“You’re looking at a country which is the most radical actor on the global stage since the French Revolution.”

China is plowing forward with an agenda of economic aggression, empirical ambitions, and a complete disregard for international law and customs. How did this happen? It turns out to be a toxic combination of long national embarrassment, Confucian thought, and terrible missteps by the U.S. and others.

To give us a much-needed Chinese history lesson, I brought in former Commerce Department official Pat Mulloy, who also served as a commissioner on the U.S.-China Economic and Security Review Commission, and Stefan Halper, a professor at Cambridge University who worked in the Nixon and Ford administrations. Both have written a great deal on China.

Century of Humiliation

“I think you can’t understand what’s really happened here with our China relationship without understanding what the Chinese call their ‘century of humiliation.’ The Chinese are a very old and sophisticated civilization. They were a very prosperous society,” said Mulloy.

Around 1830, China’s economy amounted to almost a third of the world’s economy. That attracted Western interest. When British merchants and explorers tried to open up markets in China, the Chinese famously said, “We don’t want what you have,” and slammed the door in their faces.

Undaunted, the British grew opium in India and exported it to China. When Chinese leaders saw the impact opium was having on society, they tried to cut off trade.

The British quickly surmised that the Chinese were no match for them militarily and quickly gobbled up Hong Kong and control of other ports. Mulloy says the idea was to “carve up China just like they did Africa.”

Things just got worse for China when Japan took away Korea and Taiwan. The imperial system cratered in 1911 and attempts at a republic were a failure. Civil wars raged until the Japanese invaded the mainland in 1931.

Chinese loyalists fought with the Allies to defeat Japan in World War II, but another civil war ended with Mao Zedong and the communists controlling the country in 1949 and the Chinese nationalists we partnered with in the war fleeing to Taiwan.

In addition to killing tens of millions of his own people, Mao’s economic approach was also a disaster.

“He tried to rebuild China through a centrally planned economy. It didn’t work,” said Mulloy.

Nixon Opens the Door

Opportunity came knocking with the U.S. in 1972. President Richard Nixon was looking for another ally against the Soviet Union and the Chinese turned on the charm. They puffed up Secretary of State Henry Kissinger’s ego and the door to the great economic comeback for China was suddenly open.

The new relationship was not initially centered on trade, but did envision a robust economic connection.

“The assumption was that if we traded with China, American corporations would benefit; Americans would be employed; the Chinese would benefit on their end; and that eventually China would develop into a market economy and then a democracy,” said Halper.

He says that assumption proved to be “dead wrong.” Halper says a simple appreciation for Chinese history should have given us a clue.

“It’s rooted in Confucian thought, Confucian thought being … hierarchical, deriving from the father and the family and responsibilities that people have to support and sustain that. Politics grew out of that and had to be consistent with it, and so you didn’t have a lot of room for experimentation,” he said.

US Mistakes and China’s Explosive Growth

Mao died in 1976. The new leader, Deng Xiaoping, quickly realized how to restart China’s economic engine.

“He said, ‘If we want to build a powerful China, we need foreign markets, foreign knowhow, foreign technology, and foreign investment, and if we get those, we can start building a very powerful country,’” said Mulloy.

Economically, the biggest changes happened in the 1990s and early 2000s, starting when the United States conferred permanent “Most Favored Nation” status on China.

These decisions proved disastrous.

“Prior to that, we could only give China [Most Favored Nation status] one year at a time because we had a law that said you can’t give a communist country permanent [Most Favored Nation] trade treatment,” said Mulloy. “Each year, if China wasn’t behaving properly, we could take it away.”

“It was a terrible mistake to give it up because we were unable to manage or govern the Chinese after that,” agreed Halper.

The next shoe to drop came with China’s inclusion in the World Trade Organization.

The U.S. only approved China’s entry on the condition that we could continue to punish what we considered unfair trade practices by China or anyone else. But when that position was challenged within the World Trade Organization, we agreed not to penalize anyone unless we won a dispute at the World Trade Organization.

We handcuffed ourselves and we’ve been handcuffed ever since. What was once an $80 billion trade deficit is now at $4.5 trillion. It should have been foreseeable, but Wall Street and multinational corporations, which foresaw big returns from China, lobbied Congress hard to get these things approved.

Today’s Chinese Challenges

I believe that fundamentally, a nation’s wealth lies in its productive capacity, including the ability to make things, not just think them up. Unfortunately, the desire of American companies to manufacture at the lowest possible price has allowed China to get its hands on our cutting-edge innovation.

Mulloy agreed:

If we’re going be the innovative economy, and we’re outsourcing our ability to do so, this is an enormous problem for the United States of America. Now, the Chinese and their 2025 plan identified 10 key technologies that are going be the key technologies they think of the coming century, and they want to be dominant in those by 2025.

Things get even more troubling when you combine China’s theft of our intellectual property with how they are spending all of the money pouring in from their economy.

“The Chinese have gotten a great deal of confidence about their ability to project force throughout Southeast Asia and throughout the South China Sea and the East China Sea, which are the areas near to Japan. They have essentially claimed 90,000 square miles of sea and islands and outcroppings as part of China,” said Halper.

Halper adds that China is now bullying the Philippines and others not to protest its territorial ambitions. Beyond that, when China is challenged and loses, it just ignores the decisions.

“When China displays this willingness to set aside the rule of law … and they’ve dismissed the legal architecture, which arose in the aftermath of World War II. They don’t accept the legitimacy of the World Bank, of the World Trade Organization, of any of these international organizations because they didn’t have a major hand in creating them. They say they were created by the West for the benefit of the West. When they set that aside, you’re looking at a country which is the most radical actor on the global stage, what, since 1789, since the French Revolution,” said Halper.

Now What?

All of this is fascinating, but it’s only the prologue. It’s vital to know this history, but how do we use this knowledge to develop the most effective possible strategy in confronting China?

Don’t miss part two of this critical discussion.