In the old days, Chinese emperors sat in splendor in the Forbidden City and
waited for the barbarians to come to them. That only changed in 1979, when Deng
Xiaoping turned Chinese history on its head, becoming the first leader of the
People's Republic of China to visit the United States — the first emperor to pay
court to the barbarians.
In 1979, it was a novelty to see the pint-sized heir of Mao donning a
10-gallon hat. Now, however, when President Hu Jintao visits Washington, he is
treated with the respect due an equal.
But is he truly an equal? The answer is more "yes" than "no."
True, the annual output of the American economy is still more than six times
larger than that of China when measured in dollars. True, the average American
is about 30 times richer than the average Chinese. Yet China's economy is
growing at a rate two to three times that of the United States'.
Moreover, the U.S. and the renascent Chinese empire have become deeply
interdependent. The U.S. is currently running the mother of all trade deficits,
equivalent to about 7% of GDP. A large part of that deficit — more than a
quarter — is being financed by China in the form of purchases of U.S. bonds. Why
do the Chinese want to accumulate so many dollar-denominated securities? Because
it prevents their currency from appreciating against the dollar and keeps their
exports cheap. As China's share of global exports has surged from 1% to nearly
8%, access to the American market has been crucial.
So China may be a rival in some respects, increasingly competing with the
U.S. for access to the world's reserves of oil and natural gas. But it is also a
vital prop of American prosperity, financing the American borrowing habit at a
remarkably reasonable rate of interest.
The catch is an inexorable relocation of manufacturing from West to East.
Just look at the things Americans import from China. Don't kid yourselves into
thinking it's just toys and sneakers, because Chinese exports have been racing
up the value chain in recent years. In 2003, for example, more than two-fifths
of the U.S. trade deficit with China was accounted for by electrical machinery
and power generation equipment. Virtually no new jobs are being created in
manufacturing in the United States these days; American firms would rather
outsource production to Asia.
And this is where the Sino-American relationship gets really interesting.
Because, if history is any guide, we currently ought to be witnessing a wave of
China-bashing in the United States.
Of 12 senatorial elections that look to be competitive this November, no
fewer than nine are in states with substantial industrial sectors. And yet, to
judge by their websites, not one of the candidates is willing to play the
anti-China card. The nearest anyone comes to raising the issue is the anodyne
phrase "fair trade."
What makes this especially puzzling is that, for two years running, Sen.
Charles Schumer (D-N.Y.) has toyed with the idea of legislation that would slap
a whopping tariff on Chinese imports in retaliation for alleged Chinese currency
manipulation. Why is this idea not seen as a vote winner?
It wasn't like this in the 1980s. Then, American fears of Japanese
competition unleashed a wave of Japan-bashing and punitive tariffs. So what's
different this time? One answer is that the trade traffic is not all one way.
There has been significant growth in U.S. exports to China, albeit not on the
scale of Chinese exports to the U.S. Another answer is that American consumers
are just too happy with cheap Chinese imports to complain about the erosion of
the American manufacturing base. A third possibility is that the Chinese are now
using some of their accumulated dollars to invest in the U.S., thereby creating
new jobs.
But perhaps the best explanation is that American voters just don't see China
as a problem. Polls make it clear that issue No. 1 is Iraq (22% of voters see it
as the country's top concern). Only 10% of voters give first place to the
economy, and just 7% cite unemployment. The trade deficit is nowhere.
Does this mean that Americans have learned from history not to resort to
protectionism when they encounter competition? Perhaps. But another possibility
is that the urge to bash China is merely dormant. After all, 85% of voters do
regard "protecting the jobs of U.S. workers" as the No. 1 goal of American
foreign policy. And the recent storm over immigration has shown how readily
members of Congress will strike protectionist attitudes when they see an
opportunity to make political hay.
A few years ago, Schumer asked a nice question at a Senate Banking Committee
hearing: As more and more manufacturing jobs move to China, "what's going to be
left here, restaurants?" My hunch is that more and more of his fellow
legislators could soon start asking similar questions.
At this point, China-bashing reminds me of Sherlock Holmes' "Curious Incident
of the Dog in the Night-time." But the dog did nothing in the night time, Watson
objects. "That was the curious incident," Holmes replies.
It will be even more curious when it starts barking — though let's hope it
has the courtesy to wait until the emperor is safely back in the Middle
Kingdom.