JOIN USAt a recent dinner ending their annual cabinet-level strategic and economic dialogue in Washington, participants from the United States and China expressed their commitment to cooperative conduct with a warmth I have not seen exceeded since the two countries resumed contact in 1971. It is good that this was so, for the next decade will witness sweeping challenges to their adaptability and their vision.
The annual dialogue inevitably concentrates on the problems of the moment. Useful as this is, the deeper challenge is to achieve a common vision with respect to the emerging world order.
The assumption that the end of the recession will restore the familiar global economic system ignores the psychological and political upheaval that has taken place. A vast tide of liquidity coupled with America’s appetite for consumer goods had sent enormous amounts of dollars to China that, in turn, China lent back to us for still more buying.
Before the crisis, China sent scores of experts to the US and invested in major American financial institutions to learn the secrets of the system that seemed to produce permanent global growth at little risk.
The economic crisis has shaken that confidence. Chinese leaders have seen the American financial system subject a decade of their savings to potentially catastrophic fluctuations. To protect the value of its US Treasury investment and in order to sustain its own export-driven economy, China finds itself obliged to largely retain its treasury holdings of nearly $1 trillion.
The two economies have grown increasingly dependent on each other. China has a major interest in a stable — and preferably growing — American economy. But China also has a growing interest in reducing its dependence on US decisions. Since American inflation as well as deflation have become for China as grave nightmares as they are for America, the two countries face the imperative of coordinating their economic policies.
As America’s largest creditor, China has a degree of economic leverage unprecedented in the American experience. At the same time, the quest for widening the scope of independent decision exists in ambivalent combination on both sides.
A number of Chinese moves reflect this tendency. Chinese officials feel freer to offer advice to the US than previously. China has begun to conduct its trade with India, Russia and Brazil in their own currencies. The proposal of China’s central bank governor to create gradually an alternate reserve currency is another case in point. Many American economists make light of this idea. But it surfaces in so many forums that it should be taken seriously. To avoid a gradual drift into adversarial policies, Chinese influence in global economic decision-making needs to be enhanced.
Consumption theory
The conventional wisdom for a new global economic order creates another imperative for the coordination of long-range policies. According to it, the world economy will regain its vitality once China consumes more and America consumes less. But as both countries apply that prescription, it will inevitably alter the political framework.
A cooperative definition of a long-range future will not be easy. Historically, China and America have been hegemonic powers able to set their own agendas essentially unilaterally. They are not accustomed to close alliances or consultative procedures restricting their freedom of action on the basis of equality.
To make an emerging partnership work, American leaders must resist the siren call of a containment policy drawn from the Cold War playbook. China must guard against a policy aimed at reducing alleged American hegemonic designs and the temptation to create an Asian bloc to that end. Confrontation will drain both societies to the detriment of global well-being.
At the other extreme, some argue that the US and China should constitute themselves into a G-2. A tacit Sino-American global governing body is not, however, in the interest of either country or of the world. Countries that feel excluded might drift into rigid nationalism at the precise moment that requires a universal perspective.
The great contribution of America in the 1950s was to take the lead in developing a set of institutions by which the Atlantic region could deal with unprecedented upheavals. A region hitherto riven by national rivalries found mechanisms to institutionalise a common destiny, greatly reducing the prospects for war and leading, in time, to a far more benign world order.
The 21st century now requires an institutional structure appropriate for its time. The nations bordering the Pacific have a stronger sense of identity than did the European countries emerging from World War II. They must not slide into a 21st -century version of classic balance-of-power politics. It would be especially pernicious if opposing blocs were to form on each side of the Pacific.
While the centre of gravity of international affairs shifts to Asia, and America finds a new role distinct from hegemony yet compatible with leadership, we need a vision of a Pacific structure based on close cooperation between America and China but also broad enough to enable other countries bordering the Pacific to fulfil their aspirations.
(The writer served as Secretary of State in the administrations of Presidents Nixon and Ford)
IHT