Blinded by faith: the case against globalization.

The United States of America (which has a per capita gross domestic product of $46,000) is ensnared in a perverse symbiosis with China (which has a per capita GDP of $2,400). The richest nation on earth borrows--massively, every year--from this very poor country so Americans can sustain a fabulous standard of living. It is an embarrassment, especially for advocates of globalization, but America's depleted condition makes it necessary. The burgeoning U.S. indebtedness to foreign nations contradicts the familiar claims that free trade among nations is a winning proposition for America. Unlike the typically symbiotic relations between species in nature--think of honeybees pollinating apple tree-the cooperative relationship between China and the United States does not deliver mutual rewards.

The Chinese are willing to freely lend hundreds of billions of dollars to America because we need the money to keep buying China's exported goods. Companies producing in the United States sold some $79 billion in exports of goods and services to China in 2007, but Americans bought more than four times that from China in return, about $330 billion. The lopsided trade enables China to accumulate vast reserves of new wealth and lend much of it back to its U.S. customers. China, along with other major foreign creditors like Japan and the oil-rich Arab states, is America's national credit card.

This recycling of wealth allows U.S. consumers to enjoy cheaper goods and to keep living beyond our means, consuming more than we can competitively produce every year. It also gives China the wherewithal to continue its spectacular transformation into an advanced industrial nation by absorbing manufacturing jobs and now professional services that used to be based in the United States. China gets new factories and wealth. The United States gets outsourced production and an ominous, growing mountain of debt. In the short run, both sides gain something. In the long run, America is a big loser.

China is the source of that "giant sucking sound" Ross Perot talked about back in 1992 when he ran for president (although he thought it would come from Mexico). Between 2001 and 2007, 2.3 million U.S. jobs were lost as the trade deficit with China grew to $260 billion. The nonprofit, nonpartisan Economic Policy Institute has calculated the devastating impact that has had on the American working class, including those who did not lose their jobs. Competition with Chinese workers costs all working people without a college degree--about 100 million people, roughly 70 percent of the workforce an average $1,400 each in wage income. Of course the same group suffered similar losses from imbalanced trade for many years before China's rise. The average wage of industrial workers, when discounted for inflation, has remained flat since the early 1970s.

It is easy to demonize China, and many Americans do. After all, the Communist mandarins brutally suppress human rights and exploit young rural villagers who leave home to work in the new factories. Furthermore, the U.S. government and U.S. businesses regularly accuse Beijing of various forms of cheating--manipulating its currency for price advantages; blocking foreign products from entering China's market; and ripping off U.S. patent and copyright holders by copying musical works, films, and electronics, for example. The charges have some substance, but not much.

China is merely doing what the global trading system allows it to do. In fact, China is simply following the successful development strategy that Japan pioneered four decades ago and that other Asian tigers like Taiwan, South Korea, and Singapore undertook for their own rapid industrialization. A poor nation rises above poverty not by practicing "free trade," but by leveraging its primary asset--plentiful cheap labor--and managing its national economy in smart, self-interested ways that target the industrial assets of wealthy economies. In the face of criticism of these practices, some Asians point out that the...