Trying times in US-China
ties By Benjamin A Shobert
Now would be a spectacularly bad time for
American political leaders to reach new levels of
acrimony and dysfunction, yet this appears to be
precisely what the United States has in its
immediate future as the country lurches forward in
a fractious presidential election year.
Similarly, now would be a uniquely bad
time for Chinese political leaders to further
confuse the rest of the world, as well as their
own citizenry, regarding their mid-term intentions
on political
liberalization and economic
reform, yet this also appears to be exactly what
is taking shape as Beijing prepares for an autumn
2012 transfer of power.
Both China and the
United States enter 2012 fragile in their own
ways, needing one another to be strong while at
the same time resenting the vestiges of strength
each appears to have over the other (China
resenting America's regional position and military
power while America resents China's seemingly
stable economy).
This is in a nutshell the
peril of 2012: both have as much to gain from
seeing the other stumble as from stability. Added
to this unfortunate reality is that the two most
powerful countries in the world must navigate
their most critical transfers of political power
amid unhappy citizens in China and a disquieted
populace in America.
This fine line must
be drawn as further economic contraction appears
to be already well set in motion in the United
States, and ominously seems to be gathering speed
in China as well.
Rhetoric, the most
obvious way in which these tensions will find
public light, is likely to grow increasingly
noxious on both sides. The rhetoric that comes
from America during the midst of a heated and
unsatisfying election will likely attempt to cast
China as equal parts miscreant and devious;
similarly, the rhetoric that comes from China will
inevitably portray America as an insecure and
short-sighted bully.
While much of what is
likely to be said during the year may be
considered extreme but still within the bounds of
acceptable - if maddening - political discourse,
the underlying reality of the probable exchanges
during 2012 is that the two countries'
relationship is slowly repositioning itself for a
moment when rhetoric and policy align.
Established wisdom has it that the
political rhetoric between the two countries can
be easily divorced from actual policy changes;
however, during 2011 establishment thinking has
been shown to be increasingly feckless as the
American Congress pursued one shortsighted
political fight after another.
Among the
key take-aways from 2011 is that the established
wisdom in Washington is no longer adequate
guidance for what American politicians will or
will not pursue. The wall of separation between
politicians and policymakers once widely assumed
to be resistant to short-term strife and
uncertainty no longer appears to be. While the
wall may not be breached in 2012, the makings of
such a moment are close to being in hand.
For some the idea of a moment in time
where China and the United States could crash into
one another smacks of fatalism, an argument about
how it is inevitable for a rising power to do
anything but threaten the relative station of
those nations who constitute the established
order.
To critics of the increasingly
popular sense of inevitability and fatalism about
such a conflict, the deep economic
inter-connections between the American and Chinese
economies remains the most important reason why
disagreement will not ultimately create conflict.
Yet if one lesson stands out in the years since
the spectacular financial crash of 2008 it is that
the established wisdom is many times less wisdom
and more wishful thinking.
Among the chief
lessons that should be painfully obvious now is
that simply because something might be
unimaginably disastrous does not mean it is
impossible.
For years, supposed experts on
the American housing market had assured consumers
that houses should be looked at as an investment
and that, while some short-term price fluctuations
were possible, they were unlikely to be drastic
and would not last.
Similar moments of
spectacular hubris have been the seeds of the
world's recent financial destruction and now, as
the eurozone peers into an increasingly uncertain
future and the much-lauded emerging economies
throughout the BRICs appear to be stumbling, the
question of whether now might be a moment where
simmering tensions between China and the United
States reaches a critical inflection point should
be asked by sober thinkers and humble
policymakers.
For years, China experts
have acknowledged that tensions between the two
countries were natural but ultimately manageable.
The question is, have either or both countries
reached a point in time where this prevailing
wisdom no longer holds?
Answering this
question requires evaluating two questions: first,
when do the interests of American or Chinese
politicians no longer align with a policy of
engagement towards one another and second, when do
those institutions (business, non-governmental
organizations, think-tanks) who have historically
been advocates for engagement and who exert very
direct influence on politicians begin to pull away
or redefine their historical stances towards the
other country?
Answering the first
question is likely easier relative to American
politics, if for no other reason than Washington's
political machinations are more transparent than
those in Beijing. With this in mind, 2012 is
likely to see additional efforts on the part of
many in congress to pursue legislation designed to
counteract the yuan's valuation relative to the US
dollar.
This has become such a regular
potential threat that many have assumed it will
forever be something held over China's head, but
never acted upon. This might be a mistake:
American politicians feel increasingly unable to
do anything meaningful to help address their
languishing domestic economy.
The
combination of a lack of imagination, a
particularly unpleasant election cycle, and the
ongoing emphasis on China's currency as the cause
of lost manufacturing jobs might well result in
actual policy changes in 2012 that were not
pursued previously when cooler heads could be
counted on.
If American politicians find
themselves unable to fight the impulse to blame
China for mistakes of their own making,
politicians in China are likely to respond in
kind. While the Chinese transfer of power in the
autumn of 2012 is less transparent, the act of
governing in advance of this event as well as in
the tenuous months immediately following the
politburo's election are no less critical to
US-China relations.
In particular, if the
Chinese economy is showing signs of additional
distress - something that seems today all but
inevitable given the increasing signs of trouble
in the Chinese property market, issues with gray
loans between state-owned enterprises, local
government and troubled small- and medium-sized
enterprises, as well as overall drops in economic
activity - then China's politicians are likely
going to find it convenient to shift the focus of
unhappy Chinese citizens from domestic policies
towards the ugly war of words coming from
Washington.
Counter-balancing all of the
political rhetoric are the interests of
multinational businesses that desperately need
access to China's market and, equally, China's
exporters who cannot afford to see new duties or
tariffs be created in their European and North
American export markets.
On both sides of
the Pacific, these powerful and well-connected
business lobbies have thus far been successful at
preventing political rhetoric from boiling over
and creating a toxic trade environment; however,
their influence is not inexhaustible and, at least
as viewed from America, no longer the predominant
influence shaping policy.
Within American
policy-maker circles, the historical policy of
engagement between the two countries is under
assault as never before. Of all the potential
areas where hubris might blind China experts to
the possibility that 2012 could be the year where
things between the two countries irrevocably
change for the worse, missing the growing voices
of suspicion in the United States that China is
ultimately going to further reform its economy or
political institutions should not be overlooked.
Thus far, American multinationals have
been successful advocating for overlooking these
problems and believing that China will ultimately
get back on track, but this argument has a limited
shelf life.
As two of America's
congressional commissions, the Congressional
Executive Commission on China and the US-China
Congressional Committee, grow increasingly
frustrated with what they see as China's backwards
moves in the area of political freedoms and
economic reform, they will grow increasingly
discontent.
This they will show by simply
pointing out what they see as problems with the
US's policy of engagement towards China and will
begin pushing for more formal adjustments to how
America works with China and views the possibility
that China will never modernize as policy-makers
have long anticipated.
This adjustment,
while seemingly simple, will align with very
practical political concerns from other parts of
congress that might share some level of concern
about China's political reform, but much more
acutely believe China's economic growth has come
at America's loss.
The net result of such
a realignment would be to put increasing pressure
on America's businesses and their assertion that
doing business with China remains the best way to
change China's trajectory.
The hope that
2012 will be only a difficult year between the two
countries but that ultimately not much will change
may be the sort of dangerous combination of hope
and hubris that preceded the events of the 2008
financial crisis.
Recognizing this, the
need for clear-headed analysis of what really ails
the American economy and how China must navigate
the need for political control but increased
personal freedom will be more important in 2012
than in any previous year.
To the extent
neither country's leaders prove capable of rising
to meet these challenges, 2012 may well mark the
moment in time when the globalized world we all
took for granted began to splinter and fall apart.
Benjamin A Shobert is the
Managing Director of Rubicon Strategy Group, a
consulting firm specialized in strategy analysis
for companies looking to enter emerging economies.
He is the author of the upcoming book Blame
China and can be followed at
www.CrossTheRubiconBlog.com.
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