Yep, the paper tiger is China

Napoleonic France, the Soviet Union and today’s China rely on easy money and dozy adversaries to build up their power on an exploitative basis. In China’s case, entry to the WTO in 2001 and its gross abuse of Western intellectual property built its strength artificially, as was the case with the 1960s Soviet Union and Napoleonic France. However, as Liverpool showed from 1809 and Reagan showed in the 1980s, a determined adversary, who is aware of the exploitative games played by the would-be economic hegemon, can force it to abide by market rules, at which point its over-extended economy will collapse, or at least shrink back to a level sustainable from its domestic finances and capability.

As with Reagan confronting the Soviet Union after 1981, the United States now has a President in Donald Trump who will prevent China from taking advantage of the international trading, intellectual property and credit system by non-market means. To achieve this, he must tighten intellectual property rules, as he is doing, and ensure that China’s flouting of “level playing field” WTO norms is met by equal barriers from the U.S. and ideally from the West as a whole.

Then (and this will be difficult for a convinced easy-money man like Trump) he must tighten the international money markets sufficiently that liquidity is not available ad infinitum to finance China’s “Belt and Road” and other expansion schemes. China must not be allowed to take over economically a strip of countries between itself and Africa, including much of the Middle East, thereby giving itself more resources to exploit in its non-market economy. Much of China’s investment in the last quarter-century, domestic and international, has been “malinvestment” in the Austrian economists’ use of that term; and must be liquidated for the economy to regain its health.

With these initiatives, China will soon be faced with a massive credit crisis, as it can no longer borrow to prop up its fictitious shell of an economy. Like the Soviet Union and post-Napoleonic France, it will emerge healthy, but economically a third of its former size. By forcing this, Trump will perform a massive service for the United States and its Western allies, but also in the long run for China itself and especially for its industrious but not pathologically frugal people.