I was going through the statistics section of the Economist, looking over the performances of the various countries. Canada's wasn't bad, but the numbers for the U.S. scared the hell out of me: huge numbers for the trade deficit, budget deficit, and debt. All this after just having read that the U.S. Fed is being propped up by large investments from East Asia, and China in particular.
This situation may give China veto rights on all of America's foreign policy. This is precisely the situation Britain found itself in during the 50's, when Eisenhower ordered Britain out of Suez by threatening to destroy the pound using Britain's massive WWII debt to America. The debt put England's balls in his hand. He gave a little squeeze, and the last of the British empire fell and died with a wimper.
The outsourcing situation doesn't help. The economic theory is that allowing goods to be produced where they are cheapest leverages the relative strengths of various national economies. All well and good, when the two countries are more or less equal and able to maintain a more or less equal trade balance. In that case, both sides benefit by getting cheaper goods. But when the labour market is nearly infinitely elastic, enforced through totalitatian measures, as it is in China, wages in China remain at rock bottom, and there is little that Americans make that the Chinese can afford. Instead of trickling down, the money is being thrown right back at the Fed in a global Ponzi scheme. The result is the inevitable decline of the standard of living of American workers towards Chinese levels--or massive trade deficits, that can only be sustained through loans, giving China the power to threaten the American economy.
At the same time, China is building a massive industrial infrastructure, which could be redirected to less peaceful uses once established. Combine this is hordes of 'bare branches'--young males with little or no chance of marriage--and you have the perfect environment for massive military mobilization. If the time came that China wanted to flex this muscle (and this is not a given--China does not have a history of expansionism), it could remove America from the stage by playing its economic ace, after which Bill Gates entire fortune would barely pay for breakfast. The consequence of going through on this would be disastrous for China, but primarily to those at the lowest level of the pyramid. China is run mainly by party aparatchiks and triad gangsters, who aren't renowned for their humanitarian concerns.
Rest assured that the Chinese already know all this.
The solution would be a set of human rights and environmental tarrifs, which would partly cancel the attractiveness of outsourcing and provide strong incentives for businesses in the third world to raise the standard of living and the environmental standards in those countries. Essentially, follow environmental standards and pay your workers, or pay an even larger amount of money in tarrifs. This does not mean that third world workers would have to be paid the same as Americans. It means that they should be paid to achieve essentially the same standard of living as American workers, which may still amount to considerably less money given living expenses in that country. In other words, development in the third world would still be attractive. But the overall effect of this would be to protect job markets and labour rights in the first world while improving conditions in the third world and creating markets for first world goods. And those tarrifs would provide a much needed revenue stream for the government. This is not protectionism per se, so much as a strong incentive on companies, especially western companies, to act responsibly in other countries. It protects both sides. And while terrorists are not motivated by economic imperialism (they live in their own reality-free zone, which I won't get into here), it is a handy excuse they like to fall back on to generate sympathy for their cause.
The U.S. is in a unique position to do this because everyone wants to get into American markets. Even if America went alone on this, it would have a tremendous impact on the world. Too bad none of the politicians has thought of this.