China-US trade wars are an eerie Charybdis of despair

China's military and economic strength has grown over the past few years, much to the chagrin of the USA. // Credit Getty Images News

Ever since the ascendancy of the pseudo-communist People’s Republic of China into the world economy, there’s been a stark reality that many western nations have had to reluctantly come to terms with: the country’s ceiling of feasible growth trajectories has surpassed any other nation in the history of mankind.

If the western world industrialised at around 2.5 percent economic growth a year, China’s rise has dwarfed western powers by growing at around 10 percent for almost thirty years. The result of this is that the Chinese have been able, among other things, to lift 450 million of their own citizens from poverty.

This is all in spite of the fact that market reports in the first two quarters of 2012 have shown that China’s economy slowed down to 8.1 percent; its lowest rate in nearly three years.

Over the last three decades, their drive to reach superpower status has resulted in them becoming the world’s second largest economy — no doubt furnishing the preponderance of its billion plus people with huge benefits and unimagined economic prosperity.

But for all China’s new found economic prowess, the downside to its rise has been the undesirable affect it has had on the world’s largest economy: The United States of America.

And this goes much deeper than recent tussles between the two economic giants over the imposing of heavy tariffs on Chinese solar panels when the US commerce department claimed China was flooding its market with government subsidised products — to the disadvantage of domestic manufacturers.

The tensions seem part of a never-ending cycle of suspicion between the two giant economies.

The pace of China’s unprecedented economic growth has allowed the Chinese to broaden their horizons in regional and international affairs, much to the annoyance of its great western rival. They are now dangerously nipping at the heels of the US in terms of military expansion and expenditure, even though it has long been suspected that the Chinese are not transparent in detailing their military budget.

Chinese financial clout, coupled with a rapid military build-up of high-tech weapons and know-how, has allowed the country to encroach on what’s otherwise long been seen as a US hegemony in East Asia. This explains the delicacy with which international relations with Taiwan and North Korea as well as interference in the oil-rich South China Seahave been treated in the last decade.

The relationship between the two nations is not least helped by the fact they are so intertwined economically, with the trade statistics between them saying it all.

In 2011, U.S. goods and services trade with China totalled $539 billion, with the Chinese becoming their largest supplier of imported goods and China becoming the third largest market for exported goods, in addition to the fact that U.S. trade surplus with China was $13 billion.

But the major point of contention between the two powers stems from what the Americans see is China’s deliberate undervaluing of its currency, the Yuan.

According to China expert Peter Navarro, Professor of Business at the University of California, Irvine, this has given “Chinese exporters a huge economic advantage, allowing them to price Chinese-made goods far lower than those made in the United States … [this] imposes the equivalent of a heavy tax on U.S. exports to China … [which] in concert with massive Chinese export subsidies has resulted in Chronic US trade deficits and severely weakening our manufacturing base with the loss of as many as 20 million American jobs”.

His comments seem to echo popularly held views about the Chinese equation into the overcoming of barriers to a sustained U.S. economic recovery in times of low growth and opportunity.

But if US analysts are quick to point out currency manipulation as China’s major wrong vis-à-vis bilateral trade, that worry is exacerbated by Chinese holdings of US Treasury securities (debt) — which as of May 2011 stood at $ 1.174 billion.

It can be alternatively argued that in buying US debt, China is in fact indulging in mutual gain for the economic prosperity of both countries economies. The purchasing of treasury securities help keep US interests rates relatively low and are largely attributed to China’s policy of intervening in exchange markets to limit the appreciation of its currency, as well as them being a relatively safe investment for its ever-expanding economy.

By virtue of buying into US debt and becoming the largest foreign creditor, the Chinese acquisition allows the US government to raise capital for government spending. In difficult times or when the US economy hits a rough patch, holding such bonds allows it the potential for extra-spending power and much needed stimulation for the consumer economy.

So why the kerfuffle?

It’s very simple. Americans harbour deep suspicions that by shoehorning its way into their economic infrastructure via the holding of treasury securities and bonds, China will in the long run have leverage to heavily influence the American economy.

That’s to say that should politics get in the way of economics, let’s say over Taiwan or simmering tensions in the South China Sea, the potential for China to cause havoc stemming from, for instance, a reluctance to buy any more debt or even selling the bonds that it currently has, would be devastating.

The former would throttle one of the major in-flows of capital into the US and perhaps result in sky-high interest rates, an increase in commodity prices and even a freeze in credit or the lending of loans to aspiring businesses. The latter would end up diverting money from the American economy and lead to even more complications — although it must be said that such a move has been ruled out as highly unlikely considering the detrimental affect it would have on the Chinese economy.

Either way, as long as the Chinese dragon continues to roar in trying fulfil dreams of military and financial glory, on-going tensions with the American-led international community over human rights policies, democratic rule, lax environmental regulations and military endeavours — will make it harder for them to find a place on the international scene commensurate with the increasing profile they so desire.

And for these reasons, you can bet that it’s going to be quite some time before the steady stream of accusations over China’s unfair trade practices, currency manipulation, illegal export subsidies and theft of intellectual property, finally fade away.

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• http://profiles.google.com/zhubajie12 zhu bajie

  No mention of the vast sums wasted in 60 years of constant US warfare.

• Babylons_Burning

  I think it was old Lenin who said that the capitalist would sell you the rope that you use to hang him. Well who granted China “most favoured nation” status then? Which corporations started the huge foreign investment stampede in China in order to exploit the cheapo labour at the expense of their own people’s jobs? Who continues to use China as a manufacturing base?
  Well there’s your answer.

• http://www.facebook.com/icswatson Ian Watson

  See, this is where it galls me that people go “oh my gods, shock horror the evil Chinese” but are they really that evil or even original?

  No.

  For decades we have not said a damned thing about America using the petrodollar for its own ends (and decline) by forcing the petroleum market into solely using dollars, the US in return for goods, services, gold etc only had to print some bits of paper for the world to buy oil, it was a total and utter scam and we said nothing.

  The Chinese vision of trade is somewhat different from those in the west, they believe trade should be equal, that you supply something of worth for something of worth, they do not subscribe to the “petrodollar principle” one bit as they know better what a scam it is.

  However, the idea that China won’t drop its economic “nuke” is absurd, it will do one day and the US and the West in particular are sticking their collective heads in the sand, throwing more T bills and dollars at China in the vain hope it will stay the day it will happen, China on the other hand cannot believe its good fortune, for cheap and rather nasty goods worth cents on the dollars it receives, China is using these dollars and buying whole trenches of industry around the world you only have to travel to Perth in Australia to see one such incidence of dollar trading in action, in short the Chinese own Perth now as they own other areas around the planet and all paid for with US dollars.

  And so the US continues to print and QE more and more currency into the system, slowly hyperinflating its economy to death not realising that China is being busy little bees and secretly buying the nation from under its feet.   When the dollar finally becomes totally worthless, that is when China will drop its economic nuke, it will junk its dollar holdings in one fell swoop and switch to the Euro, Rouble and Rupee convertible indices for further trade.

  China controls virtually every aspect of rare earths in the world, it has embargoed the US from buying these rare earths, China has also been on a huge gold buying spree, it is preparing for the US collapse, don’t delude yourselves anymore folks, it really will happen and we will see a geopolitical shift where Russia will have the upper hand in the Northern Hemisphere, China the upper hand in the southern.

  Britain understands this and is pushing hard to pull currency trading from China here to London, America is not best pleased as you would understand but for those seeking to leave the EU, when China does decide to pull the plug, the EU will be given most favoured status, we on the other hand will find it very hard to survive on the outside, we will have lost trillions in the US collapse and unless we find a new bestest friend out there, we will sink too.

• http://www.stumbleupon.com/stumbler/mhenriday/ M Henri Day

  «Chinese financial clout, coupled with a rapid military build-up of
  high-tech weapons and know-how, has allowed the country to encroach on
  what’s otherwise long been seen as a US hegemony in East Asia.» Any reason to assume that US hegemony in East Asia is divinely ordained and that the Chinese, who unlike their US counterparts, happen to reside in the region, are thus violating some stone-set commandment in challenging this hegemony ? The United States’ interminable wars of aggression and a military/national (in)security budget greater than that of the rest of the world combined are rapidly eroding the country’s ability to compete in global markets, and this, combined with the fact that the Chinese are too strong to be easily intimidated are the reason for the suspicion, not to say animosity, of and towards that country held by those who run the US government and which it – alas, all too successfully – attempt to inculcate in the US population. Carried to its logical extreme, US policies could result in a thermonuclear conflagration which puts an end to the short happy life of H sapiens sapiens on this blue planet ; those of us who don’t desire such a dénouement must attempt to reveal to the general public what the policies really entail….

  Henri

• nodenet

  The decline of US consumption is what needs to be managed. The US cannot continue to keep consuming 45% of the worlds output with 20% of the input. The US debt will get bigger, (They will lose control of their feudal vassal state Saudi) (Their friend Israel will cost them more blood and treasure.)

  If the Chinese demanded that Saudi treat woman as equals or face a blockade(sanctions) would the US go along with this.?

  I am sure that the little red book describes religion – both Christianity and Islam as ‘capitalist’ plots, certainly as ideas not worth respecting.

  Do foolish Americans really believe that China will give up 25% of its oil imports by supporting a ban on Iranian exports.

  The danger of declining empires like the US is that force becomes the first tool taken out of the tool box. ( drones instead of diplomacy)

• graeme_davey

  Many years ago, I visited China,and amongst Beijing and a few other places, had a wander about, as you do, and bumped into a Japanese guy who was working over there,
  His comment to me was most enlightening-I hope you don’t mind me sharing it.
  He said ” They hate us “(the Japanese)  BUT -he said “their very interested in you”
  I said why? The Uk is not the power it once was.
  “Ah yes” he said, but “You once had the most powerful Empire in the world,They’re  fascinated by that, and they want to learn how you did it”.