Party of 1

Germany’s Der Spiegel reports on political tensions between the United States and China, including Chinese resistance to American demands for currency “rebalancing.”

“The ‘American elite’ has ‘no idea’ what fatal consequences a revaluation of the yuan could have, says political commentator Liang Jing, adding that it would lead to a collapse in Chinese exports and ’cause a worsening in domestic income distribution.’

“What that means in plain language is that Chinese factories would need to lay off many workers and the divide between rich and poor would quickly grow wider — potentially plunging the country into social unrest.

“And if the Chinese government were to start allowing money to flow freely across its borders, something Washington is also pushing for, it would mean an ‘unprecedented exodus’ of capital from the country, the commentator says.”

Germany’s Der Spiegel reports on political tensions between the United States and China, including China’s reasons for resistance to U. S. pressure for currency “rebalancing.”

“The ‘American elite’ has ‘no idea’ what fatal consequences a revaluation of the yuan could have, says political commentator Liang Jing, adding that it would lead to a collapse in Chinese exports and ’cause a worsening in domestic income distribution.’

“What that means in plain language is that Chinese factories would need to lay off many workers and the divide between rich and poor would quickly grow wider — potentially plunging the country into social unrest.

“And if the Chinese government were to start allowing money to flow freely across its borders, something Washington is also pushing for, it would mean an ‘unprecedented exodus’ of capital from the country, the commentator says.”

Chris Thompson at The Big Money welcomes Google’s announcement that it is taking a second look at its China operations. “For years, Google has swallowed the gorge of its toxic relationship with China, undermining its own ideals…. Now, with this latest and most provocative incident, the company’s leaders have finally tried to live up to their motto…. In fact, this may well be the moment when Google’s best and worst impulses come together in a grand moral drama. The company sits on piles of cash for now, but everyone knows that without China, the future is terminally uncertain.”

Nevertheess, Sarah Lacy at TechCrunch asks: “Does anyone really think Google would be doing this if it had top market share in the country?”

At the Daily Beast, Leslie Gelb says that the Asia trip was not worth Obama’s time.  “He should stare hard at the skills of his foreign-policy team and, more so, at his own dominant role in decision-making. Something is awry somewhere, and he’s got to fix it…. Presidents take trips like this one only when they need breakthroughs and accomplishments on certain issues that can’t be agreed on without the pressure of an impending presidential visit. In fact, most presidents wouldn’t even commit to trips abroad without knowing that key deals would be finally agreed on and announced during the visit itself.”

Harold Meyerson in the Washington Post: “The China that has emerged since trade relations were normalized has become not just an economic giant but the planet’s leading protectionist power. By artificially depressing its currency and making its exports cheaper, China is compelling other nations to erect trade barriers. In essence, as economist Michael Pettis has observed, China’s currency policy is this depression’s equivalent of the Smoot-Hawley tariff.”

“Unlike the U.S., China doesn’t aspire to remake the world: Its longstanding mantra is ‘nonintervention’ in the internal affairs of other countries.” So writes Andrew Browne in, of all places, the Wall Street Journal.

I understand that this paper’s general news sections are editorially separate from the editorial page. Otherwise, I don’t know whether the above statement would have escaped the scrutiny of the editorial board….

“The Chinese government had a special message for President Obama on Thursday: He is black, he admires Abraham Lincoln, so he, of all people, should sympathize with Beijing’s effort to prevent Tibet from seceding and sliding back into what it was before its liberation by Chinese troops: a feudalistic, slaveholding society headed by the Dalai Lama.” So does Edward Wong of the New York Times paraphrase a statement from the Chinese Foreign Ministry, as President Obama’s visit to China looms.

Wong continues: “Part of the legitimacy of the Chinese Communist Party lies in the notion, rightly or wrongly held, that it ousted foreign influence from the country and has tried to reunite fragments of China to return the boundaries of the modern nation to roughly those of the Qing Dynasty (1644-1912) at its height. That includes Taiwan, Tibet, the western region of Xinjiang and, by China’s calculation, Tawang.”

Perhaps such statements reflect sincerely held sentiments within China. On the other hand, beyond a certain point such rhetoric may amount to no more than a  self-serving cover-up for some bloodthirsty policies on part of the Chinese government. The president has been criticized for stiff-arming the Dalai Lama, with whom he plans to meet after the China trip. That treatment might have been inelegant, but I suppose that, at the very least, the United States has to stop short of advocating outright independence for Tibet….

Recently I blogged on a commentary from the Financial Times in which it was argued that the rate of China’s ascent can be exaggerated. It’s probably true that, a generation from now, China will be considerably richer than it is today — but still poorer than the United States, with many millions of poor people.

On the other hand, the rate of change is difficult to estimate. John Pomfret’s reporting in Saturday’s Washington Post suggests that the “Pacific century” may be coming at a more rapid rate than we realize. His article concentrates on the effect of increasing Chinese economic clout in the state of Wisconsin.

“At the University of Wisconsin, as at college campuses across the United States, mainland Chinese dominate the study of science and technology and form the backbone of the engineering, chemistry and pharmacy departments…. Chinese investors have snapped up pieces of distressed real estate in Milwaukee, as they have in other crumbling Midwestern industrial cities, not to mention in Florida, California and Arizona.”

“These days Wisconsin is at the center of a new trade dispute with China. Appleton Coated of Kimberly was one of three paper companies to join with the United Steelworkers to file a petition with the government alleging that China was dumping certain types of paper products in the U.S. market…. Jon Geenan, international vice president for the United Steelworkers, grew up near the Kimberly plant. He estimates that Chinese and Indonesian imports have cost the state more than 5,000 jobs in its paper mills. That means dozens of foreclosed homes and hundreds of people who are behind on their property taxes. ‘Even the churches say that donations are down,’ he said. ‘They are definitely challenging the way we live.’”

The point of this post is not to specify what, if anything, should be done about all this — although perhaps something should be done. With regard to the penetration of Chinese paper products (or, for that matter, higher-value-added products like automobiles) into Western markets, I suppose I incline toward a  managed-trade view — that is, allow the importer to penetrate the market in such a way as to allow the importing country to develop economically, while limiting the market penetration before it gets to the point that communities such as the one described in Wisconsin are hollowed out. For my money, such a policy better balances the cost and benefits of trade than does the “Washington consensus” of recent decades. At the same time, free-traders may be correct if they argue that not much would be gained from limiting Chinese enrollment in American universities. That would antagonize the Chinese, while perhaps making the whole world poorer by limiting the number of available technicians and professionals in the hard sciences.

China has a more authoritarian political system than we would like. They have opened their system in other ways, however, and have allowed their people considerably more freedom than they would have a generation ago, in areas not strictly political. Furthermore, like Japan, they have adopted to a market system on their own terms, with more managed-trade and state-capitalist measures than market-ideologues in this country will allow.

Has America lost out by not following suit? Will it lose out in the future? Just asking….

By the middle of this century, China more than likely will be far richer than it is today — but it will still harbor many millions of poor people. John Plender in the Financial Times looks at the limitations faced by China as a potential competitor to the United States.

“China is rattling the bars of a cage of its own making, since the reserves are a consequence of colossal intervention to stop its currency appreciating. In effect, it is trapped in the economic equivalent of the mutually assured destruction described by theorists of nuclear deterrence in the cold war. With exports amounting to two-fifths of GDP, it has been beholden to the US as borrower and spender of last resort in the global economy. And it cannot abandon the dollar without slashing the value of its own dollar reserves.”

Plender cites the writings of Josef Joffe regarding China’s limitations. Plender: “China, he says, is a place where the rest of the world essentially rents workers and workspace at deflated prices and distorted exchange rates. Its export dependence, as well as being an economic Achilles’ heel, has political consequences. These include 70,000 civil disturbances each year that are not factored into the linear growth forecasts beloved of investment bankers…. The US, meantime, still has an unmatched research and higher education establishment. And in 2008 its military budget was $607bn, representing almost half of the world’s total military spending. The military budget of China, so often touted as the next superpower, is less than one-seventh of that.”

Steven Mufson of the Washington Post has spoken to Jamshed J. Irani, director of Tata Motors in India — manufacturer of the highly publicized Nano minicar.

If the new vehicle is embraced by hundreds of millions in India, what will be the implications for greenhouse-gas emissions and climate change? “It might even reduce emissions. If I drive my Tata, my Mercedes will be parked. So from an environmental point of view, pollution will be reduced because the consumption of fuel will be much less in the Nano.” The vehicle is envisioned strictly as a city car. “No one envisions them zipping along highways. There is no baggage space.”

Regarding the upcoming Copenhagen climate summit: “We at Tata are aware, obviously. We will do the right thing. We will not wait for subsidies. If there is a viable technology, we will go for that.” At the same time: “We want a deal based on equity. No one in the world can say that developing countries, because they used less until now, must continue to use less and widen the gap between developed and developing countries. We will put more carbon dioxide into the atmosphere. It is necessary for development. You can’t take India, where one-third of its population still don’t have electricity in their homes, and say to those countries: ‘Don’t give more power because it would be putting more CO2 into the atmosphere.’ Development is very important, and populations demand that. You cannot condemn those populations to living literally in darkness.”

My view has been that climate change should be addressed — whether this takes the form of reducing emissions immediately, or concentrating on research and development for alternative energy sources. Nevertheless, it should be kept in mind that there may be a limit to what can be accomplished — it is a matter of limiting damage to the natural environment, rather than completely avoiding or reversing it. Furthermore, if politicians from the developed countries are not careful, the left-right ramifications of the matter in India and China may be just the opposite of those in the rich countries….