Foreign Upbeat
Jude Wanniski
March 15, 1994


CHINA: President Clinton now knows he has to find a way to get out of the hole his advisors dug for him on Most Favored Nation status for China. Beijing's treatment of Secretary of State Warren Christopher on the human rights issue absolutely stunned the White House, which never considered the possibility that the Chinese would be as rude to us as we have been to them. For the foreign minister of the world's only "superpower" to be treated like a Western Union messenger boy in short pants was a marvelous development, a Chinese gift to the people of the world, who were beginning to get sick of seeing Uncle Sam act like Emperor Samuel. Things will never be the same. Our political leaders have to begin acting like true leaders, putting themselves in the shoes of others and conducting foreign policy on the golden rule. Forty years ago, China sent several million young men to their deaths in Korea when it appeared the United States was encroaching on their turf. Why would it now get down on its knees and beg for MFN when we threaten its removal, unless they permit us to dictate to them who can and cannot be considered a disturbance to the peace of China? Hey, these are people determined to return to their rightful place in history as the Middle Kingdom. They are 1.2 billion people whose economy has grown at 10% a year for more than a decade, with the third largest economy in the world, soon to be second. At this rate, by decade's end, they will be importing $1 trillion annually from their trading partners. From their perspective, we should be glad we have MFN with them! To lose their $20 billion in trade with us now is on the order of a mosquito bite. The best way for the President to climb out of his hole would be simply to announce that he is delinking trade and human rights -- but will continue to broadcast complaints about their treatment of dissidents when appropriate. He will not get any complaints from Republicans. This is already the announced position of Senate Minority Leader Bob Dole.

JAPAN: The President's inept advisors have also dug him into a hole with Japan, advising him that he could be as rude as he wishes with the Japanese, even knocking them around like a battered wife. A wild rumor has it that Mickey Kantor told him he could even threaten a trade war unless the Emperor agreed to buy a lovely lot on the Whitewater Estates of Arkansas! Nobody explained to the President that the Liberal Democratic Party which ruled Japan for forty years had been kicked out last summer precisely because the people of Japan were tired of being treated rudely by Emperor Samuel. Nor has anyone explained to the President that Japan spends every dollar of the $50 billion trade surplus it has with the United States on U.S. stocks, U.S. bonds, U.S. real estate, and U.S. goods and services which it buys here for its many enterprises, which are not exported back to Japan and thus are not counted in the trade flows. Happily, the President may also have decided to climb out of this hole simply by declaring victory on the Motorola caper, which he did in his Saturday radio address. This was, after all, a great victory for President Clinton, the first of its kind. George Washington, Abraham Lincoln, and Franklin D. Roosevelt had all demanded that the Japanese buy Motorolas, but each failed. The only other President who ever shilled abroad for an American company was George Bush, who went to Tokyo in '92 with Lee Iacocca, GM & Ford, peddling autos with steering wheels on the wrong side, without notable success. President Clinton and Mr. Kantor threatened to cut off trade with Japan unless their consumers bought more Motorola cellular telephones (it already has 24% of the market). On Friday, the Japanese agreed to fiddle around to make it easier for Motorola to sell their phones. This should be enough for the President. After all, it's a bigger deal than the Mayor of Dublin gets when he roams the U.S. from time to time selling Irish whiskey. We must advise you a trade war may still be in the works: Through its contacts at Commerce, Polyconomics has demanded equal treatment with Motorola! For ten years we have been trying to get clients in Japan and have only one to show for our trouble. Unless Mickey Kantor gets us six more by the Fourth of July, a reasonable numerical target, we will demand that all Japanese exports to the U.S. be shut off (except the occasional spare parts for my wife's Toyota convertible).

MEXICO: Mexico's stock market has been whacked around of late as Manuel Camacho, the former Mayor of Mexico City, threatens to disrupt the peaceful flow of political succession that the ruling PRI party has enjoyed for several decades. He says he may challenge Luis Donaldo Colosio, President Salinas's choice to succeed him in Mexico's style of corporate democracy. As Camacho and Colosio are Salinas's two closest friends, we suspect Salinas has in mind a grand political realignment and reform -- which Mexico needs. The current elite mechanism was appropriate only for a centralized socialist experiment. Camacho says he will run if there is no improvement in the PRI's commitment to democracy by July 21, which means, of course, he will run, as he can always outbid Colosio. The filing deadline is already past, but the constitution would allow him to replace the candidate of one of the several minor parties, which he has no doubt already arranged. In the short run, the uncertainties have increased investor anxieties, hence the Bolsa sell-off. Once the smoke clears, it should be evident that the bidding war between Colosio and Camacho regarding needed political reforms can only benefit the ordinary people of Mexico, with Salinas making sure there is minimum risk to the general economic path he has carved. Economic issues would be part of the presidential campaign, but this would also serve to break through the government's tendency toward budget-balancing austerity that has kept economic growth well below its potential these last two years. An inadvertent flaw in the tax laws, that we believe starves small business of capital and credit, is being reviewed by Finance Minister Pedro Aspe, who promises a legislative fix if he finds we are correct. 

CUBA: Rep. Charles Rangel [D-NY] will have a day of hearings Thursday in his House Ways & Means subcommittee, receiving views on his bill to lift the Cuba embargo. Polyconomics senior economist Irene Philippi, who visited Havana last month at the invitation of the Castro government, will testify on what she learned. We are not taking a position on the embargo, but rather advising that the Cubans definitely wish to explore every avenue that would lead to that result, without preconditions. A prominent Cuban economist, Alejandro Aguilar, visited our offices in Morristown last week from Havana to further discuss our suggestions on how Cuba might resolve its problems with the U.S. government, and how it might quickly develop its crippled economy. Rangel invited me to testify at his hearings, but I advised him that I was still awaiting word from Havana on when Fidel Castro wished to meet with me, after which I would have a better feel for the political possibilities.

G-7: The President's G-7 "jobs" summit in Detroit clearly indicates his domestic economic advisors are as shallow as his foreign economic policy people. The very idea that the U.S. has anything to learn from European politicians who are up to their keesters in unemployment (as Ronald Reagan would put it) suggests a blind Presidential faith in his old teachers at Oxford. In a special essay we are publishing this week, "The Europeanization of America," David Gitlitz of our staff explores this connection. It's an enlightening follow-up to my "Karl Marx Revisited: A Fluid Society," [January 24, 1994], which suggested the notion that the United States is steadily converting into a stratified, ossified, European political economy. The Gitlitz essay is scarier.