Opinion

China and US hold reins to a better global future

By Jean-Pierre Lehmann (China Daily)
Updated: 2009-11-19 08:02

US President Barack Obama's visit to China is arguably his most important international "rendezvous", especially because some perceive China as a "threat" to the US. But that perception must not be exaggerated because China still lags far behind America in every field - from military and economy to "soft-power".

At the fourth ministerial conference of the Forum on China-Africa Cooperation in Sharm El-Sheikh, Egypt, Premier Wen Jiabao announced eight new measures to enhance Sino-African ties. They ranged from collaboration in climate change, development of technical skills and opening of the Chinese market to African exports to reduction or elimination of debt for the poorer African countries and cooperation in health and preventative medicine. This, like many other examples, underlines the fact that China is genuinely an emerging global power.

China's relations with the US over the past two decades have often been compared with that of Tokyo's ties - and period of "trade friction" - with Washington in the 1970s and 1980s. But Tokyo's "challenge" was pretty much restricted to the realm of bilateral trade, whereas Sino-US ties are different in nature, and have, more than anything else, the power to determine the outlook of the global economy and the environment.

To assess the nature of Sino-US relationship, two fundamental dimensions need to be grasped. It is not just the size and scope of China's emergence on the global economic scene - and the implications arising for America - but also the speed with which these developments have taken place that is important. From being a negligible factor just 20 years ago, China today is one of the top economic powers, from trade, direct investment and finance to production and patent application.

One example should suffice to prove the point: The Oct 24 edition of The Economist cites a survey on US-China relations to say that Japan held four times the amount of US Treasuries than China in 2004, but Beijing overtook Tokyo last year.

The global economic crisis has further complicated the bilateral relationship in two respects. First, there is a strongly held view in a number of Washington circles that China is responsible - or at least partly responsible - for the crisis. The Chinese, this school of thought holds, provided far too much cheap credit to the US, allowing consumers to go on a buying spree (of generally made-in-China products), which led to the sub-prime mortgage crisis. And it was these "imbalances" that caused the global economy to spiral into a crisis.

In a recent article, The Myth of Protectionism, Harvard economist Dani Rodrik says the "central challenge the world economy will face (is) the inevitable clash between China's need to produce an ever-growing quantity of manufactured goods and America's need to maintain a smaller current-account deficit". But, he adds, "unfortunately, there is little to suggest that policymakers are yet ready to confront this genuine threat".

Second, China has weathered the global economic storm far more successfully than the US - at least so far. The crisis precipitated a universal trumpeting of the "death" of the "Washington consensus." So is it "long live Beijing consensus"? Not quite, but certainly there are many people, especially in developing countries, who see a growing attraction to the Chinese model of economic growth, as opposed to that proffered by the organizations like the IMF. China has extended its global economic reach across the world from East and South Asia and the Middle East to Africa and Latin America. Its soft power will rise, too, both as a model and partnership for tackling global issues such as climate change and epidemics.

The most important factor that will determine the nature of Sino-US relationship is trade. Although the US' trade deficit with China has come down this year, mainly, as Rodrik says, because the Americans are consuming less and saving more (more out of necessity than choice), it has attained quite astronomic proportions and has been a major conflicting factor in bilateral ties.

Recent months have seen Washington resorting to protectionist measures against Beijing. In September, it imposed punitive tariffs on the import of Chinese tires - even though many of them are made by US enterprises in China - and most recently on steel-pipes. Beijing has reacted vociferously and threatened to drag Washington before the WTO.

It is worrying that the US has adopted such measures despite the existence of bilateral and international frameworks and mutual commitments. Bilaterally, President Obama has enhanced and strengthened the framework, initiated by his predecessor, in the newly formulated US-China Strategic and Economic Dialogue. At the three G20 summits - Washington in November 2008, London in April 2009 and Pittsburgh in September - its member states pledged to successfully conclude the Doha Round, "reject protectionism (and) refrain from raising new barriers to investment or to trade in goods and services". And China and US both are members of the G20.

The outbreak of trade protectionism would perhaps pose a greater danger to the world economy than the financial crisis. Trade wars are what occurred in the 1930s and we know their consequences. So it won't be Cassandra-ish to say that a Sino-American trade war would be an unmitigated disaster for the global economy.

Presidents Hu Jintao and Obama both know the most important factor in bilateral as well international relations is trade. And for a real and lasting commitment to development, both of them should eschew protectionism and avoid trade conflicts. After all, their actions will have a monumental impact on the peace and prosperity of the planet.

The author is professor of International Political Economy at IMD in Lausanne, Switzerland, and founding director of the Evian Group.