Hard lesson for US protectionists: it’s about coming second and still being first. Go figure (or just ask 'The Beast of Redmond'). 

Economists predict that the United States will fall to second place in the global economic league, replaced by China, in the next few years. This is bad news for the world’s self-anointed economic superpower – but only because of its failure to grasp the opportunities presented by the world’s newest largest market.

Bill Gates of Microsoft meeting Hu Jintao of China this week, before the latter went on to meet the Washington warmonger, George W. Bush, might have indicated the new priorities of the global economy in general and the Sino-American political economy in particular. Bush may be President of the USA; Gates is President of the modern world economy.

Lame duck, crispy duck
The December 2004 acquisition of IBM’s ‘fabled’ PC division by China’s Lenovo (click here) fuelled protectionist sentiment in the USA even though most observers agreed that IBM’s PC business was getting rid of damaged goods. Other Chinese-US takeovers mooted at the same time, in areas such as consumer appliances and oil, fanned flames of irrational closed-border anti-Chinese rhetoric. They did not go ahead.

It’s an incredible arrogance that we have seen time and again in areas like energy consumption or the emission of greenhouse gasses, not to mention technology policy. The same arrogance is apparent in political spheres like the nature of democracy but we won’t dwell on that here. God forbid that a democracy might vote for the wrong people, just as God might forbid that market forces would allow a strategic IT industry to fall into the hand of the non-believers or the infidel. Or the Chinese.

China’s ingress into the American economy and its economic policies make it appear like a form of medieval torture for the zealots of the US. The United States derides China for its currency policy (this keeps the yuan ‘artificially’ low), its low labour rates and the resulting trade surplus that China enjoys with the US. When those arguments fail, the US points at China’s human rights abuses.

The latter brings to mind the episode when Libya’s Colonel Gaddafi and Fidel Castro of Cuba offered to send independent election observers to Florida after the Bush-Gore election fiasco. But we are not doing politics here, so we’ll leave America’s home-grown abuse of human and constitutional rights to one side. As President Hu might have done this week.

Technology and trade policies are different. Post-Lenovo, Microsoft bleated that piracy of its software was costing the company revenues in the world’s most rapidly emerging market. On the eve of his visit to Gates-ville, en route to Bush-ville, Hu announced a crackdown on software piracy and his support for IPR principles; Lenovo simultaneously announced a US$2bn+ order to install MS Windows on its newly-minted (ex-IBM) PCs.

This is taken as a sign that China’s market for operating system software is maturing. Sub-standard copies are being shunned. Better-off consumers demand the real thing. Ironically, Lenovo’s ownership of a substantial portion of the hardware base has created opportunities for Microsoft in terms of its software base. Untold opportunities, in fact. So stick that in your protectionist pipe and…

But what then of the iconic US-based Internet companies entering the Chinese market? Yahoo! and Google, Skype and the rest have entered the Chinese market while agreeing to subject themselves to Beijing’s authoritarian rules on freedom of information. Internet habitués have accused them of betrayal. Common or garden critics of China have joined in.

But why? The list of crap countries does not start and end with China. By the sheer size of its population, China will always be the largest democratic/undemocratic state in the world. Pragmatists will play along with it and idealists will refuse to deal with it. Pragmatists will argue that opening chinks in China’s armour will precipitate China’s move to democracy while idealists will insist upon isolation until its one billion or so people come begging, screaming for broadband and 3G.

The US sees China as its biggest rival – with some reason, for it has already lost the battle for economic superpower status. It now needs to see and seek out China as its largest potential market and act accordingly. As usual, Bill Gates is a step or two ahead of the rest.
Jim Chalmers