What a stunning turn of events over the last generation. Only in 1989, the year of the fateful events in Tiananmen Square, China was irrelevant in the world economy. The battered and brutalized giant had been growing, to be sure, since the agricultural reforms that came in the wake of Chairman Mao’s death in 1976, but in terms of China’s being a factor in the world economy, much less a vital trading partner of the United States—this was essentially unforeseeable a quarter century ago.
By a few years into the current millennium, however, China had become integrated into the world economy, specifically into the processes of American consumerism, almost to a ludicrous degree. Defining chain stores of the contemporary American buying landscape, from Hobby Lobby to the Apple store, carried reams of goods dutifully marked with “Made in China”—as in the People’s Republic.
This stuff needs non-Communist backing
This shift, from Tiananmen to Hobby Lobby, is all the more remarkable in view of the fact that China had the most horrific experience with Communism in the extensive, sordid history of that political phenomenon in the twentieth century. And the screaming outrages of Communism in China—the great famines of the 1950s and 1960s and the Cultural Revolution (a state-sponsored war on culture) of the 1960s and 1970s came late, well after the Soviet Union had made peace with being a doddering, failing status quo power.
Furthermore, China never had a change in government. The regime that Mao set up in 1949, that supervised the human-experience-expanding crimes and brutalities of the 1950s, ’60s, and ’70s, installed new names and faces after Mao’s death, but there was no regime change. Much as the ruling apparatus set in motion by the Constitutional Convention centuries ago remains ours today, that impelled by Mao 68 years ago is China’s. It is arresting that such a place could be a major, indispensable economic power, notwithstanding the irreducible human-capital potentialities of a country of a billion-plus persons.
The essentially sufficient cause of China’s immense industrial and technological revolution, along with the integration of China into the first-world global economy, was the decision China made in the early 1990s, and adhered to since, to fix its currency to the dollar. For just over twenty years now, China has acted in currency markets to ensure that its yuan, its “RMB” trades at the same rate for long, multi-year stretches, at 6 or 7 per dollar, with small adjustments the exception rather than the rule.
The tremendous rise, in the 2000s, of the merchandise trade deficit with China—that driver of the “hollowing out” American industry, as is often said—derives from this one cause above all. China came a calling to the world economy in the 1990s as a country that had, whatever the reforms that had recently done their work, a government launched and perfected by Mao. A country like that cannot do one particular thing: create currency and expect people on the international scene to do anything but run like the wind from it.
When China decided, in the 1990s, that it wanted to connect with the world economy, it confronted a decision that it had to make. It had to acquire a vast amount of currency, of money, that was not its own, that had no suggestion of a taint with Communism, so that people would accept its own money. The only way money produced by the heirs of Chairman Mao could conceivably be accepted (outside of the context of brute force) was that if there was a strong impression, backed up by clear reality, that this stuff was convertible at the ready to something like the opposite of a Maoist currency.