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“What Is Going To Be Done about China?”

Yesterday I suggested that President Bush use all the leverage we have to convince Beijing to disarm Kim Jong Il. The Chinese supply about 90 percent of North Korea’s oil, 80 percent of its consumer goods, and 45 percent of its food. Pyongyang, as we know, has no more loyal supporter in the councils of diplomacy than Beijing. Without China, Kim “could neither bark nor bite.” There would be no North Korean nuclear program, no North Korean missiles, and no North Korea. Jon S, a frequent contentions reader, has borrowed Lenin’s words and asked the critical question: “What is to be done?”

We must first properly understand the “correlation of forces,” if I may continue with Soviet-era lingo. In “China’s century” the general assumption is that the United States must step out of the way of the rising giant. After all, the argument goes, the central government in Beijing owns about $387 billion in U.S. Treasury obligations and holds the bulk of its $1.5 trillion in foreign exchange reserves in dollar-denominated assets. We cannot afford to irritate the Chinese, especially because they have already threatened to exercise the so-called “nuclear option” and dump their dollars. As Hillary Clinton asks, “How do you get tough on your banker?”

Clinton is wrong because she ignores the reality of the financial markets. If the Chinese sold their dollars, they would have to buy something, as a practical matter, euros and yen. The values of those currencies would then shoot through the ceiling. The Europeans and the Japanese, to bring their currencies back into alignment, would then have to buy dollars. In short, our debt would end up in the hands of our friends.

And there’s a couple more things that we need to remember about the balance of power between China and the United States. Beijing’s spectacular rise has occurred in a period of sustained worldwide prosperity, but that era is now coming to an end, as the ongoing plunge in global financial markets indicates. China, the world’s largest exporter, has built its economy on selling goods to the United States. Beijing’s trade surplus with us for last year will exceed a quarter trillion dollars when the figures are announced. In short, the stability of the modern Chinese state largely depends on prosperity and that prosperity largely depends on access to American markets, capital, and technology.

Therefore, Beijing’s leaders are not about to cross Washington if they thought we were serious about proliferation. So far, we have not vigorously enforced the trade promises that Beijing made to join the World Trade Organization in 2001. Should we do so, we could drive the Chinese economy into the tank—and Beijing’s leaders know that. It’s time to have a conversation with them about their support for rogues like Kim Jong Il.

Moreover, the United States has never made China pay any price for proliferant activities. We announce slap-on-the-wrist measures on state-owned enterprises every once in a while, but now it’s time to levy real penalties on the Chinese government, which controls those businesses. Until we do that, Beijing’s leaders will just laugh at us while continuing their support for the Kims of the world.

And there’s one more thing. The United States needs to speak clearly to the Chinese, both in public as well as in private, about behavior that is, by any standard, unacceptable. The world looks to Washington for leadership, and we have not been providing it.