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Scholar details new world economy merging U.S., China

As the U.S. government has been trying to stimulate our economy out of recession, China, our largest creditor, has been financing even more of our debt. When will China stop buying our bonds?

When a better alternative comes along, and right now, there isn't one. Despite the weakness in the U.S. economy, we're still the world's largest and we're the biggest market, even with consumer spending curtailed. The dollar is still the only global currency. And until that changes, the Chinese are going to need us as much as we need them.

But this shouldn't be a recipe for complacency. That situation is not infinite. If we stay on the current path, China's internal market will need us less. It may take a while, but the U.S. can't rest on its laurels of having been the world's largest economy. We need to reinvent and reinvigorate ourselves.

In a "superfused" relationship with China, what leverage does the U.S. have on issues like human rights or safer products?

Pretty limited leverage, in the way in which the U.S. traditionally understands it. We've been the biggest kid on the block for 60 years, and we've started to believe our own marketing. If we think we still have that kind of leverage, it would not only be wrong, it would be counterproductive. The worst thing we can do is make a brash pronouncement criticizing China, which would make them retreat into a nationalistic stance. Discussion and slow, deliberative argument can be a recipe for influence. We may not fundamentally change China's policies toward Tibet, but the Chinese know they can't just crush their internal rivals as much as they might like without external consequences.

What do you think of Obama's recent decision to put steep tariffs on Chinese-made tires?

It's a little bit of saber rattling. You've got to allow for a certain degree of appeasing the domestic base, the unions. Bush did the same with steel and bras in 2004. You can't make too much of any one action. If there were 10 other things in rapid succession, it would be a disturbing development, but this is not a pattern. China's great retaliation to Obama was that it was not going to import U.S. chicken parts, so it's not a game changer. Plus Obama's call for tariffs hurts U.S. tire companies (who sell Chinese-made tires) as well. So who's Obama penalizing?

What advice would you give politicians on managing the relationship with China?

There are a lot of constructive signs that the Chinese and American leaders recognize how central the relationship is. Right now Obama is continuing the dialogue begun by Bush and solidified by (Treasury Secretary Henry) Paulson.

Congress is a different story. It's much more susceptible to the ebbs and flows of popular sentiment. To the degree the U.S. economy muddles along, dramatically underfulfilling people's needs, it will generate anger, discontent and feelings that someone else is to blame. And a thriving China, with the administration and business community urging more interaction, rather than less, becomes an easy target. Congress is likely to be a lightning rod for those emotions.

What are the biggest challenges to nurturing this relationship in the years ahead?

In the U.S., it's confusing power with affluence, thinking we have to be on top to have the world we want. It's adjusting to a world that's multipolar, multifaceted. Militarily, the U.S. is going to be dominant for decades, but the military is not the tool that can create the world the way we want.

For China, it's the struggle for a government that wants complete and total say over what people say and do. Once people get accustomed to economic security, they may find themselves not so satisfied with a lack of political participation. Even if that doesn't change, the ability of China's central government to control their world is awfully difficult in a porous world, no matter how many Internet barriers they erect.

Kris Hundley can be reached at khundley@sptimes.com or (727) 892-2996.

Zachary Karabell is an author, academic and money manager who has been an observer of and investor in China's phenomenal rise. • In Superfusion: How China and America Became One Economy and Why the World's Prosperity Depends on It, Karabell argues that the economies of China and the United States have melded over the past 20 years to the point where rupture would be catastrophic to both sides. • Karabell, who will be featured at the Times Festival of Reading on Saturday, provides trade protectionists and jingoists on both sides of the globe with a sharp dose of reality. • A hybrid economy — dubbed "Chimerica" by China hands — has developed under our noses, fueled by the flow of billions of dollars from the United States for Chinese-made goods, then back to this country from China in exchange for IOUs. • Karabell, founder of River Twice Research in Manhattan, says the way politicians and the populace respond to this new world order will be crucial. • "I'm not suggesting this intertwinement is an unalloyed good thing," he said. "But it's a fact. And it's better to deal with reality than live in a fantasy land." • The Times recently talked with Karabell about the future of the complicated U.S.-China relationship.

Superfusion:

How China

and America

Became One Economy and Why the World's Prosperity

Depends

on It

By Zachary Karabell

Simon & Schuster,

352 pages, $26

Festival

of

Reading author

Zachary

Karabell will

be a featured

author at the

Times Festival

of Reading on

Saturday at

the University

of Florida St.

Petersburg;

www.

festivalofreading.com.

Scholar details new world economy merging U.S., China 10/17/09 [Last modified: Saturday, October 17, 2009 5:31am]

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