US and the awakened giant - Hussain H Zaidi - Monday, April 11, 2011

“What are the major contours of our relationship with China?” the president asked his team of advisors.

“Mr President, our country and China are at once competitors and partners,” the secretary of state explained. “Since the demise of the USSR, we’re the globe’s sole superpower and have shaped international relations in our own fashion in what was once called the New World Order. But now we’ll have to reckon with Beijing, which is a superpower in the making and suspects we’re out to prevent its rise. This makes us rivals. That said, both of us have stakes in preserving the current international economic order and therefore maintaining global peace and security. The economy is the mainstay of China’s power and it’s alive to the fact that economic growth predicates a peaceful, predictable and stable environment. Hence, cooperation is in our mutual interest.”

“What about China’s imperialistic ambitions,” the president enquired.

“None. The Chinese have no ambition to export their ideology or create colonies.”

“Surprising, indeed!” The president remarked.

“Well, it’s simple. The Chinese believe that the non-Chinese world is too savage to be civilised; so political or cultural imperialism makes little sense in their worldview,” the secretary of state replied. “In the realm of economics, like us, Beijing is a beneficiary of economic and trade liberalisation and has no alternative economic model to espouse.”

“Politically, where do we clash?” the president turned to his national security advisor.”

“We’ve quite a few issues to settle,” the advisor began. “Potentially the most explosive is the Taiwan issue. China claims Taiwan to be its province, which has to be united with the mainland. Officially, we’re committed to a one-China policy and recognise Taiwan to be part of China. So far things have been under control. But problems may crop up in case Taiwan formally declares independence and China resorts to the use of force to avert that, prompting us to step in on the side of Taiwan. That may bring us to a direct military conflict with Beijing, which evidently would be catastrophic.”

“From politics we move on to economics,” the president looked at his treasury secretary.

“Well, China is close on our heels as the world’s second-largest economy and trading nation. They have already become the globe’s top exporter of merchandise goods. Our transnational corporations have invested billions of dollars in the enormous Chinese market. On its part, China is in part financing our current account deficit through huge investment in the domestic bond market.”

“That’s nice, isn’t it? Courtesy China, we’re consuming more than we’re producing,” the president noted.

“Yes, on the face of it. But the fact is that our firms are finding it exceedingly difficult to successfully face competition from their Chinese counterparts at home. That’s why our trade deficit with Beijing is on the rise. Importing more from China than exporting to it means we’re losing jobs to them at a time when our economy is in straits and is facing double-digit unemployment,” the treasury secretary explained.

“It means the Chinese first cause our terms of trade to go to our disadvantage and then come to our rescue. Clever! Aren’t they? I’m sure we have responded to the Chinese challenge.”

“Our response, Mr President, has been two-fold: We’ve taken trade defence measures on several Chinese products as well as pressured them on such issues as human right and intellectual property right violation, subsidisation and an undervalued currency. Congress is considering clamping punitive duties on Chinese exports. However, we need to be careful in acting against the Chinese, for several reasons. One, our transnational corporations have invested heavily in China and a good deal of Chinese economic output is produced by the subsidiaries of these firms. Hence, punitive action against China will also penalise these mega-businesses and have a backlash at home. Two, punitive measures against China would harm our own consumers and businesses, which are getting inexpensive goods in Chinese imports in hard times.

“Three, in China, we’ve a credible source of funding for our current account deficit. Imposition of duties may force China to disinvest part of its holdings of our public securities, which would push the greenback down and may cause great inflationary pressures on the economy. Four, our administration is eyeing huge Chinese foreign exchange reserves to bail out the beleaguered domestic financial firms. Beijing hasn’t ruled out the possibility of lending a hand to our administration, but it has made it subject to certain conditions, such as softening of criticism of state of human rights in China, an attenuated American support to Taiwan, and removal of what they call discriminatory trade restrictions on their exports and businesses.

“You’ve nicely put our constraints in dealing with China. But do Chinese policymakers also realise their constraints?”

“Yes, of course. As the secretary of state stated, if China wants to continue its economic and commercial growth momentum, it must adhere to peaceful settlement of disputes. And they know it. Besides, the Chinese are mindful of the repercussions on their own economic performance of the economic slowdown in the West, particularly in our part of the world. Their economic growth is mainly export-led and we account for the bulk of their trade surplus. Our economic slowdown will reduce demand for China’s exports and hamper its growth momentum.”

“Very well. Thanks for the nice briefing.”

The writer is a freelance contributor based in Islamabad. Email: hussainhzaidi@gmail. com

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