US-China Trade in the News 4-21-11 Update: The U.S. Economy and Global Relations


In today’s US-China trade news update, Todd Tucker argues that President Obama is pushing free trade agreements (FTAs) ”that are projected to cost American jobs, undermine U.S. negotiating credibility, and could even dampen the president's electoral prospects in 2012.”  On the other hand, Orrin Hatch argues that the US needs to “continue to be a global beacon for open markets and economic advancement.” 

In his examination of the US economy, Joseph S. Nye Jr. argues that the budget cuts affecting the State Department and foreign operations “could put a serious dent in the United States’ ability to positively influence events abroad.”  And, Michael Pettis claims that a declining trade surplus will force down Chinese bond purchases, decreasing demand for US government bonds and causing US interest rates to soar. All this and more in today’s US-China Trade update.

Contents
The U.S. Economy
The US-China Relationship
The Chinese Economy

The U.S. Economy

Commentary – Todd Tucker: A Bad Trade
Foreign Policy,
April 18
“When Barack Obama was elected back in 2008, he committed to breaking with the same flawed trade policy the United States has followed for a generation. Obama promised a new page, one that focused on creating American jobs and protecting the environment. Instead, his administration has flip-flopped on these campaign promises and is now pushing free trade agreements (FTAs) that are projected to cost American jobs, undermine U.S. negotiating credibility, and could even dampen the president's electoral prospects in 2012.”  Read more

Commentary – Orrin Hatch: America's Free Trade Moment
Foreign Policy,
April 18
“Emerging from the most severe economic downturn in a generation, the United States has a choice: Do we continue to be a global beacon for open markets and economic advancement? Or do we turn inward and abandon our leadership on trade policies, which has been a hallmark of economic growth since the end of World War II? The U.S. Congress will soon have an opportunity to make this choice when President Barack Obama seeks formal approval of our pending free trade agreements with Colombia, Panama, and South Korea. ” Read more

Commentary –William Shaw: How Long Will the Dollar Be King?
The Carnegie Endowment for International Peace,  April 15
“The dollar remains the bedrock of the international monetary system. Its dominant status benefits the United States and reduces transactions costs for the rest of the world. But, as the United States pursues fiscally irresponsible policies that keep the debt high and other economies gain world GDP share, a multi-reserve-currency system is likely to emerge in the long run. This is not necessarily bad news—the United States can still retain most of its economic benefits, and transaction costs will stay low as long as the number of dominant currencies is limited.” Read more

Commentary – Adam Segal: So Much for Soft Power
Joshua Kurlantzick,
April 14
“According to the Washington Post’s analysis of the deal on spending cuts agreed to between President Obama and Congress, one of the hardest-hit areas will be the State Department. In particular, the cuts will come down on foreign aid programs, including the Peace Corps, educational exchanges, and economic assistance programs designed to help fragile governments in the developing world.”  Read more

Commentary –Michael Pettis: America Must Give Up On the Dollar
Financial Times, April 13
“Reserve currency status is a global public good that comes with a cost. With the exception perhaps of the euro, which may emerge in the next decade, no other currency has the necessary characteristics to allow it plausibly to serve the needs of the global economy. And neither any other country nor Europe will be willing to pay the cost. If the dollar’s status is to decline in the future, it will require that Washington itself take the lead in forcing the world gradually to disengage.” Read more

Commentary –Knowledge@Wharton China: Keeping Its Distance: Can the Fed Be Effective, Innovative -- and Independent?
Knowledge@Wharton China, April 13 2011
“The U.S. Federal Reserve Bank played a central role in mounting a response to the financial crisis of 2008. The Fed, battling unprecedented disasters -- a meltdown in the financial system, the collapse of the housing market and a severe recession -- responded with what experts describe as creative, even heroic, measures. But in the wake of that crisis, the Fed faces new challenges, including an increasingly critical Congress, at a time when the central bank's responsibilities have expanded in significant ways. That will require the Fed to more effectively monitor a rapidly changing financial landscape, while also maintaining its independence from politicians in Washington.”  Read more

Commentary –Joseph S. Nye Jr: The War on Soft Power
Foreign Policy, April 12
“Last week, U.S. President Barack Obama and Congress struggled until the 11th hour to agree on budget cuts that would avert a government shutdown. The United States' budget deficit is a serious problem, and there have been serious proposals to deal with it, such as those by the bipartisan Bowles-Simpson Commission. But last week's efforts were not a serious solution. They were focused solely on the 12 percent of the budget that is non-military discretionary expenditure, rather than the big-ticket items of entitlements, military expenditure, and tax changes that increase revenue. Yet while last week's cuts failed to do much about the deficit, they could do serious damage to U.S. foreign policy. On Tuesday, the axe fell: The State Department and foreign operations budget was slashed by $8.5 billion -- a pittance when compared to military spending, but one that could put a serious dent in the United States' ability to positively influence events abroad.” Read more

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The US-China Relationship

Commentary – Michael Pettis: Rising Chinese Consumption Won't Lead to U.S. Rates Jump
The Carnegie Endowment for International Peace, April 19
“Would this force US interest rates up? The worriers say it would. During the past decade China’s central bank has been the largest buyer by far of US government bonds as it recycled the country’s massive trade inflows. If a declining trade surplus forces down Chinese bond purchases, the worriers say, demand for US government bonds will plummet and US interest rates soar.”  Read more

Commentary – Peter Allgeier: Finish Doha, Save the Fish
Foreign Policy,
April 18
“For the past 10 years, the 153 nations of the World Trade Organization have tried again and again to modernize the global trading body, particularly by lifting farm subsidies and lessening trade barriers for food and other crops. But if the world can finally wrap up these arduous discussions -- known as the Doha round -- we won't just succeed in opening up new markets for wheat and mangoes. We can also do quite a lot of good for the planet, and particularly for the world's dangerously overfished oceans and seas.”  Read more

Commentary –Michael Pettis: Why the Consensus May Be Wrong About Chinese Rebalancing and U.S. Interest Rates
Business Insider, April 17

“The argument runs like this:  If China raises the consumption share of GDP faster than investment declines, this will result in a reduction in China’s current account surplus.  Clearly if China’s current account surplus drops, the amount of capital it exports must drop in tandem – since a rising share of consumption means a declining share of savings and so a declining excess of savings over investment which must be exported.”  Read more

Commentary –John Norris: The Y Article
Foreign Policy,
April 13
“On Friday, April 8, as members of the U.S. Congress engaged in a last-minute game of chicken over the federal budget, the Pentagon quietly issued a report that received little initial attention: "A National Strategic Narrative." The report was issued under the pseudonym of "Mr. Y," a takeoff on George Kennan's 1946 "Long Telegram" from Moscow (published under the name "X" the following year in Foreign Affairs) that helped set containment as the cornerstone of U.S. strategy for dealing with the Soviet Union.”  Read more

Commentary –Knowledge@Wharton China: Recovery Mode: Should China worry About the U.S.'s Quantitative Easing?
Knowledge@Wharton Chin
a, April 13 2011
“As under the first two rounds of quantitative easing (beginning in March 2009 and November 2010) the Fed would print money and use the funds to buy bonds and mortgage-related securities -- purchases aimed at lowering borrowing costs in the U.S. and stimulating the nation's economy. But officials in Beijing have echoed criticism heard elsewhere around the world that QE2 has also triggered a sharp increase in world commodity prices and an influx of hot money into their country. They expect more of the same if there is a QE3. Experts are divided whether such concerns are justified.”  Read more

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The Chinese Economy

Commentary – Gordon G. Chang:Is the People’s Bank of China Insolvent?
Forbes New Asia blog, April 17
“Once, China was in a virtuous economic cycle.  Yet the likely insolvency of the PBOC points to a critical flaw in the state-dominated economy: its trends are mostly self-reinforcing.  Self-reinforcing trends are great when the economic cycle is in the up phase; they are disastrous on the inevitable downturn.” Read more

Commentary –Erica S. Downs: New Interest Groups in Chinese Foreign Policy
U.S.-China Economic and Security Review Commission, April 13

“The international expansion of Chinese companies and their increasing influence on China’s foreign policy is eroding a longstanding principle of Chinese diplomacy, noninterference in the internal affairs of other countries.  The global business activities of Chinese firms are heightening domestic and international pressures on the Chinese government to protect Chinese assets and citizens abroad and to help resolve international crises. ” Read more

Commentary – Jack: China’s Property Bubble?
ManagingtheDragon.com,
April 5
“James Chanos, the founder of hedge fund Kynikos Associates and the man who predicted the fall of Enron, is a very vocal bear on China’s property market. In April, 2010, Chanos was quoted as saying that China is “on a treadmill to hell…. is Dubai times 1000. They can’t afford to get off this heroin of property development. It is the only thing keeping the economic growth numbers growing.” A year later, Chanos is still waiting for China’s “property bubble” to burst.”  Read more

Analysis –Deborah Gordon, Yuhan Zhang: Driving Force: Energy and Climate Strategies for China's Motorization
Policy Outlook, April 2011

“The number of cars in China was projected to increase six-fold in the first decade of the new millennium. Analysts estimated that it would take at least two decades for China’s automobile fleet to catch up to today’s U.S. fleet. And if fast-paced growth continued, China’s total motor vehicle fleet was expected to be on par with America’s fleet by 2030.”  Read more Read full text

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