U.S.-China ties bring challenge, opportunity

November 14, 2010|By Jay Hancock

China is one of Maryland's biggest overseas customers, buying jet-engine thrust-reversers from Middle River Aviation, hotel services from Marriott, medical services from Chindex, dredges from Ellicott Dredges and satellite broadband from Hughes Network Systems.

The value of Maryland exports to China has grown along with China's economy, from $81 million in 2000 to $565 million last year, according to the U.S. Commerce Department.

But what Maryland buys from China far outweighs the goods and services we manage to sell over there. Marylanders bought about $6 billion in Chinese computers, toys, TVs, appliances and other products in 2009, a figure we can estimate based on Maryland's share of the U.S. economy.

That lopsided balance has been building for years, not just here, of course, but nationwide. Now, as it reaches a record high, so has the international tension it creates.

Limiting China's trade surplus with the United States was near the top of President Barack Obama's goals last week at the G-20 summit in Seoul. His lack of progress on that issue was perhaps his most visible failure. Chinese President Hu Jintao wouldn't even accept nonbinding targets to cut the country's trade imbalance with the United States, according to The New York Times.

In the next few days, I'll get a look at this critical business relationship from the other side of the counter. The China-United States Exchange Foundation is sponsoring me, along with four other American journalists, on a 10-day tour of Chinese factories, ministries, universities and laboratories.

We'll see China Inc. as well as Communist China, which still very much exists. A guided trip isn't the same as living and reporting full time from China, but it should illuminate some important questions.

China looks likely to be tomorrow's dominant superpower. In relative size and power, today's China looks like the United States in perhaps 1885. It doesn't yet dominate the globe, but the direction and pace of its growth leave little doubt about where things are headed.

The question is how the United States should manage China's rise.

"The current superpower should embrace its possible successor. It should bind it as closely as possible with ties of blood, commerce and culture." University of California- Berkeley economist Brad DeLong blogged two years ago, in a plea for free trade. "There is nothing more dangerous for America's future national security, nothing more destructive to America's future prosperity, than for Chinese schoolchildren to be taught in 2047 and 2071 and in the years after 2075 that America tried to keep the Chinese as poor as possible for as long as possible."

I believe this is true. And Washington has followed DeLong's advice, supporting China's entry to the World Trade Organization, welcoming nearly 100,000 Chinese students each year to American universities and making the formidable power of the American consumer available to Chinese factories.

But in many ways, China has exploited its relations with the United States. And U.S. efforts to build the relationship and avoid a possible war some decades hence carry real and painful costs today.

Millions of American manufacturing jobs have ended up in China, partly because Chinese workers are willing to work for less than Americans, but also partly because China doesn't play by the same rules.

Chinese environmental standards are weak, when they exist. Air and water pollution are terrible. Oftentimes, so are labor conditions.

That cheap Chinese phone you just got was purchased partly with the health and safety of the Chinese people. Better Chinese environmental and labor laws wouldn't just improve life in China. They would force Chinese manufacturers to bear costs similar to those of U.S. factories, making American goods more competitive.

Gaining further advantage, China manipulates its currency on an imperial scale, buying billions in Treasury paper and other dollar-denominated assets to push down the yuan against the dollar. Getting China to let the yuan appreciate has been the focus of increasingly pointed rhetoric from Washington in recent weeks, with little effect.

With all those Treasury bonds, China has become one of America's biggest creditors, gaining power to send U.S. interest rates soaring should it choose to suddenly sell. (Although in this respect, as well as many others, China's influence can be exaggerated. Japan vies with China for the position of America's biggest creditor, and the United States owes a similar amount to Europe.)

China's missiles aimed at U.S. ally Taiwan show that a Sino-American war is not hypothetical. China's human rights record "remained poor and worsened in some areas" last year, according to the U.S. State Department. Abuses included detention and harassment of human-rights activists and "severe cultural and religious repression of ethnic minorities."

The awarding of the Nobel Peace Prize last month to imprisoned human-rights advocate Liu Xiaobo highlighted Chinese repression as well as China's resentment at being called out for its wrongdoing.

How much should the United States push back? And how much of an economic threat does China really represent? A quarter-century ago, everybody made similar predictions about Japan. Are Chinese party officials truly investing all those American dollars efficiently? Or is the country due for the same kind of crash that brought down other command-and-control economies?

I hope the next few days will shed some light.

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