Tuesday, February 13, 2007

The Bullshit In The China Shop

It seems as though the United States has decided to latch onto China as its dance partner when it comes to any major issue. Take today's news, for example, regarding the Doha free trade talks:
WASHINGTON (Reuters) - The White House on Monday promised an aggressive push to reach a global trade pact through the Doha round and discussed some benefits for China if it were to move toward a more flexible exchange rate.

"A free and open international trade regime is vital for a stable and growing economy, both here at home and throughout the world," according to an annual report on the U.S. economy prepared by the White House Council of Economic Advisers.

"The United States will continue to work aggressively toward multilateral trade liberalization through the World Trade Organization's Doha Development Agenda negotiations," the report said.
Now, let's take a quick look at the backstory here: China's yuan is tied to the dollar (so much so that the dollar is referred to in China as the meiyuan at the fixed rate of roughly eight and a quarter yuan to the dollar. This rate was basically fixed (there is some daily fluctuation within a narrow 3 cent band) in the wake of the Asian financial crisis of 1997.

Practically, this means that Chinese exports to the United States will remain cheap as the dollar declines on the foreign exchange. They'll also remain cheap if the dollar rises. In fact, they're just cheap, which is why we import so much stuff from China. They can make it cheap and sell it cheap here.

For lots of reasons, this is a bad thing. First, it means we become more and more dependent on Chinese exports to satisfy our market demands, and we've seen what that means in our petroleum policies. Second, it means other countries have to find other ways to compete with China for our trade dollars, which means trade is not as powerful an instrument of diplomacy and policy-making as it could be. Finally, it supports a Chinese government that we may not always see eye to eye with, but who can afford to buy up huge amounts of our deficit financing. We give them the money to buy our debt. Sort of like our savings bank holding our mortgage, only the bankers don't particularly like you and don't particularly care if you keep your house or not, so long as they continue to make money off you and so long as you don't get really drunk at one of their parties and do something stupid like hitting on a wife, or picking a fight with that neighbor everyone avoids.

But trade is not the only place we are locked into a spiral with China:
The current President, George W. Bush, has indicated that he does not intend to submit the treaty for ratification, not because he does not support the Kyoto principles, but because of the exemption granted to China (the world's second largest emitter of carbon dioxide).
And of course, there's that whole issue of the neighbor that nobody likes:
North Korea will begin initial steps toward denuclearisation within 60 days of the announcement of the agreement. South Korea, China, the United States and Russia -- but not Japan -- will provide 50,000 tonnes of fuel oil or an equivalent value of economic or humanitarian aide in return.

North Korea will shut down its Yongbyon nuclear complex, including its 5 megawatt reactor and its plutonium reprocessing plant, within the 60 days and seal all facilities there.
China will, of course, oversee the denuclearization program of North Korea and will takes steps to monitor South Korea as well. North Korea is an interesting conundrum in and of itself and probably merits its own post here.

As China emerges in the early 21st century as a rival to the United States, one can see how this duality can play out either nicely for both sides (the US and China develop good communications, have strong economic ties and advance a similar agenda in Asia and beyond) or poorly (China flexes its muscles, the United States takes steps to mitigate their hegemony, or vice versa...basically the Cold War all over again)

One can hope that cooler heads will prevail, but then again, one would have hoped George W. Bush wouldn't have been elected President. Twice.

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