Japan | Political Society Online

US China Relations at a Low: China at the Center of the Global Currency War and a Missed Opportunity

October 7, 2010 dsniffin 2 comments

When did China become the enemy of the world?

In august, China became the second largest economy in the world, surpassing Japan to take the #2 spot. Since then it appears every country in the world has marked China as public enemy #1.

The recent controversies in the East China Sea between Japan and China sparked an international dispute between the two nations. While the situation is improving, with Japan’s return of the boat captain arrested in disputed waters, the causes of the dispute are still unresolved. The East China Sea is the wild west, a potential gold rush of oil, minerals, raw materials, and rich fishing grounds, waiting to be harvested and used. The problem with this region is that it is a cluster bomb waiting to explode; Vietnam, Taiwan, Malaysia, Brunei and the Philippines and Japan, each have territorial claims in the East China Sea, while China claims the entire region for itself (The BBC, The Inquirer).

At some point in the near future, these nations will begin to exploit these much-needed resources not just fishing rights. Increasingly, it appears that nations are preparing for confrontation rather than peaceful negotiations. Currently, Japan and India are forming a military defense alliance, and are for the first time beginning bilateral military exercises (India’s National Newspaper). Japan also disdains Chinese economic power considering them a junior nation underdeveloped and on the verge of bubble collapse similar to the Japan situation in the 1990’s, with a huge disparity in GDP per capita (Asian Times). WWII atrocities always loom over Sino-Japanese relations, resulting in an ever-growing Chinese military to secure their place as a world power to prevent repeated history and to secure resources for growth. With these developments it is very doubtful that these antagonistic nations will become friendly neighbors.

China has also gotten into a row with the world’s largest economy America. The United States Congress has decided that in the interest of manufacturing sector in America, that it is time the Chinese raise the value of their currency to make their goods more expensive or they will begin placing a tariff on imports from China. This scheme hopes to develop US manufacturing domestically and cut exports from China to create jobs and cut China out of US domestic markets. China is becoming the scapegoat of America’s political leaders who have failed to ensure stable growth, jobs, and responsible fiscal governance. The US is risking relations with China to distract the American people from their own political mess, rather than waiting for the Yuan to naturally appreciate (which it is, see My Article); this is terrible Foreign Policy! Now the Europeans are following suite with their own requests for China to raise the Yuan’s value to help raise their own manufacturing base to export their way out of recession.

On top of currency issues, China and the US are at a standstill with current climate and trade agreements. Agreements made at Copenhagen are becoming unacceptable to China and the developing nations as they struggle to survive and sustain growth during the recession. This continues the trend of confrontation between developed and developing countries, pitting China once again against the USA. The IMF has noted the currency war by the United States, Europe, China, Japan and others to lower their currency are contributing to international unrest and the inability to move forward on international trade and environmental agreements. If we want a peaceful world we cannot compete on who can devalue their money the fastest (The Guardian).

IMF video discussing currency war:

http://www.reuters.com/news/video/story?videoId=163802473&videoChannel=5

Taming the Tiger

While the world watches and shuns the growth of China, we should not ask ourselves how we can we stop that growth; rather, we should be using that growth to benefit America. The rise of China as the factory of the world and its return as a great power is a foregone conclusion, it’s time we accept that fact and move forward, gaining the benefits of that relationship while the friendly hand is still open. A good first start to building friendly relations would be to continue our policy of free trade with China, allowing for cheap goods to flow into the US benefiting our consumer base. Structural changes in our trade should be made such as the development of high-tech industries. China will need these advanced technology to sustain future growth, and the US a developed nation should use their labor capital and developed economy to export these high quality products such as mining equipment and advanced industrial parts to China.

The US should position themselves as a mediator between China and Asian Countries to determine mineral rights in the China Sea before the issue explodes; this is a necessary challenge that must be overcome. If we can help encourage a solution to this territorial dispute to avoid a future conflict when it comes time to harvest these needed resources. This coming conflict is only escalating and we need to diffuse it before diplomacy becomes even more difficult.

While China is a dictatorship, it is a society that is changing. Democratic reforms are slow and brutal gulag prisons await those who openly defy the government. Yet, the development of a capitalist, free enterprise economy in China will only enhance the yearning of the people of China to be free. With the rise of economic freedom comes the rise and desire for political freedom. The rising middle class created by international trade will eventually demand the birthright as free people: Liberty.

If the US shuns their economic relationship with China, these democratic ideals (represented by capitalist democracies) will become in the minds of the Chinese, antithetical to Chinese nationalism. The US will increasingly appear an enemy to the people of China, alienating the free world and requiring greater political crackdown in China due to civil unrest from low employment. Trade sanctions will hurt the Chinese middle class and America consumers: a trade war is the worst solution! If we continue our free trade policies with China (which benefits America anyway) we can increase our relationship with China, gaining leverage over China in political issues such as human rights. Rather than attempting to cut China out of the picture, we can leverage our friendship to encourage political reform, and freedom of information. Only with the leverage of as a trade partner can the US encourage China to progress to a more free society.

A stronger friendship with China will also make internal agreements and foreign policy accomplishments easier. The Doha Trade Negotiations round is an abysmal failure and environmental negotiations made at Copenhagen are at a standstill due to the increasing competition between developed and developing nations. If we used our friendship with China (leader of the developing world) strategically, we could rally support behind trade agreements, and solve international disputes (Associated Press). Greece and Italy have already perused this strategic relationship with China reaffirming their friendship and trade alliance.

The growing trade, reserves of foreign assets, and economic size of China and the US have linked the fates of our nations. Let us use this strategic relationship to our benefit rather than allowing it to become a problem. It is time the United States faces reality and makes a strategic ally out of China rather than a strategic and powerful enemy!

-Daniel Sniffin