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Reality Bites

by Elizabeth C. Economy
February 19, 2010

The U.S.-China relationship is never dull, but over the past two months, things have become a bit more heated than usual. Virtually every issue that has haunted the relationship for the past few decades is on the front burner.

As we watch the rhetorical fireworks between the United States and China fly, it helps to remember a few realities.

First, some of this is just pure jealousy. We each want what the other has. We want an economy that is growing at over 8 percent per year with an export sector that is rebounding. We also want to be sitting on top of 2.4 trillion dollars in foreign exchange reserves and deciding where to park all our savings. Instead, we’re mired in an economic blame game with virtually no clear signals emanating from Washington for how we’re going to get back on track. The Chinese, on the other hand, want to be loved. Yes, their economy appears to be going gangbusters, but no-one wants to hang out with them.  Ugly business practices and even uglier politics leave them with few friends these days. And let’s face it, no-one with any credibility is nominating a Chinese President for a Nobel Peace Prize any time soon.

Second, the current “crisis” in U.S.-China relations is being replicated almost entirely in China’s relations with other global powers, such as the European Union. With a few exceptions, China and the EU face the same disagreements that China and the United States confront: trade, policy toward Iran, climate change, cyberhacking, the Dalai Lama, human rights, and so on. This doesn’t make everything o.k. but it does help to provide some perspective as we watch the rhetorical drama unfold.

And finally, it pays to remember that rhetoric is not reality. When PLA generals threaten to retaliate against U.S. arms sales to Taiwan by dramatically upping the country’s military budget, we shouldn’t forget that China has dramatically increased its military budget every year for more than twenty years. There is nothing new here.

Still, we can’t be too sanguine. Both countries need to make an effort to protect the fundamentals of the relationship, however weak. As we counter Chinese anti-dumping duties on our chicken feet exports with taxes on their gift-wrapping ribbon, we have to remember that the relationship is truly sustained by the smallest and finest of agreements. We really will pay a heavy toll if these become undone.

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  • Posted by Michael Veronica

    Let’s hope China doesn’t realise the secret to being cool is not caring what other people think … without this insecurity to exploit, what else will the West be able to bring to the bargaining table?

    As I was reminding the Chinese sales assistant at Louis Vuitton the other day, someone has been buying their plastic for the last 30 years. The Chinese economy relies on exports, and they don’t trade with extra-terrestrials.

    China’s political success owes more to sound economics than Mao Tse Tung’s Little Red Book, and economics is basically just supply and demand: the customer is always right. On balance, the West is the customer and China is the producer. As such, the West is endowed with the ultimate bargaining chip.

    As long as we can keep printing money (Quantitative Easing), and as long as Chinese manufacturers can undercut the EU/US – producing an ever-growing share of world goods, we remain the customer, and the customer is always right.

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