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Americans tend to view global trade issues through a prism which is characterized by private actors and free markets; hence, describing the global trade arena as one where gains are won by the state by employing cunning strategies seems unnatural to them. In fact, trade wars are not a new phenomenon. Wars were not seldom justified by the argument of opening up new markets for domestic business.

The American belief is further intensified by the experience of the past half century in which most trade was done with nations that were partners and allies. China and the U.S. cannot be natural allies; they might be partners, but due to size and differences over many issues ranging from ideology to resources, the nature of their relationship inherently is one of conflict. I’ve been working on a new framework for describing Sino-U.S. foreign relations, and typical descriptions such as (neo-)realism or liberalism don’t really apply as they overemphasize security and military aspects. Today’s wars are not fought on battlefields but in global markets.

Words shape the way we think and consider issues; hence I propose a new term: interestism. China combines foreign and trade policy; the two are complimentary. It was no coincidence that the most recent announcement regarding the yuan came just days before the G20 meeting.

Countless pages have been written on the value of the yuan but I for one hold that whereas a (possibly) undervalued yuan causes trouble for lower to middle-class people through pressure on the jobs front a decently valued yuan would cause trouble for the whole Western society as suddenly the Chinese would have proper purchasing power on world markets.

We all know from school or college the concept of the comparative advantage; by engaging in trade everyone gains. However, what’s conveniently left out is the question of energy. What if by enlarging the workforce, price increases in energy destroy the gains created by trade?

My favourite description of Korean chaebols to this day is the one by Meredith Woo-Cumings: chaebol groups have been the private agency of public purpose. This is what Jeff Immelt apparently got wrong on China, as the same applies there as well to a certain degree. Foreign companies are to serve Chinese interests. Their intention may be in increasing profits and building up a decently-sized business there, but that is secondary to Chinese concerns.

What Now?

Americans will be pushing for China to act quicker on its currency and allow it to rise faster, however the question is who and with how much force. Obama does not seem to have the political will to push the Chinese into a corner and, as far as Congress is concerned, we need to wait until November. It may take until the 2012 presidential election and a new incumbent that significant pressure develops. Japan acted on the yen decades ago and yet the trade deficit persists; no matter how much it appreciated, people were still clamouring for it to appreciate even further. I remain unconvinced that the yuan truly is at the crux of the matter.

It is far too simplistic and way off the mark to put China down by criticizing their human rights record; that’s a cop-out. Unfortunately, Americans typically dodge the fact that they’ve got a formidable competitor by issuing statements like ‘their currency is undervalued, their workers are treated as slaves, they’re not a democracy’ etc. as if that was enough in taking care of the challenge. Strikingly, a similar thing happened during the Beijing Olympics; instead of rising up to the challenge that someone else was raking in the most gold medals, Americans downplayed their success by emphasizing so-called unfair ways of engaging in sports.

By trying to fix their problems with China in a manner that involves almost solely the Chinese, Americans are driving themselves insane and powerless as one can only change the factors that are under one's control. Individuals have to realize and deal with the consequence that they’re in direct global competition and that governments can only do so little. The burden falls on us.

Disclosure: No positions

Source: U.S.-China Economic War: Already the Case