China-US trade wars are an eerie Charybdis of despair
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.
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.Tagged in: bonds, capital, capitalism, china, Chinese, Communism, dragon, economics, economy, fas, guardian, illegal, industrialised, investment, north korea, peter navarro, poverty, PRC, south china sea, subsidies, Taiwan, trade, UC Irvine, us, usa, West
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