If rising tensions over China's trade practices and economic expansion sound familiar, there's a good reason: The same issues were raised...
If rising tensions over China’s trade practices and economic expansion sound familiar, there’s a good reason: The same issues were raised about Japan two decades ago.
Although there are similarities in U.S. economic relations with China now and Japan then, crucial differences make today’s situation far more complicated and risky, policy-makers and analysts say.
Like two decades ago, today’s conflicts are emerging at a time of widespread uneasiness about America’s competitiveness, now triggered by the rise of low-cost competitors in China and India and technological advances that have made it easier to move capital and jobs across borders.
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China, like Japan before, has been accused of keeping its currency artificially low to boost exports, sending the U.S. trade deficit to record levels and accelerating the loss of high-paying manufacturing jobs. Even though China raised the value of its currency by slightly more than 2 percent against the dollar last week, some critics see this as inadequate.
A key difference is that the United States today is trying to build an economic partnership with a Communist country that, unlike Japan, harbors superpower ambitions and has the potential to become an economic and military rival in the next 50 years, according to analysts.
China is clearly “the major emerging power in the 21st century,” said Richard Ellings, president of the National Bureau of Asian Research, a Seattle think tank
By contrast, even during the worst periods of Japan-bashing, there was never a serious threat to the post-World War II military alliance between the United States and Japan.
Another significant difference: the rise in globalization. Two decades ago, the U.S. economy was far less tied to its trade partners. With the exception of large U.S. multinationals such as Boeing and Procter & Gamble, most U.S. companies and investors were focused on the domestic market. Japanese cars, stereos and other products were increasingly popular in the United States, but U.S. companies faced steep barriers to investing or doing business in Japan.
Ties between the United States and China are far more extensive. Chinese immigrants have played a key role in the American high-tech boom and have served as a bridge between the two countries.
Trade between the U.S. and China has grown thirtyfold in the last decade, propelled by global retailers and producers such as Wal-Mart, shifting production from other low-cost countries to China.
China has become the world’s top destination for foreign funds. Last year, that country received nearly $61 billion in foreign investment and more than half of that country’s exports are from factories owned by foreigners.
China has also become the fastest-growing market for many U.S. industries such as high-tech and natural-resource extraction.
If growth were to slow
Low-cost goods from China keep U.S. inflation down, while Chinese buying of U.S. Treasury securities helps keep U.S. mortgage rates down. If China’s growth were to slow significantly, it could trigger a global slowdown and major disruptions in key U.S. industries dependent on Chinese imports.
“Until recently, we were not very dependent on China at all,” said Edward Gresser, a former Clinton administration trade official and analyst with the Progressive Policy Institute, a Democratic think tank. “Now, we’re relying heavily on China as a source of finance for our growth and our budget deficit.”
With so much at stake in its dealings with China, the United States must walk a tightrope — encouraging China to move forward with economic and political reforms without triggering a costly confrontation.
Striking that balance won’t be easy. China has made no secret of its desires to become a major player in key strategic industries such as semiconductors or defense, which would directly challenge the leadership of American companies.
Meanwhile, China remains an authoritarian, one-party state whose legitimacy depends on delivering jobs and economic growth. Those who paint China as an economic goliath underestimate the serious challenges that its leadership faces, experts say. Double-digit economic growth has raised millions out of poverty, but it has also put huge strains on water and energy resources and created new tensions between the rich and poor.
Push too hard, experts warn, and the country’s stability could be at risk.
The rising tensions over China were evident recently as U.S. critics of the Asian nation said at a congressional hearing that a bid by China’s state-run CNOOC to buy U.S. oil producer Unocal was part of an effort to severely limit U.S. influence in Asia and overtake America economically and politically.
Today’s worries about China, however, haven’t generated the anti-Asian ethnic or racial overtones seen in the 1970s and 1980s. Then, a surge in Japanese auto imports and Japanese purchases of trophy real-estate triggered a nationalistic backlash that at times boiled over in violence.
In 1982, a 27-year-old Chinese American was beaten to death by two Detroit autoworkers who were angry about job losses and thought he was Japanese.
Americans’ fears of Japan turned out to be unfounded. Japan today is mired in a two-decade-long economic slump. Although Japanese brands such as Sony and Toyota are world leaders, predictions of Japan surpassing the United States in semiconductors or other critical industries never came to pass.
The mood on Capitol Hill echoes the late 1980s and early 1990s, when Congress was pushing for curbs on Japanese auto imports and semiconductors. Faced with an overall trade deficit running at an annual rate of $681.6 billion and job anxieties, Congress has put China in its bull’s-eye. More than 20 bills are pending that would impose penalties on China for alleged trade infractions.
When the United States was battling Japan two decades ago, some of the biggest proponents of tough action were the Big Three automakers and U.S. semiconductor firms that were frozen out of the Japanese market. Today, those industries depend on China for sales and imports.
The Bush administration, like the Clinton administration, has sought to avoid confrontation with China over economic issues, contending that diplomacy is the most effective way to persuade that government to reform its economy.