The Curiously Gloomy Narrative Continues: Obama’s ‘Lack of Leverage’ over China
The Philadelphia Inquirer has an interesting front page article on the various issues negotiated between China’s President Hu and our President Obama during the latter’s recent visit to China. The article’s title proclaimed that “Obama finds he holds little leverage in China”, noting:
President Obama today wraps up a three-day visit to China that has left him keenly aware of the limits of his administration’s leverage over this economic powerhouse on issues from currency-exchange rates to human rights.
That characterization sounds a bit too pessimistic to us, and it’s yet another example of the curiously gloomy narrative that has developed in the U.S. media around our relationship with China. We can assess the article’s assertion by comparing the issues that each President brought to the table.
China would like the U.S. to:
- Tighten Federal Reserve policy in order to support the value of China’s U.S. dollar and debt holdings, and lower inflation risks in China;
- Avoid raising barriers to trade between the two countries;
- And avoid seeking stringent curbs on CO2 emissions from developing economies at the upcoming Copenhagen summit.
Meanwhile, Jon Huntsman, the U.S. Ambassador to China, was quoted as saying that the U.S. was focused on “key global issues”. President Obama requested that China:
- Allow its currency, the renminbi (RMB), to strengthen against the USD, and moving closer to a floating exchange rate regime;
- Expand human rights protections and limit state censorship;
- Commit to shouldering its share of the burden in combatting climate change;
- And help “contain the nuclear ambitions of North Korea and Iran.”
Look at those two lists and ask yourself which country’s well-being was most on the line. Hu’s requests were aimed at preventing major economic burdens from being imposed on China by entities outside of China. But other than the impacts that a stronger RMB could have on U.S. exporters, Obama’s requests were aimed at the distinctly non-U.S. issues of climate change, nuclear proliferation, and China’s dealings with its own population!
For several years now, the media’s prevailing U.S.-China narrative has hung on the fact that China is a major holder of U.S. debt, and that this is somehow “unsustainable”. While the last decade’s rate of accumulation may be unsustainable, the current situation is more benign than many assume. And even if the situation were dangerous, China’s position is just as precarious as ours. That’s especially true when you compare productivity and per capita income levels in the two countries (military strength is also a factor), as well as secular and political shifts in the U.S. economy.
The story also tried to make something out of the fact that neither President Hu nor students attending Obama’s Shanghai townhall meeting showed much emotion. If that were a cultural anomaly in China, we might make something of it. It’s not, so we don’t.
All in all, there seems to be little basis for the claim that President Hu had the stronger hand.
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Tags: Climate Change, Emerging Markets, Global Economy, Institutional Economics, Media, Political Economy, Politics, Popular Culture
News and Views | art November 18, 2009
