In 2012, the drought-stricken Western United States will ship more than 50 billion gallons of water to China. This water will leave the country embedded in alfalfa—most of it grown in California—and is destined to feed Chinese cows. The strange situation illustrates what is wrong about how we think, or rather don't think, about water policy in the U.S.

In connection with government-led initiatives to improve the Chinese people's diet, China has massively expanded its dairy industry. Even though a large segment of the population...