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China Janus-faced in US relations
By Sushil Seth
Tuesday, Sep 28, 2010, Page 8
Over the years, China has learned how to play hard and soft
with the US, depending on the situation. After hectoring and warning the US
recently about its territorial sovereignty over the South China Sea and Yellow
Sea (objecting to the joint US-South Korean military exercises), and generally
making a claim for regional primacy, Beijing is reversing gears slightly to calm
Washington¡¦s ruffled feathers.
This was apparent at the high-level reception accorded early this month for US
National Economic Council Director Lawrence Summers and US Deputy National
Security Adviser Thomas Donilon. They were apparently there to discuss economic
and security relations.
These two officials were received by Chinese President Hu Jintao (JÀAÀÜ) and a
bevy of government and party heavyweights like Chinese Premier Wen Jiabao (·Å®aÄ_)
and others. While the content of their conversations with the Chinese leaders
was not revealed, they are believed to have been ¡§frank¡¨ and ¡§productive¡¨ ¡X
whatever that might mean.
Considering that the US-China bilateral relationship has been quite tense
lately, it might be assumed that the US officials went there to do some straight
talking, both on economic and security issues.
On the economy, the high value of Chinese currency is a major issue in the US.
And on the security front, China¡¦s recent saber rattling must have figured
prominently.
If the US officials did some tough talking, Beijing was not showing its
discomfiture. Indeed, some non-official Chinese sources reportedly sought to put
the best spin on the visit: That it might lead to improved military ties and
that the recently upgraded ties with North Korea were not based on friendship,
but on realpolitik.
As Zhu Feng (¦¶·¬), a Chinese academic, reportedly said: ¡§Kim Jong-il wants to be
spoiled over a new cold war between China and the US. They think it¡¦s a very big
chance to earn big aid and support from China.¡¨
He added that the US officials¡¦ visit and their high level reception would, ¡§be
a very big message to the Dear Leader that China and the US are staying on
course and there will be no new cold war.¡¨
What Beijing seems to be conveying, albeit through non-official sources, is
that its upgraded ties with North Korea are only a tactical shift and might be
reversed for quid pro quo from the US such as, for example, the withdrawal of US
support for Taiwan.
In other words, if the US were to recognize China¡¦s regional primacy, Beijing
would be more cooperative.
The point, though, is in that case Beijing would have achieved almost all of its
objectives in the Asia-Pacific region, with the US losing face and credibility
in the region.
At this point in time, it does not look like the US would be prepared to pay
such a high price for China¡¦s friendship.
Even if China¡¦s softer face with the visiting US officials is intended to
reassure the US on political and security issues, the undervalued yuan remains
as intractable as ever.
There are moves in the US Congress for legislating levies on Chinese exports
into the US because of the unfair advantage China has from its undervalued
currency.
As Paul Krugman recently wrote in his New York Times column: ¡§Right now, China
is following a policy that is, in effect, one of imposing high tariffs and
providing large export subsidies because that¡¦s what an undervalued currency
does.¡¨
Krugman wrote that, ¡§what China is doing amounts to a seriously predatory trade
policy, the kind of thing that is supposed to be prevented by the threat of
sanctions.¡¨
And he is for going all the way to force the issue with China.
As he said in his column: ¡§I say confront the issue head on and if it leads to
trade conflict, bear in mind that in a depressed world economy, surplus
countries [like China] have a lot to lose ¡K while deficit countries may end up
gaining.¡¨
US President Barack Obama¡¦s administration is under considerable pressure in the
US Congress on the question of China¡¦s unfair trade advantage from an
undervalued currency. To relieve that pressure it is simultaneously asking the
WTO to look into China¡¦s unfair trade practices such as, for instance, blocking
US steel exports into China.
According to US Trade Representative Ron Kirk: ¡§The duties imposed by China have
raised the price of hundreds of millions of [US] dollars¡¦ worth of American
steel headed into China, with the practical effect of reducing or blocking
exports of our steel to that country.¡¨
And he said that: ¡§This case makes clear that the United States will not permit
China to threaten American steelworkers¡¦ jobs by using anti-dumping and
countervailing duty proceedings to harass US exports.¡¨
It is quite clear that until there is some resolution of China¡¦s undervalued
currency, and lifting of its measures to restrict and block US exports, the
US-China economic relationship might be headed toward a trade war. Certainly,
the US¡¦ yearly trade deficit with China of more than US$200 billion is
unsustainable.
Many in the US Congress are highly agitated calling for countermeasures, like
imposing high tariffs and other penalties on Chinese goods headed to the US.
According to US Senator Charles Schumer: ¡§China¡¦s currency manipulation is like
a boot on the throat of our recovery and this administration refuses to try to
get China to remove that boot.¡¨
The Obama administration is still reluctant to call China¡¦s undervalued yuan as
a case of currency manipulation; even though as a presidential candidate, Obama
had no hesitation to use this terminology during his election campaign.
China is trying to lower the heat by allowing a small appreciation of its
currency. However, that would not solve the problem.
As US Treasury Secretary Timothy Geithner told the US Senate Banking Committee:
¡§We¡¦d like to see a sustained period of appreciation,¡¨ designed to largely erase
the yuan¡¦s undervaluation.
China¡¦s response, as it has always been, is to make small gestures (like a minor
appreciation of the yuan) to hopefully relieve internal pressure on the US
administration. It is part of the pattern to soften the US, while still holding
on to a hardline position.
Will it work? China has certainly managed it well over the years, while it
continues to build up its economic and political power.
The strategy seems to be that as China gets stronger, the US might not have much
leverage to influence its policies from its weakened position.
On the other hand, China¡¦s brinkmanship over a whole range of economic,
political and security issues might push the US into a situation where it has no
option but to hit back.
China is obviously taking a calculated risk, emboldened by the US¡¦ timid
response so far for fear of escalating the developing crisis in US-China
relations.
Sushil Seth is a writer based in Australia.
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