President Obama is hosting China’s president, Hu Jintao, this week in Washington DC. We have a complicated relationship with China. There are a lot of sticky issues including:
-Intellectual property. The Chinese want our technology and will do anything to get it. They’ll steal it outright, displaying little regard for intellectual property law. For example, Microsoft’s CEO, Steve Ballmer, estimates that only 10% of Windows software packages in China were purchased legally. If they don’t steal it outright, they’ll get it through joint ventures with American companies. General Electric announced one this week with AVIC (Aviation Industry Corporation of China), granting AVIC access to GE’s avionics technology. General Motors did a similar deal with SAIC Motor Corporation. As a last resort (for now), China could buy whatever they can’t get through theft or joint venture. Intellectual property is a central theme in the next two issues on my list.
-Military build-up. China is aggressively expanding their military and recently has shown signs of catching up to our military technology. China unveiled its J-20 fighter, designed to challenge our F-22 Raptor. It’s not there yet. We’re making it easier for them to catch up because, in addition to the IP issues I mentioned above, we’re not pushing military technological advancement as aggressively as we should. This technological advancement is allowing the Chinese to become bolder in foreign policy and assert themselves more in their East Asia sphere of influence.
-Economic expansion. Chinese acquisition of American technology doesn’t just allow them to catch up to us militarily, but also economically. American technology plus government backing helps them compete against us. If they don’t have to spend billions in research and development and they don’t have to pay their workers as much as we do, they’ll naturally be able to undercut us on price. As with military technology, China’s not quite there yet, but they’re gaining.
-Rare earth metals. These are used heavily throughout industry. China cut its export quotas by 35% last month. Even though China has only 37% of the world’s proven reserves, it provides 97% of the world’s supply. It claims this reduction is due to higher domestic use, but it could also be China flexing its political muscle. Our lack of domestic development, despite having ample domestic resources, leaves us vulnerable to cost surges and/or supply shortfalls.
-Currency and trade. Both China and the US accuse the other of currency manipulation, and both are right, in my opinion. The Chinese peg of the yuan to the dollar is keeping the yuan (aka renminbi) lower than it likely naturally should be. This is a mixed blessing for America. The negative for us is it makes Chinese imports cheaper, thereby giving them a competitive edge against our products. The positive for us is because Chinese imports are cheaper, it saves our consumers money (Wal-Mart deserves much credit here, too). Thus, if we push too aggressively for yuan appreciation, it may actually hurt us more than help us. Likewise, the USA has been practicing a weak dollar policy to strengthen our own exporting power, but also to inflate our way out of debt.
-Human rights. Issues like free speech and religion, censorship, and China’s one-child policy come to mind. The US and China view human rights differently, and both must recognize this. We see it more as a civil and legal issue whereas China sees it more as an economic issue. The US values individual freedom over harmony while China values harmony over individual freedom.
The bottom line is the whole world has to decide how to cope with China’s expansion. A balance must be struck between allowing for Chinese expansion and ensuring our economic and military well-being. I’d like to see it thrive as a peaceful, mutually-beneficial relationship. But, we can’t just concede our spot as the top global economic and military superpower, either. I hope history doesn’t repeat itself. Two scenarios worry me.
The first scenario is a Germany scenario, leading to war. I’ve long believed that throughout 20th century, the rest of Europe was unable to cope with Germany’s economic and military expansion, thereby leading to two world wars and a carved-up Germany.
The second scenario is a Russia scenario, leading to a Cold War. Following World War 2, the US and Russia were the two remaining superpowers as the rest of the world was decimated or not yet developed. We never fought each other directly, just by proxy.
I’ll discuss these parallels I see another time.
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