accused China of stealing data.

All these trade conflicts are clearly protectionist in nature, attempting to protect the income and profits of American businesses that cannot compete with their Chinese counterparts, and attempting to protect workers in related American industries.

The crux of the problem always lies in self-interest, not some vague "national interest", but the economic interests of specific politicians and pressure groups.

George Washington himself put it most clearly: "Between individuals, there may be compassion and loyalty; but between nations, there is little morality, more interests."

5. The Protectionist Tendency in American History

Contrary to the normally held view, the entirety of American economic history is characterized by "protectionism". The core of protectionism is to exclude more efficient producers from competition, forcing domestic consumers to pay higher prices, to preserve the vested interests and existing wage rates of sluggish entrepreneurs and workers.

Pressure groups cast their votes for politicians who promise to protect them from competition - historically, often Republicans.

Politicians, in turn, enact new intervention laws, granting voters corresponding privileges.

At different times, the representatives of the Democratic and Republican parties and the pressure groups they appeal to have varied. Some long-established financial groups bet on both sides, sending political donations to both parties before the election, paying for peace.

This is the essence of American election campaigns from the perspective of interest groups. Mencken put it most scathingly: "Every election is an auction of pre-allocated spoils." Indeed, in the early years of the United States, liberalism and free-market ideals did prevail. Influenced by Franklin and Jefferson (arguably the most prominent liberal politicians in history), the early US pursued low-tax, free-trade policy.

However, the Napoleonic Wars and the ensuing War of 1862 disrupted this free trade. Jefferson enacted the Embargo Act, the biggest stain on his political career.

Thereafter, in foreign trade, the prevailing ideology was that of the more centralized Federalists - Hamilton and Madison (a fence-sitter between the Federalists and Jefferson) - emphasizing mercantilism and protectionism to support nascent domestic industries.

Although free trade held sway for over a decade before 1861, the idea of ​​protecting nascent industries persisted until the American Civil War.

Contrary to textbook clichés, the Civil War actually originated from trade protectionism, not from fighting for the human rights of Black people.

In short, the Northern states were primarily industrialized, and these industries were protected by high tariffs and other trade barriers. The Southern states, on the other hand, mainly produced agricultural products like cotton. American agricultural products were highly competitive in the international market, and Southerners naturally favored free trade.

A statue of Confederate General Robert E. Lee.

However, the trade barriers erected to protect the nascent Northern industries provoked retaliation from Europe - they reduced imports of American products. This hurt the South's export interests, and Southerners were forced to pay high prices for industrial goods due to tariffs. Therefore, the South, based on a constitutional amendment, demanded separation from the Northern states - that is, secession from the Union. Secession would allow the South to break free from the trade protectionism of the Northern states and engage in free trade with Europe.

This was an act in accordance with the spirit of the Constitution. However, the centralized North suppressed the South through the Civil War.

Incidentally, if we consider only wars of self-defense as just wars... The American Civil War was the second and last just war in American history: the just side consisted of the Southern states defending their homeland and their right to secede, not invading others.

The first just war for Americans was naturally the War of Independence. 

After the Civil War, with the North's occupation of the South, protectionist trade policies became increasingly entrenched. The period from 1870 to 1913 was the fastest period of economic development in America (even during this relatively prosperous period of over 40 years, real per capita income in the US only doubled; in contrast, the magnificent 40 years of reform and opening increased China's real per capita income by more than twenty times).

Meanwhile, the British Empire was declining.

The competitive advantage in exports led the US to intentionally pursue free trade, because trade protectionism would invite retaliation from other countries. The result of confining imports was a corresponding contraction in exports.

World War I was not a war for the Americans; if it weren't for Wilson's international interventionism, the US wouldn't have needed to get involved in the troubles of Europe.

World War II, however, was different. World War I left the world with a series of economic problems, most notably fiscal and monetary ones. As the monetary order degenerated from a unified international gold standard into a chaotic free-for-all of fiat currencies, trade protectionism and barriers emerged.

In 1930, the United States enacted the infamous Smoot-Hawley Act, pushing tariffs and trade barriers against Europe to their peak.

Meanwhile, the Federal Reserve's pre-war printing of money and expansion of credit ultimately led to the Great Depression of 1929.

One of the initial purposes of this monetary blunder was to stimulate and protect domestic industrial and agricultural exports (a second purpose was to help prop up the weak British pound).

Excessively high tariffs further exacerbated the fiscal chaos in Europe.

Because of World War I, Europe owed the US a huge debt, and repaying this debt depended on European exports to the US. However, US tariffs blocked this virtuous cycle of debt repayment. The resulting economic turmoil in Europe led to political polarization.

If the US hadn't engaged in credit expansion, spreading cheap credit to Europe, or even if it had expanded credit without imposing tariff barriers, European finance and economics might have had a chance to recover.

Furthermore, the attack on Pearl Harbor, which dragged the US into World War II, wasn't without economic causes. One factor was the US's decoupling from Japan and its trade embargo against Japan.

It's easy to understand that the Axis powers that initiated World War II - Japan, Germany, and Italy - shared a common characteristic: they were all industrialized nations that needed to import raw materials and food.

For countries with sufficient military power and confidence in winning conflicts, cutting off their trade or preventing them from acquiring necessities through trade couldn't be expected to deter their aggressive ambitions.

After winning World War II, the US quickly began establishing international organizations to pave the way for trade protectionism.

The WTO, what was formerly known as the General Agreement on Tariffs and Trade (GATT), was initiated in response to the British Imperial Preference System. The Imperial Preference System attempted to create a closed mercantilist bloc within the Commonwealth: its members practiced free trade with low or no taxes, but collectively imposed trade barriers on countries outside the bloc.

But now, for American products to enter the market, they need to use political power and loan incentives to dismantle this British mercantilist bloc.

Today, the IMF (International Monetary Fund) has become a hub for international inflation and an international collaboration institution for maintaining the fictitious exchange rates of poor nations that lack fiscal discipline.

However, one of the original motivations behind the IMF's establishment remains trade.

Streamlining international monetary relations also paves the way for American exports, and one of the IMF's targets is another protectionist group formed by the British: the Sterling Area.

6. The First Global Central Government in Human History

After World War II, we entered the world order we see today. A key characteristic of this order is that the United States has become, to a certain extent, a de facto global central government.

This characteristic became even more pronounced after the Cold War.

Post-war Western Europe (except for independent, anti-American France under de Gaulle) effectively became "autonomous territories" of the US, as they generally lacked their own permanent military forces, and their territorial security depended on the US military bases throughout Europe.

East Asia (mainly Japan and South Korea), another group of member states, were closely following the US.

South America, since the Monroe Doctrine and the Spanish-American War, has been the exclusive domain of the US.

Most of the world has become de facto "local governments" dependent on the US. This order continues to exert its influence today.

Every election in Western countries today (including Japan and South Korea) reflects the a shift in political power within the “central government” (the US). The political paths of the smaller nations depend entirely on US strategy.

Understanding this world order helps us comprehend and utilize the framework Mises used to analyze Germany during World War II.

Herein lies a characteristic that distinguishes the US today from Germany of yesteryear: the US effectively wields hegemonic power to intervene in international trade and even the internal affairs of numerous other countries - a position the Nazis attempted to achieve through a world war.

Therefore, this new America is more adept at turning foreign territories into "domestic" ones, thereby exporting interventionist and protectionist policies.

Thus, we witnessed West Germany's rapid economic recovery after World War II, generating a large trade surplus with the US and its manufacturing sector threatening American counterparts, prompting immediate "suppression" from the US government.

The Americans forced the Germans to appreciate the German Mark, thereby raising the price of German goods imported into the US. Subsequently, when Japan broke through in semiconductors and electronics manufacturing, the US similarly forced the Japanese yen to appreciate through the Plaza Accord.

Entering the 21st century, the US began to face a rising China after its reform and opening. The subsequent scenario unfolds as follows: the Chinese gradually demonstrated entrepreneurial vitality in various industries, and their product competitiveness increasingly surpassed that of the US.

Coincidentally, 140 years ago, the US had already used protectionist legislation to exclude Chinese. During the Qing Dynasty, countless Chinese crossed the ocean to work diligently, making enormous sacrifices to build railroads for Americans. However, these Chinese laborers were met with various demonizing rumors and propaganda (a widely circulated rumor claimed that Chinese people were evil, dirty, and loved to eat rats!). Hatred towards Chinese people permeated American society, culminating in the bloody robberies and murders of Chinese laborers.

In 1882, Republican senators introduced the infamous "Chinese Exclusion Act", which expelled Chinese laborers. Those who refused faced imprisonment. While cultural and racial prejudice against Chinese were pretexts, the real reason was economic: Chinese laborers were too hardworking, and lazy, overweight white workers couldn't compete, losing their jobs.

Subsequently, anti-Chinese policies prohibiting immigration and property ownership persisted until their complete repeal in 1965.

7. Orwellian "Free Trade"

The root of action is thought, and the first step in corrupting thought is the erosion of language.

George Orwell's great political fantasy novel 1984 devotes considerable space to depicting the semantic distortion and corruption caused by nationalism, most notably the classic line: "Liberty is slavery, war is peace, ignorance is strength."

The 1984-style world is unbelievably absurd. Even more unimaginable is that today's world has already partially completed a similar semantic corruption.

As mentioned above, the United States, which is clearly less of a market economy, frequently and arbitrarily criticizes China's "market economy status".

The term "liberalism", in the past in Europe, referred to adherence to a free market economy. Today, Americans use it almost to refer to the opposite of a free market; for example, a white leftism like Pelosi has become a "radical liberal" in the president's words.

The same applies to free trade.

In trade conflicts surrounding protectionism, the Americans have obscured the substance through semantic corruption.

Many Chinese, while proud of their country's economic rise and increased international competitiveness, often feel a sense of guilt: China, though powerful, is not, after all, a market economy as defined by the US. They believe China has relied on subsidies, environmental pollution, cheap labor, and dependence on low-end value chains… a kind of unbridled growth that has allowed it to reap trade benefits from the US and the West.

However, I must say this is a misconception.

Today, when politicians talk about free trade, they often mean the opposite of its true meaning. The WTO, TPP, NAFTA, and various international cooperation agreements labeled "free trade agreements" are not for free trade. In essence, these agreements are only about jointly controlling each other's international trade. Of course, after achieving their initial goals, they may symbolically open some trade in some other areas.

The reason is simple: true free trade doesn't need multilateral talks, nor does it require dozens of rounds of tedious paperwork and meetings, nor tens of thousands of pages of detailed agreements and trade memorandums of understanding. The essence of free trade is unilateralism (this unilateralism is not the controlling agreement).

It simply requires announcing to the world that regardless of the import barriers other countries impose on our exports, all goods entering our country are duty-free or subject to low tariffs.

In today's terminology, bilateral trade essentially involves excluding third parties, while multilateralism excludes free trade with countries outside a small group. Real free trade agreements, if necessary, can be summarized in just a few sentences: zero or extremely low tariffs, and governments cannot interfere in private trade.

The essence of those tens of thousands of pages of trade memoranda is roughly as follows: The goods I produce in the US have high costs because I provide labor benefits to my workers and adhere to green environmental policies. You Chinese neither protect labor interests nor are environmentally friendly; you grow wildly, so of course your costs are lower. Then how can I compete with you? Therefore, for fair competition - Reagan and Trump did indeed use the slogan of "fair trade" - We must start from the same starting line.

Starting from the same starting line is fine, but it can go in two directions: One is for the US to also reduce costs and eliminate regulations and interventions that reduce production efficiency, thus creating a level playing field for everyone.

The US, however, demands the second direction: for all countries to collectively raise costs.

The method is for Chinese producers to also adhere to environmental green clauses and protect worker welfare; the Chinese workers shouldn't work so hard because we simply can't compete.

The economic essence of these labor or green clauses is that they require all countries globally to intervene in their own economies to the same degree, raising production costs and barriers to an equal extent, thus forming a global cartel. This cartel, to protect existing producers, isolates potential competitors and infringes on consumer rights within the monopoly prices set by these barriers.

Before World War II, no country could achieve this because no country had ever attained the status of a global "quasi-central government". Even the British Empire's Imperial Preference system was merely a multilateral trade protection bloc.

Similarly, when you see news about international economic cooperation, pay close attention; this often refers to international cooperation in control, establishing a de facto global government. Its underlying logic stems from the fact that different countries' policies are still competing at the global level.

The countries with more interventions hope that the countries with fewer interventions will join in increasing intervention measures.

US Treasury Secretary Yellen was the most outspoken. She travelled the world seeking every opportunity to push for a global agreement on the lowest corporate tax rate. This meant that other countries shouldn’t be too lenient with their citizens, cannot reduce taxes, and especially cannot have tax rates lower than those of the US, otherwise American talent and business resources would flow abroad.

The Convention on the Law of the Sea brings ownership of marine resources under the global government control of the UN system.

What about currency swaps and monetary cooperation? Not to boost the economy, but simply to mask inflation. When one country over-issues currency, while another does not or over-issues less, the former's weakening exchange rate reveals the truth of its inflation.

Therefore, to maintain a false exchange rate, the former is more motivated to seek foreign exchange support from other countries or invite other countries to join their inflationary chorus.

Post-war Germans were still haunted by the hyperinflation of the Weimar Republic, so their central bank paid particular attention to avoiding excessive money printing. This meant relatively high benchmark interest rates, which displeased the Americans. This was because the Americans had been printing money and lowering interest rates relentlessly since World War II. In the unified global capital markets, West Germany's high interest rates posed a thorny obstacle to US monetary policy.

To understand the essence of international policy, one must understand these economic logics.

7.1 Intellectual Property Issues

Intellectual property (IP) protection has become a global political correctness and a key bargaining chip in the US trade war. A few years ago, China's legal protection of IP was indeed insufficient. At that time, the Chinese genuinely believed they were infringing on intellectual property rights.

When Westerners strictly protected intellectual property while the Chinese did not, the Chinese felt they had gained an advantage but were morally guilty. However, such moral anxiety immediately dissipates once a simple truth is recognized: intellectual property is essentially a true monopoly privilege disguised as property rights.

A little reflection on the origin of property rights immediately reveals this truth: human desires and goals are limitless, but the means to satisfy those goals are finite and scarce. Limitless desires and the struggle for these limited means inevitably lead to irreconcilable conflicts and struggles between people.

Therefore, we need ethics, laws, and property rights regulations to resolve disputes. Clearly, only scarce substances are the objects of property rights regulations. Because scarcity is the root of interpersonal conflict.

But knowledge is not scarce; once discovered, knowledge is infinitely abundant and reusable. What is truly scarce are the carriers of knowledge and information – human energy, hard drives, and books, etc.

Implementing exclusive property rules on objects that are not scarce - knowledge - is itself an "artificially created scarcity". No serious economist has ever irrefutably proven that protecting intellectual property rights contributes to innovation or to the overall well-being of society. On the contrary, the protection of intellectual property rights encourages copyright trolls and stifles innovation.

The real laws governing intellectual property rights are full of confusion and contradictions.

One can raise even more reductio ad absurdum questions about intellectual property rights: Why are intellectual property rights time-limited, while other property rights are perpetual? Why not protect every stage of knowledge innovation, only the application stage that generates commercial benefits? Furthermore, why isn't fundamental knowledge protected? Why don't people pay Newton or Cangjie (the inventor of Chinese characters)? Why don't their intellectual property rights receive the respect of the world? Logically, their innovations should be among the greatest achievements in the history of human intelligence.

7.2 Environmental Protection

Similarly, there's environmental protection. This is also a pseudo-problem. In a free market, that is, a system with clearly defined property rights, there are no environmental protection issues.

Just as no one worries about pollution in a resident's kitchen. No one would burn their own furniture for warmth in the cold, thus undermining the sustainable development of resources.

As long as it's your own house and furniture, your own private property, you will have sufficient incentive to take care of its environment to ensure its sustainable use. If someone else's wastewater or exhaust fumes do harm to you, the free market can seek corresponding compensation and penalties for you through tort litigation.

All cases of environmental problems and the tragedy of the commons stem from unclear property rights. That is, the state does not allow any private individual to truly own a piece of land or a body of water, but people can use it temporarily. This inevitably leads to abuse. According to the undeniable economic law: those without stable property have no stable mind.

Therefore, the real problem is not that people are solely focused on profit and disregard the environment, but rather that the marketization of some land elements and resources is insufficient.

In fact, the global environmentalism boom still has its profit-driven explanations. It's easy to understand why politicians like retired US Vice President Gore are keen to advocate for environmental protection, as this issue and related policies give politicians new governmental power.

Government officials are always eager to expand the scope of their power; this itself increases taxpayer funds significantly.

The most ironic example is that the world's poorest, most underdeveloped, and most impoverished countries, such as North Korea, Haiti, and Afghanistan, all prominently featured environmental protection as a key part of their national policies and used it as a pretext to interfere in the operations of businesses.

Afghanistan, for instance, halted a $450 million Chinese oil refinery project in 2025, citing its failure to meet Afghanistan's environmental requirements!

It can be said that the practice of governments in developed countries such as the United States expanding their power under the guise of environmental protection has been quickly imitated by the whole world.

Secondly, for the mature industrial systems of developed countries, advocating environmental protection and imposing stringent environmental requirements on developing countries is essentially about increasing the cost of wealth creation and production in developing countries, thereby hindering them from fully utilizing their economic endowments. The underlying principle remains protectionism. Environmental protection has become a kind of drug given to developing countries by developed countries, a straitjacket binding economic development.

Finally, while the Democratic Party is enthusiastic about promoting environmental policies globally, the Republican Party is less enthusiastic and even suppresses them (for example, Trump withdrew from the Paris Climate Agreement early in his presidency). This may stem from a political factor: Democratic campaign funds generally come from small donations, while Republican political contributions largely come from several established American financial groups. These groups typically operate in the oil and energy industries - for example, the Koch family donated tens of millions of dollars to Trump's election campaign. Pompeo's meteoric rise is inseparable from the Koch family's sponsorship.

7.3 Trade Subsidies and Trade Deficits

When the government subsidizes export industries with fiscal funds, resources are diverted from other sectors to export-oriented production. This is a distortion in terms of domestic well-being, because from the consumer's perspective, scarce resources are being used against their will.

Departments that should be producing did not produce or produce less, while departments that should not be producing produce more.

However, such subsidies do not harm the importing country. In fact, export subsidies harm domestic consumers and non-export industries, while providing gifts to domestic export industries and consumers in importing countries.

Consumers in the supermarket

Clearly, export subsidies do go against the interests of domestic consumers, but the US, as the importer, cannot offer a compelling criticism of the resulting dumping. After all, receiving a gift is not necessarily a bad thing.

Furthermore, the state-owned enterprise subsidies that the US accuses of are not the main force in the export industry. China's truly dynamic export force is the private sector. While private enterprises do receive tax rebates, these are not subsidies; they are essentially tax reductions, which weaken intervention in production.

The trade deficit is a false problem, especially for the US, which holds the status of the international reserve currency. This is because it depends entirely on the statistical method. Market knows no borders; whether the goods we consume are produced domestically or abroad is irrelevant, as long as they are of good quality and inexpensive.

Adding up the trade balances of the US and China is no more meaningful than adding up the total trade volume of Kansas and California states in the US. Kansas state won't worry about its trade deficit with California state. Just as you pay for 7-Eleven products every day, but 7-Eleven never buys from you. Does having a "trade deficit" with 7-Eleven make you feel very anxious, or regretful about trade imbalances or payment structure issues?

The situation is no different between two countries, two regions, and two individuals; the economic substance remains unchanged. Current account surpluses and deficits over a period do not indicate any crisis; they merely reflect the relative adjustment of currency demand between trading partners during that period.

Furthermore, if the performance of the capital account is added to the current account, the balance of payments will always be balanced.

After all, every transaction involves give and take. Buying spot goods with spot goods is no different from exchanging assets for spot goods.

Indeed, in today's international monetary and financial system, current account deficits pose a problem for most countries.

That is, trade deficits force them to pay out international currency, leading to the loss of valuable foreign exchange reserves. The result of this loss of reserves is a loss of the ability to maintain the stability of their domestic currency exchange rate.

However, this is not caused by trade deficits themselves, but by each country's individual foreign exchange policies and domestic excessive money printing policies.

Moreover, the US dollar is the international reserve currency cherished by countries around the world. Even with these monetary reasons for worrying about deficits, the US is the last country that should be concerned about it.

USA dollar as the international currency reserve

8. What Should a Country Do?

In summary, trade conflicts and diplomatic frictions are not instigated by a few hawkish politicians with unique personalities; they are not that powerful.

Political trends do not evolve as they wish. Focusing on the performances of politicians in various countries and concluding that the US and China have entered a new Cold War is misled by a heroic historical perspective and completely misses the point.

Because what ultimately determines the power of politicians is public opinion, the beliefs and philosophies held by the majority of ordinary people (no matter how flawed or superficial these ideas may be).

Therefore, behind great power conflicts lies a turbulent undercurrent of public opinion confrontation.

What influences public opinion then? Besides the influence of intellectuals and national propaganda, there is a solid and undeniable driving force governing genuine public opinion: economic interests. Public opinion without the backing of economic interests is just noise (such as chauvinism and cultural patriotism).

Foreign trade is the root cause of economic benefit conflicts among great powers; to understand modern international relations, these issues must be considered.

Economics tells us that whenever a government attempts to intervene in the domestic economy, such intervention is insufficient, and intervention measures must inevitably extend to international trade.

The root cause of the US's provocative actions in diplomacy and trade lies in its waning trade competitiveness, which stems from its domestic interventionism.

Once this causal chain is understood, the solution becomes clear. If you, like me, cherish peace, then the last thing you want to see is a gradual "decoupling" between the US and China in the economic and trade fields.

After all, peace doesn't come from empty political pronouncements and international agreements; it comes from interdependent trade. The history of modern international relations is one where the League of Nations or the United Nations are mere formalities, and treaties are worthless. Even the most well-intentioned expectations and the most beautiful promises crumble in the face of real interests.

Peace dove & olive branch

When the US imposes trade sanctions on China or any other country, trying to strangle them, should other countries retaliate? Of course not! The more protectionist the US becomes, the more firmly China and other country should uphold unilateral free trade. Never forget that whenever politicians clash, it is always ordinary people who suffer from trade sanctions. Sanctioning others in foreign trade is a double-edged sword, hurting both sides. It is the ordinary people who suffer, and it is our own people who experience a decline in productivity and living standards.

Even from a strategic perspective, unilateral free trade is advantageous to most people. Americans are not monolithic. While highly competitive industries dominated by the United States, such as machinery and steel, attempt to decouple from China, American importers and consumers remain happy to buy Chinese clothing, toys, and other goods at lower tariffs.

In 1993, Clinton separated trade and human rights in U.S.-China relations. This wasn't about his principles or kindness—it was about American business interests. Many U.S. companies profited from trading with China.

298 major American companies and 37 trade delegations petitioned the president, demanding an unconditional extension of China's Most Favored Nation (MFN) status. Under intense pressure from the American business community, Clinton conceded.

Several years ago, during the trade war, when Trump was going to block WeChat, major companies like Apple, Intel, and Disney launched lobbying campaigns, ultimately persuading the president to make concessions.

Currently, the American people need to import large amount of Chinese goods to alleviate their inflation. Nearly all the Americans share trade interests with Chinese. Retaliation and tit-for-tat trade barriers will only escalate the risk of conflict and war.

After all, even Hu Xijin understands this truth of classical economics. In opposing Western sanctions against Russia, Hu quoted the great laissez-faire economist Bastiat: "If goods do not cross borders, armies will."

Then what if you are a radical nationalist? What if your goal is not peace? What if you are a believer in the philosophy of fighting, like Sorel or Nietzsche, believing that: the eternal value of humanity is combat; peace only breeds weakness and erodes people's fighting spirit; and the greatness and rise of a nation inevitably requires tempering in iron and blood; For China to rise, it must eventually fight and defeat the U.S.?

That's alright. Even so, the principles of economics still require you to choose free trade and reduce domestic regulations and interventions. Because, in the short term, a conflict between two countries is a military contest. In the long term, it's a contest of national strength. And a contest of national strength is fundamentally an economic contest.

During World War II, Emperor Hirohito of Japan was puzzled. He asked Naval Commander-in-Chief Osami Nagano, "Why the US can build an airbase in just a few days, while Japan takes more than a month?" The answer was obvious: the US had many bulldozers and vehicles; Japan, on the other hand, only had manpower.

Modern warfare is ultimately about accumulated capital. No matter how brave your soldiers or how strong their will, they cannot defeat an enemy with superior weaponry and greater resources. Fighting bare-handed against wealth is a losing battle.

A powerful military needs vast wealth to sustain it. But economic prosperity doesn't come by chance. Without a sound economic system, a society cannot generate prosperity and accumulated capital necessary.

Therefore, even if you are a nationalist, to achieve your hegemonic goals, you should support free markets and free trade. You must push for tax cuts, battle against mounting regulations, rail against inflation, and resist the death grip of bureaucratic "A4 paper regulations" strangling the service industry…

A market economy is the foundation of a strong nation

Two hegemonic powers have ever emerged in modern history: the British Empire and the United States. Their dominance didn't come from a twist of fate, nor was it achieved by brilliant politicians through masterful planning and cunning tactics.

Before they grew into global hegemons, both embraced laissez-faire market economies, accumulating vast wealth to fuel their governments' ambitions for global dominance. Like all dragon-slaying heroes who eventually become evil dragons themselves, however, the US, which championed laissez-faire and resisted British imperial hegemony, gradually degenerated into the very dragon it had opposed yesterday.

America's decline started with government intervention in the domestic economy—granting privileges that distorted the market. The danger in today's world is that the U.S., like a slowly decaying Rome, still possesses enough military power to impose its will on other countries.

Therefore, whether you are a patriot of the US or China, a nationalist of the US or any other country, if you truly want to achieve your goals, instead of achieving the opposite, what you need to seek and strive for is not geopolitical opportunities, nor your nation's diligence, intelligence, or uniqueness, but rather a steadfast implementation of a genuine market economy. Put the North Korean people in a market economy, and they'd quickly show themselves to be some of the hardest-working and smartest people in the world.

Similarly, what has enabled China's economic and national strength to rise over the past forty years, witnessed by the world, is exactly its great reform and opening-up policy and market economy.