The US-China relationship is the most important bilateral diplomatic relationship for the US today. The issues that link these two world powers include the economy, nuclear proliferation, climate change, and human rights. Meaningful progress cannot be made in any of these issues without effective US-Chinese collaboration.
The global economy is the top issue for the two nations. The U.S. has the world’s largest economy by far (counting the European Union as individual nations), and Japan came in second place until this year as China passed Japan for that spot. Even now China’s economy is still growing despite the opposite worldwide trend.
Though China’s economy is still much smaller than that of the U.S., China will not only emerge from the recession debt-free, but it will also own about $1 trillion in U.S. government debt. China has enough money saved to fund not only its own $600 billion stimulus (which is larger than the U.S. stimulus package when adjusted for the size of the economies), but also in part that of the U.S.
China’s massive trade surplus in the recent decades, opposed to the U.S. trade deficit, has left it with this saved money. Beyond the $1 trillion in U.S. government debt, the Chinese reserves contain nearly another $1 trillion. The Chinese government bought these dollars from Chinese exporters in order to keep them out of China’s economy, a technique to keep the RMB down in value.
However, this trade does not come without contention. In a senate hearing, U.S. Treasury Secretary Timothy Geithner accused the Chinese government of manipulating its currency, the Renminbi (RMB or Yuan), to keep it weak to the dollar, which promotes Chinese exports but not imports. The result is that roughly one third of the Chinese foreign reserves are in dollars.
The power this gives China is simple: If China were to withdraw dollar holdings, the value of the dollar would plummet. However, if China were to start seriously withdrawing U.S. dollars, as it did that, the value of the dollars still invested would go down. That is, the first dollar withdrawn would be worth much more than the last; $2 trillion would become much less. Thus, any negative fluctuation in the dollar is bad for China too. There is a mutually assured destruction that prevents abuse of China’s U.S. dollar holdings.
Indeed, by some measures, the more China has, the better. By integrating the Chinese and U.S. economies, both parties become invested in a common security that takes the punch out of recent Chinese threats about abandoning the dollar because it is insecure. Some even go further and consider the Chinese “fear” about the dollar to be a distraction from its manipulations of the RMB.
It is not all good, though; A trade surplus hurts the US economy, and the Obama administration needs to focus on reeling in the U.S. trade deficit. One way to do this is by ending China’s manipulation of the RMB, which would allow it to rise in value. Yet we may not want the RMB to change right now, as it would devaluate the dollar and potentially cause stateside inflation. However, the RMB needs to be allowed to fluctuate appropriately and fairly with the market within the next few years as the world emerges from the crisis.
President Obama has already taken steps towards progress in U.S.-China economic policy. During G20 this past week, he met with Chinese President Hu Jintao, announcing cooperation of the two powers and a plan to meet once a year on both strategic and economic fronts for an initiative headed by Clinton and Geithner. This framework opens preliminary doors to success.
Beyond the economy, an area of success in U.S.-China diplomacy has been their mutual opposition to nuclear proliferation. The united voice speaking against North Korea’s nuclear development and missile launch this week displays the two nations effectively collaborating for common interests
Regarding climate change, the nations also have common interests, but both have been resistant to change. China refuses to act in line with Western nations, claiming that it is entitled to use fossil fuels to develop as the West did, and that the majority of the greenhouse gas in the atmosphere has come from the West; meanwhile the US is simply failing to make concrete promises. If the US wants diplomatic clout when it comes to climate change it needs to make clear international commitments and subsequently pressure China, the new number one emitter of greenhouse gasses (passing the US this year), to do the same.
Finally, the Obama administration has adopted a harmful policy regarding China and human rights. In Clinton’s recent trip to China, she emphasized looking beyond issues such as Taiwan and Tibet in order to unite over the economy. In a press release regarding President Obama’s meeting with President Hu, the White House said the two agreed to “resume the human rights dialogue as soon as possible.”
This deferral of important issues is unacceptable if the U.S. desires global moral influence. The U.S. cannot afford double standards regarding human rights. While the U.S. should weaken its demands for now to prioritize the economy, putting off talks completely is a mistake.
China is still just entering the stage as an international power. As China learns the rules of the game, the U.S. must apply pressure rather than appease its developing partner. Appeasement now will only make it more difficult to apply pressure in the future. The U.S. needs to set standards from day one, which means the Obama administration cannot completely remove human rights from the table.