Hillary Clinton says the US and China are in the same boat, and rowing in the same direction. She is wrong—or at least, it would be better for both if she were.
Both nations share a common interest in fending off a global recession. Even so, their leaders should focus on unpicking their co-dependent relationship, not deepening it out of fear.
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China and the US do share one thing in particular: a $1.4 trillion (about Rs70 trillion) loan agreement. That’s how much US government paper the Middle Kingdom has bought in order to park its foreign currency amassed through years of trade with the West. With the US about to launch an almost $800 billion stimulus to prop up its economy, China is under pressure to buy more.
Continued support of the US government might help revive Chinese exports, which have been hit by the share decline in US demand. It would also help keep up the value of the dollar, and thus of the huge Chinese portfolio of dollar-denominated assets.
But a common interest isn’t the same as a common destiny. If the US defaulted on its borrowings, or tried to inflate its way out of them, China would suffer as any other forsaken creditor. Unemployment would rise and state investment might shrivel.
But the wealth being created inside China by its rapid industrialization, and the infrastructure already in place, mean that over the long term, the country would still rise. A bust US, no longer the world’s risk-free borrower of choice, would fall—and fall hard.
Both countries need to make some painful adjustments. The US needs to start substituting exports for borrowing, while China needs to swap American consumers for the home-grown kind. Neither task is easy. The US needs to relearn how to produce low-value goods, while China must reorganize its economy and find new jobs for millions of export workers.
Big imbalances create a common interest—and a common problem. Contrary to Clinton’s suggestion, the unravelling of the co-dependency between the US and China should be a global policy priority. Then each country can find its own direction.