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    China Business
     Nov 10, 2012

Obama win sets challenge to China
By Benjamin A Shobert

We now know the results of the United States presidential election: President Barack Obama will continue his term for another four years. At election parties hosted by American ex-pats in China, cheers were reported when Obama's re-election was announced by US media. This admittedly diverse group of Americans knew first-hand how difficult relations between the two countries was likely to become with a Mitt Romney presidency.

To most long-time China watchers, Obama's re-election suggests the path forward on US-China relations will be one of stability and sameness, not necessarily bad things given the enormous tensions that lie unresolved in Chinese society and politics that


the forthcoming Obama administration will have to navigate through.

Had GOP candidate Romney won, even if his original vitriol towards China proved useful as rhetorical devices, his campaign statements and general go-it-alone view of diplomacy indicate that he would have got relations towards China off on a bad foot. In normal times, such a rocky start would have been something the US and China could hope to navigate through; given the enormous unresolved economic and political reforms China must still complete, a rocky start with a new American president would have had the potential to intensify the poisonous atmosphere that has grown around US-Sino relations.

But this American election was different in many ways that are relevant to how China and the US are going to engage one another down the road. China's amazing economic growth has clearly reached a point where even if the country does not implode in some Gordon Chang-style fatalistic fantasy, the rate of growth enjoyed over the past 30 years in China is unlikely to continue.

The decisions China's leaders face today are in many ways as complex as those faced in the late 70s when China initially opened up, and again post-Tiananmen. At both moments, China's insecurities were projected against a confident America, a global superpower able to gently guide China towards greater openness, even if at times these decisions created short-term pain in America.

The situation today is very different, as the 2012 US presidential election made obvious. Today, America is itself the insecure global player, deeply divided over the most basic questions related to the role of its government in the nation's economy, let alone questions about how America should engage other parts of the world.

China's insecurity today is familiar ground; America's insecurity is not. Some of what propelled China out of its past moments of insecurity was a general confidence that the other major world powers, most notably America, had no interest in seeing China encounter difficulties that might lead to instability and, in the worst case, collapse.

The same statement could not be made today with any conviction. Politicians in Washington DC openly question China's role in the world, asserting that the country's emphasis on expanding its military can only mean China harbors ill intentions for the world and its region.

When GOP candidate Romney, the most experienced, globally savvy business candidate the Republican Party has put forward in recent memory, feels it appropriate to so directly allege America's economic pain has been caused by China's actions, such a change is important.

Among other insights, Romney's emphasis on China illustrates the coalescing public opinion around the idea that China somehow has been an integral part of America's economic problems. This is dangerous ground to cover because if the US economy proves difficult to restart due to domestic political problems, one of the few areas for American anxiety to be directed is outside, where China stands as one of the most obvious potential targets.

China experts in the US were quick to naysay such alarmist predictions, pointing out that Romney's assertion that he would declare China a currency manipulator on "day one of his presidency" was unlikely to be something he could do, given that the Treasury Department, not the president, controls such a formal declaration. But policy experts reside in a world where reason, analysis and history guide decisions they make and advice they provide. Politics is bound by no such obligations. At its best, politics may find the strength to choose for similar reasons; at its worst, politics pursues whatever is momentarily expedient, which blaming China for America's frustrations has become.

The lack of a clear vision on how to reshape America's economy by either party remains one of the aspects to American political culture that could harm President Obama's ability to maintain US-Sino relations on a stable course. Absent some sort of prevailing consensus on what America needs to pursue either as a government led industrial policy or as further deregulation and incentive schemes designed to spark free market actors, nothing meaningful is likely to happen.

The resulting stagnation will not go un-noticed; it will become an additional cause for American political recrimination and in fighting. Who loses in such a scenario? China. Both President Obama and candidate Romney were comfortable in casting China in a negative light when it suited their purposes. If America's economy continues to move sideways, placing additional strain on an unhappy middle class, China will become even more of a political whipping boy for both parties.

Advocates of Romney's anticipated re-assertion of a muscular America, one that would be willing to lock horns more aggressively with China, likely anticipated that such a re-calibration might actually provoke China to make structural changes to both its economy and political systems. Against all that American policy makers have learned in the aftermath of the twin calamities in Afghanistan and Iraq, it is striking that few of Romney's advisers grasped the limited means by which America, though still a powerful country, can simply make another nation bend to its will, especially when the changes American wants to see another country pursue are ones that run counter to that country's most powerful stakeholders.

At one time, this strong sense of limited power over another country's internal decisions would have been strongly grounded in conservative thinking. No more. Today's Republicans believe they can act in ways that change the behavior and policies of other countries in enormous ways, both a betrayal to classic conservative philosophy and a marked inability to internalize the vicious lessons post 9/11 regarding where American power has its limits.

If there is one over-arching take away beyond four more years of relative stability in US-China relations that China's leaders are likely to have given the anticipated outcome of Tuesday's American election it is this: the Obama Presidency understands the limits of American power in ways a Romney administration never would have.

This is not to suggest that Obama's next four years will offer an overly conciliatory America. In all likelihood, President Obama will find it necessary to act against Iran, a decision that will anger China. The president's ongoing use of drones will continue to be a sore point around the world, including China. But these frustrations aside, an Obama administration will still be significantly more sensitive to China's concerns than a Romney-led one would have been.

As American politics appear headed towards additional gridlock while Chinese politics appear frozen between greater versus retrenched reforms, the question remains what key choices remain for President Obama that are likely to effect US-China relations. With no future election to run for, Obama can maintain the status quo providing China does not present him with the need to speak out.

In this way, the onus is on China to act in ways that reinforce the Western expectation that it will continue to slowly but inevitably inch its way towards greater openness and reforms. A moment when the Obama administration might find it necessary to speak out against China could well align with additional American economic and political frustrations towards China. If this were to happen, China might have squandered one of the last moments in contemporary American politics when it had the best opportunity to stabilize itself and world opinion about its intentions.

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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