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Jonathan Russo Headshot

China's Rise and the Sixth Avenue Elevated

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New York City once had elevated subway lines. They were noisy and smoky. One ran along Sixth Avenue and was aptly called the Sixth Avenue Elevated. In 1938, it was torn down and the scrap metal, iron and steel sold to a dealer in California. To this day, there are rumors that a portion of this scrap was sold to the Japanese, who used it to make bombs and ships that attacked America several years later. E.E. Cummings wrote a poem about this called Plato Told. There was controversy for years.

Whether or not the "El" made its way to Japan is not the point. The point is that America was once concerned that it would inadvertently arm its enemies. Today there is no such concern. We consciously and proudly help arm another aggressive Asian nation that seems bent on the same path as Japan some 72 years ago. The recent surprise declaration that China would enforce an Air Defense Identification Zone (ADIZ) over a cluster of islands in the East China Sea known to the Japanese as the Senkaku and to the Chinese as the Diaoyu (which are currently administered by Japan) removes all doubt that the "peaceful rise" of China is over. The Asians and the world have seen this war movie before and it did not end well then, nor will it now.

China is flexing its military muscles. Pumped up on the steroids of a swollen trade deficit and a bulging foreign reserve--the result of a mercantilist export policy and the American and European self-destructive delusions about free trade--China is swaggering about. A very short list of its exploits would include: moon shots, American pig farms, African, Australian, Chilean oil and mining interests, Arctic stewardship, Vietnamese dams, French wine Chateaus, Caribbean resort complexes, Italian handbags, Brooklyn sports arenas, and Sotheby's art auctions. There is now no inflated "China price" too expensive for this Red Giant. There is no corner of the earth, or it seems outer space, that is beyond the imagination of the Chinese dream.

Just as Germany's rearmament in the 1930s was motivated by revenge for the 1919 Treaty of Versailles, so too is China's military and diplomatic aggression motivated by revenge. The need to redress the humiliation and suffering of the Chinese people by Western colonialism and Japanese militarism may have been put in the historical closet by China for tactical reasons, but it is out now. The demand for the kowtow is back and it must taste sweet to Beijing.

The entire process, we now understand, works like this: American consumers want the very cheapest price for everything. American big-box retailers and product suppliers are happy to grant that wish by making everything in China. America deindustrializes, factories close, and workers are laid off. China thrives, its central bank bloated with reserves. It decides to use a small fraction to build up its armed forces, especially its navy. The big-box retailers and manufacturers pour more money into China while simultaneously doing everything they can to minimize their American tax obligations. Swollen bundles of corporate cash sit offshore, far from the IRS.

America must cut its domestic and military budgets. China understands America's vulnerability and tests its pivot to Asia. America must spend its dwindling resources, even using borrowed Chinese money to police Asia's seas and skies to reassure its allies. Rinse and repeat.

Unlike the alleged destination of the Sixth Avenue Elevated's scrap, America's penchant for aiding and abetting the rise of a threatening power is in plain sight. The search for the cheapest price for everything sets in motion a self-defeating cycle of a weakened America and a rising China. The Chinese leadership probably senses that the point of no return has been reached and that they can now safely show their hand in the East and South China seas.

Remember: Japan started the same way. The reach to Pearl Harbor was a decade after Japan invaded Manchuria and nine years after it attacked Shanghai for the first time. The militaristic path China has chosen may be a long and winding one.

Yet these are still the early days, and it is very hard to predict what exactly will happen next. We do not really know how much the Chinese military influences the new president, Xi Jinping, or what he would do to deflect domestic, economic and social turmoil. Yet we do know that no matter what, we face a troubling situation.

So while we sent Vice President Biden to see what's up with the Chinese, perhaps we should have sent the new president and CEO of Wal-Mart, Doug McMillon, instead. His firm is responsible for over ten percent of the massive trillion-dollar U.S. trade deficit with China and arguably has more influence over President Xi than Biden ever will.

Interestingly, China's mendacity bookends America's needs and policies. From the collapsing folding card table that resulted in several American fingers being amputated, to China's supplying nuclear components to Iran, China's interests do not parallel ours. If you want to read a China expert's horrifying account of how China aids Iran's quest for a nuclear bomb, read this article by Gordon Chang: http://www.tabletmag.com/jewish-news-and-politics/157678/china-iran-nuclear-allies/2.

Someone in the American government has to have an adult conversation with China and corporate America. While the NSA is obsessed with hidden enemies that seek to harm our country, we should start worrying about the corporate enablers that weaken our military balance of power in plain sight. Corporate America cannot be all about short-term profit if it weakens the long-term strength of the nation.

The time to onshore manufacturing and redress the trade imbalance cannot come fast enough.