Page 2 of 2 Obama's collision course with China
By Benjamin A Shobert
which given the sheer volume of product coming from China to the US is of more
symbolic than actual significance.
As a result of the FDA's offices opening in China, Obama is being handed a very
loaded public policy and diplomatic issue: given size and staffing, the FDA
offices are largely window dressing. But as a consequence of these newly opened
offices, the American public expects results in the form of fewer product
quality and safety problems. In order to accomplish anything meaningful through
these offices, Obama will need to exert heavy diplomatic pressure on Beijing to
increase the powers given to FDA inspectors operating in China. Namely, these
inspectors must have the authority to freely search shipments, execute
unannounced audits of FDA or USDA-registered manufacturing exporters, and halt
US-bound product before it leaves China.
If these all remind you of a tamer version of the unsuccessful Weapons of Mass
Destruction inspection games tried over the last eight years with North Korea
and Iran, you are not alone. But in the absence of a classic protectionist
trade policy, increasing the visibility and power of American regulatory bodies
in China is Obama's best choice for dealing with the problem. If China resists
allowing increased regulatory presence by US inspectors, the political reality
in Washington will likely force the Obama Administration to compensate through
even more pronounced actions on currency reform or China's ability to invest in
US equities.
The latter point is of great concern to the USCC: its report goes on at some
length to describe how the China Investment Corporation (CIC) has the potential
to exert undue influence on key sectors of American industry. The report
cautions that "China appears far less likely than other nations to manage its
sovereign wealth funds without regard to the political influence that it can
gain by offering such sizable investments." This concern may owe less to the
CIC's activities than that of another Chinese government agency known as the
State Administration for Foreign Exchange (SAFE). SAFE is the People's Bank of
China manager of foreign currency, and the USCC reports that SAFE offered to
purchase Costa Rican government bond issues if Costa Rica formally severed
diplomatic relations with Taiwan.
Such action suggests that China is maturing in its knowledge of how to leverage
economic growth into political power, but an exchange of capital for isolating
Taiwan is very clumsy and disrupts the American policy community's stance
towards China. Conventional - if largely unspoken - wisdom has it that Taiwan
will be gradually and peacefully absorbed into China in due course. This
process is expected to be subtle, and to be clearly marked by moves made by
Taiwan's citizens and reflected by its government. Any show of force from China
would topple this idea, and quickly escalate US-China tension. If China
continues to make such overt and antagonistic moves towards Taiwan as it did in
2008 with SAFE, it will be increasingly difficult to argue for a peaceful
transition.
Granted, missing from the report, but likely present within the Obama
administration policy makers, is a more nuanced appreciation that most
countries have a defined political agenda to their own sovereign wealth funds,
and that China is no different. The worst case scenario for all three countries
is that China's actions towards Taiwan through either the CIC or SAFE justify a
foundational shift in America's view of China as authentically Communist, with
expansionist aspirations that couple economics to politics and force. It is
unlikely constructive relations between the US and China could survive such a
shift.
In the short term, the group of foreign policy and economic advisors Obama is
surrounded by are unlikely to advocate a change in the belief of previous
Administrations that as China economically modernizes, it will liberalize, and
may even become something akin to a democracy. But the economic crisis
enveloping America may be larger than any of this narrative, or any of their
experience, ideology, and pragmatism. On the edges of both the Republican and
Democratic parties, a desire for status-quo with China is not shared; the
extremes of both groups believes trade with China hurts America. One has only
to watch Pat Buchanan hyperventilate on MSNBC about the Chinese taking jobs
from Americans and the need for "economic patriotism" to realize that as the US
economy slips further into decline, the pressure on politicians to reframe how
they view China - its present and future - is going to intensify.
In this area, the USCC report is a leading indicator of the growing sense that
China's modernization may not equal political reform: "Yet Western expectations
that China's path of economic liberalization also will lead it eventually to
free market capitalism and even to democracy have been dashed … China has taken
a very different path. And China's lengthy economic growth spurt has been
employed more as a justification of continued Communist Party rule than as a
stepping stone to political reform." This is not a cautionary note; this is an
assertion of fact by a Congressional Committee that China's overarching
trajectory of reform has been disrupted.
The USCC's concern is shared by the CECC, whose report on China's pre-Olympics
human rights policies leaves one with the unmistakable sense that China is
nowhere near Western concepts of personal liberty. Ideologically, as this idea
takes root within Washington, it will become increasingly difficult for those
around Obama to argue for the status-quo on China if the policy community and
the American public believe they are only enriching a rival power whose
politics are at odds with American values.
While China may not be one of the president-elect's most pressing concerns, a
host of China related issues are interwoven within the challenges of the next
four years. The specter of protectionism, once understood to be the fuel to the
fire of the Great Depression, is now being spoken of again, this time as
"economic nationalism", even an act of patriotism. As both reports illustrate,
China's development still comes up very short of the ideal; and yet, in this
moment of America's history, it seems we may need to be more mindful of getting
our own house in order. The problems we now face are much more of our own
making than China's, and in our fear and frustration we should be wary of
looking for others to blame.
Benjamin A Shobert is the managing director of Teleos Inc
(www.teleos-inc.com), a consulting firm dedicated to helping Asian businesses
bring innovative technologies into the North American market.
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