Why China Is Rising and the United States Is Declining

By Lester R. Brown

I know Santa Claus is Chinese because each Christmas morning after all the gifts are unwrapped and things settle down I systematically go through the presents to see where they are made. The results are almost always the same: roughly 70 percent are from China. After some research, it seems that my one-family survey is representative of the country as a whole.

Let’s start with toys. Some 80 percent of the toys sold in the United States--from Barbie dolls to video games--are made in China. Talking toys that speak English learned the language from Chinese workers. Electronic goods--from Apple’s iPod to Microsoft’s Xbox--are made in China. Clothing--from the latest cashmere sweaters to gym suits--is also likely to have a "Made in China" label.

The Christmas tree itself may come from China. While real Christmas trees are grown in every state in the United States and are marketed locally, many families now gather around artificial Christmas trees. Eight out of every 10 artificial Christmas trees sold in the United States are made in China. Last year Americans spent over $130 million on plastic Christmas trees from China.

This year Americans will spend over $1 billion on Christmas ornaments from China. And in perhaps the greatest irony of all, even nativity scenes are made in China. Last year Americans spent more than $39 million buying nativity scenes shipped in from the East. China’s success in attracting foreign investment capital and mobilizing this huge workforce has made it the workshop of the world.

That the U.S. Christmas is made in China is a metaphor for a far deeper set of economic issues affecting the United States. Today Christmas is celebrated in both the United States and China--but for different reasons and with far different economic consequences. For the Chinese, the manufacturing bonanza means record profits, rising incomes, and, in a society where people save some 40 percent of their income, a sharp jump in savings. In the United States, Christmas shopping expenditures, headed for another record high this year, contribute to rising credit card debt and a soaring trade deficit.

Underneath the American Christmas spirit and good cheer is a debt-laden society that appears to have lost its way, marred in the quicksand of consumerism. As a society, we seem to have forgotten how to save so we can invest in a better future. Instead of leaving our children a promising economic future, we are bequeathing them the largest debt burden of any generation in history.

At the personal level, credit card debt just keeps climbing, and at the government level, we have the largest deficit in history. At the international level, we have a trade deficit that moves to a new high month after month.

It’s not the fact that our Christmas is made in China, but rather the mindset that has led to it that is most disturbing. We want to consume no matter what. We want to spend now and let our children pay. It is this same mindset that introduces tax cuts while waging a costly war. Economic sacrifice is no longer part of our vocabulary. After the Japanese attack on Pearl Harbor, President Roosevelt banned the sale of private cars in order to mobilize the manufacturing capacity and engineering skills of the U.S. automobile industry to build tanks and planes. In contrast, after 9/11, President Bush urged us to go shopping.

In the United States we are so intent on consuming that personal savings have virtually disappeared. We have an average of five credit cards for every man, woman, and child. Of the 145 million cardholders, only 55 million clear their accounts each month. The other 90 million cannot seem to catch up and are paying steep interest rates on their remaining balance. Millions of people are so deeply in debt that they may remain indebted for life.

The official national debt, the product of years of fiscal deficits, now totals $8.5 trillion--some $64,000 per taxpayer.

By the end of the Bush administration in 2008, this figure is projected to reach a staggering $9.4 trillion. We are digging a fiscal black hole and sinking deeper and deeper into it.

Each month the Treasury covers the fiscal deficit by auctioning off securities. The two leading international buyers of U.S. Treasury securities are Japan and China. In this role, China is now also becoming our banker. This developing country, where income levels are one sixth those of the United States, is financing the excesses of an affluent industrial society. What’s wrong with this picture?

In times past, when our fiscal deficits were covered largely by U.S. lenders, interest payments on the debt were reinvested in the United States. Now they are flowing abroad to Japan, China, and other foreign holders of U.S. debt.

While the U.S. fiscal deficit, driven partly by the war in Iraq, soars to stratospheric levels, the country is facing an unprecedented fiscal challenge as the baby boomer generation retires, pushing up the costs of social security, Medicaid, and Medicare. This, combined with the growing interest payments on our debt to China and other countries, will put a nearly impossible tax burden on the next generation--something for which they may never forgive us.

The U.S. trade deficit is growing by leaps and bounds, nearly doubling from $452 billion in 2000 to an estimated $850 billion in 2006. Rising oil imports and the trade deficit with China account for over half of it.

National policy failures such as not adequately supporting the use of renewable energy technologies have contributed to the growing U.S. trade deficit. For example, the United States should be a leading manufacturer and exporter of solar cells and wind turbines, but it has fallen behind both Europe and Japan. The solar cell, invented at Bell Labs in 1954, is an American technology. But the U.S. effort to develop solar energy was so weak and sporadic that both Germany and Japan forged ahead and developed robust solar cell manufacturing and export industries.

The situation is similar with wind. Although the modern wind industry was born in California at the beginning of the 1980s, the U.S. failure to sustain support for wind resource development allowed European countries to largely take over this industry.

Even though rising oil imports are widening our trade deficit, we consume oil with abandon, weakening the economy and undermining our political independence.

We have lost influence in world financial markets simply because of our mounting debt, much of it held by other countries. If China’s leaders ever become convinced that the dollar is headed continuously downward and they decide to dump their dollar holdings, the dollar could collapse.

Beholden to other countries for oil and to finance our debt, the United States is fast losing its leadership role in the world. The question we are facing is not simply whether our Christmas is made in China, but more fundamentally whether we can restore the discipline and values that made us a great nation--a nation the world admired, respected, and emulated. This is not something that Santa Claus can deliver, not even a Chinese Santa Claus. This is something only we can do.

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Lester R. Brown is President of the Earth Policy Institute and author of Plan B 3.0: Mobilizing to Save Civilization.

Data and additional resources at www.earthpolicy.org.

The Undeclared Oil War

While some debate whether the war in Iraq was or was not "about oil," another war, this one involving little but oil, has broken out between two of the world's most powerful nations.

For months China and Japan have been locked in a diplomatic battle over access to the big oil fields in Siberia. Japan, which depends entirely on imported oil, is desperately lobbying Moscow for a 2,300-mile pipeline from Siberia to coastal Japan. But fast-growing China, now the world's second-largest oil user, after the United States, sees Russian oil as vital for its own "energy security" and is pushing for a 1,400-mile pipeline south to Daqing.

The petro-rivalry has become so intense that Japan has offered to finance the $5 billion pipeline, invest $7 billion in development of Siberian oil fields and throw in an additional $2 billion for Russian "social projects" -- this despite the certainty that if Japan does win Russia's oil, relations between Tokyo and Beijing may sink to their lowest, potentially most dangerous, levels since World War II.

Asia's undeclared oil war is but the latest reminder that in a global economy dependent largely on a single fuel -- oil -- "energy security" means far more than hardening refineries and pipelines against terrorist attack. At its most basic level, energy security is the ability to keep the global machine humming -- that is, to produce enough fuels and electricity at affordable prices that every nation can keep its economy running, its people fed and its borders defended.

A failure of energy security means that the momentum of industrialization and modernity grinds to a halt. And by that measure, we are failing.

In the United States and Europe, new demand for electricity is outpacing the new supply of power and natural gas and raising the specter of more rolling blackouts. In the "emerging" economies, such as Brazil, India and especially China, energy demand is rising so fast it may double by 2020. And this only hints at the energy crisis facing the developing world, where nearly 2 billion people -- a third of the world's population -- have almost no access to electricity or liquid fuels and are thus condemned to a medieval existence that breeds despair, resentment and, ultimately, conflict.

In other words, we are on the cusp of a new kind of war -- between those who have enough energy and those who do not but are increasingly willing to go out and get it. While nations have always competed for oil, it seems more and more likely that the race for a piece of the last big reserves of oil and natural gas will be the dominant geopolitical theme of the 21st century.

Already we can see the outlines. China and Japan are scrapping over Siberia. In the Caspian Sea region, European, Russian, Chinese and American governments and oil companies are battling for a stake in the big oil fields of Kazakhstan and Azerbaijan. In Africa, the United States is building a network of military bases and diplomatic missions whose main goal is to protect American access to oilfields in volatile places such as Nigeria, Cameroon, Chad and tiny Sao Tome -- and, as important, to deny that access to China and other thirsty superpowers.

The diplomatic tussles only hint at what we'll see in the Middle East, where most of the world's remaining oil lies. For all the talk of big new oil discoveries in Russia and Africa -- and of how this gush of crude will "free" America and other big importers from the machinations of OPEC -- the geological facts speak otherwise. Even with the new Russian and African oil, worldwide oil production outside the Middle East is barely keeping pace with demand.

In the run-up to the Iraq war, Russia and France clashed noisily with the United States over whose companies would have access to the oil in post-Saddam Hussein Iraq. Less well known is the way China has sought to build up its own oil alliances in the Middle East -- often over Washington's objections. In 2000 Chinese oil officials visited Iran, a country U.S. companies are forbidden to deal with; China also has a major interest in Iraqi oil.

But China's most controversial oil overture has been made to a country America once regarded as its most trusted oil ally: Saudi Arabia. In recent years, Beijing has been lobbying Riyadh for access to Saudi reserves, the largest in the world. In return, the Chinese have offered the Saudis a foothold in what will be the world's biggest energy market -- and, as a bonus, have thrown in offers of sophisticated Chinese weaponry, including ballistic missiles and other hardware, that the United States and Europe have refused to sell to the Saudis.

Granted, the United States, with its vast economic and military power, would probably win any direct "hot" war for oil. The far more worrisome scenario is that an escalating rivalry among other big consumers will spark new conflicts -- conflicts that might require U.S. intervention and could easily destabilize the world economy upon which American power ultimately rests.

As demand for oil becomes sharper, as global oil production continues to lag (and as producers such as Saudi Arabia and Nigeria grow more unstable) the struggle to maintain access to adequate energy supplies, always a critical mission for any nation, will become even more challenging and uncertain and take up even more resources and political attention.

This escalation will not only drive up the risk of conflict but will make it harder for governments to focus on long-term energy challenges, such as avoiding climate change, developing alternative fuels and alleviating Third World energy poverty -- challenges that are themselves critical to long-term energy security but which, ironically, will be seen as distracting from the current campaign to keep the oil flowing.

This, ultimately, is the real energy-security dilemma. The more obvious it becomes that an oil-dominated energy economy is inherently insecure, the harder it becomes to move on to something beyond oil.

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By Paul RobertsWashington Post

United States, China Clash over Peak Oil May Endanger World Peace

By Ann Weaver Hart

Peak Oil may have put the United States on a collision course with China as the two nations compete for African oil reserves. "Peak Oil" refers to the fact that worldwide, per capita petroleum production peaked in 1979. Owing to population growth, even though more actual barrels of oil per day are extracted, the amount of oil pumped per person continues to drop.

American companies helped create the situation, but seem unconcerned over the prospect of facing off with China over petroleum.

In the late 1990s, one of GM's annual reports focused on that company's efforts to open the Chinese market to American-made cars. The report stated that GM intended to bring personal transportation to 1 billion Chinese. Investors and oil companies loved the idea of practically limitless profits, and GM continues its commitment to personal mobility in heavily populated Asian nations today.

In the United States, auto makers, encouraged by weakened environmental standards, produced and marketed gas-guzzlers like turbo-charged pickups, SUVs, and Humvees, which Americans bought in droves.

After the bombing of the World Trade Centers, Americans were barraged with advertisements for vehicles with low- and zero-interest loans. These promotions were almost exclusively for high-consumption vehicles. There were efficient vehicles being produced.

Toyota introduced both the Echo, a four-cylinder wonder that got 40 mph and the Prius, a gas-electric hybrid during this time, but the vehicles went nearly un-promoted. Soon after WTC, the U.S. military deployed to countries where petroleum production was the major business, coincidentally destabilizing governments and the oil markets, and causing gasoline prices to first double, and at times, triple.

Transportation is not the only petroleum-dependent industry in the United States. Prices of agricultural products are beginning to rise with production costs, and as the demand for agriculturally produced fuels places upward pressures on the price of corn.

Meanwhile, auto makers are creating a Chinese version of the American dream, with a car in every driveway, and the Chinese are faced with a rapidly growing demand for gasoline that has already outstripped domestic production.

At present, the U.S. military is present in Afghanistan and Iraq, and the current administration is eyeing Iran. Meanwhile, Chinese companies are busy in Africa attempting to stake their claims to that region's black gold. Not to be outdone, the United States Department of Defense is preparing AFRICOM for operations beginning in October.

In a Defense Department report, officials downplayed the military aspect of the operation, stressing its economic and diplomatic aims, but the organization is responsible for security, a primarily military objective, and is headed by General William E. "Kip" Ward.

Meanwhile, American and Chinese citizens burn as much gasoline as they can comfortably afford. Hybrid cars are expensive and still consume gasoline. Petroleum resources are finite.

The Chinese want oil, and lots of it. What remains to be seen is what they or the United States are willing to do to get it.

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