China and International "Rules": Self-Interested? Or Malign?

By James Fallows

I mentioned on Friday that I thought the US Government's mixed message about trade relations with China was actually a sensible balance, as opposed to a mish-mash or an internal contradiction. Treasury Secretary Geithner's statement said that the U.S. expected that the Chinese government would continue letting the value of the RMB rise, which will remove an impediment to bringing China's export-heavy economy into better balance with the rest of the world. But Geithner did not declare the Chinese "currency manipulators," which would have generated a lot of friction without doing any good. Similarly, the US government said it would support a trade complaint, about Chinese subsidies for clean-energy exports -- but would do so via international bodies, rather than making it a head-to-head US-China fight. By my lights, the right mixture.

A few followups. First, from the Economic Policy Institute, data about the trends in clean-energy trade. This one shows the US-China bilateral balance:

101810-chinatradefigurea.jpg
 

Of course of course of course, bilateral patterns don't necessarily tell you anything about either the country's overall performance. So here is a chart showing that America's trade performance in clean-energy tech with the rest of the world has been rapidly improving, even as it has worsened with China.

101810-chinatradefigureb.jpg

And "of course of course" again, graph lines don't prove anything about causation, let alone "fault" or "unfairness." But there is enough other reason for scrutiny of Chinese-government efforts in these areas to bear inspection -- which is what the government case is about.

After the jump, a reader's note about the Chinese government's conformance with international "rules" in the broadest sense.

A reader writes:

It's not just the economic implications of the undervalued RMB that has people like me (generally though not dogmatically pro-free trade) angry about China's economic practices. It's a sense that China doesn't play by the same rules as everybody else. I don't know if revaluing the RMB will have positive or negative results. I doubt it will have much of a short-term impact on U.S. unemployment. I suspect it will lead to a Chinese buying spree of American and European assets that will spark a backlash in the opposite direction. (OMG, how did the dollar get so undervalued?)

But I feel strongly in my bones that China needs to start playing on a level field with the rest of the world. It's not just currency manipulation. The rare earths controversy was kind of a last straw. How can they get away with that kind of stark trade war for political ends? Everyone seems to back off and run scared when China throws a tantrum. I can only applaud Norway for its spine. (Although I wonder if Norway's government was making the decisions instead of the Nobel Prize Committee, would it have shown as much backbone?)

I believe this started back in the Cold War when we used China as strategic leverage against the Soviet Union, and allowed the Chinese to dictate the world's position on Taiwan. China hardly seemed like a threat back then, and why not show some sympathy for its impoverished multitudes by not standing entirely on principle? But at this point, it's become an absurdity -- if not moral cowardice -- to continue bending the norms of global interaction for fear of being excluded from China's economic power. No wonder the rest of the emerging world has begun looking to China as a model rather than the US or Europe!

I'm not sure how these feelings should translate into specific policy prescriptions. I suppose I should be more sympathetic to China's own deep-rooted national feelings that it is just responding to centuries of Western domination. But how long can we continue tiptoeing around these sensitivities while allowing China to play by its own rulebook?

This is more than I can bite off right now, but: anyone who has observed anything about China recognizes the gap between the power / influence it is gaining, and its understanding, experience, sophistication, and confidence about (a) the way that appears to the rest of the world, and (b) the responsibilities that inevitably come with greater power. Eg, see this article on Chinese authorities' frequent clumsiness in addressing world audiences, or this by Paul Krugman today.

Overall, I think these gestures by the Chinese government are "self-interested" as opposed to actively malign. Sometimes -- as in the "rare earths" case Krugman discusses -- the distinction can seem unimportant; but in fact it matters a lot in terms of long-term strategies for dealing with an emergent China. Every power will be self-interested, China as well as America. But the lower the "actively malign" quotient, the greater the chances of finding a way for interests to coexist. My experience and judgment are very strongly on the side that the self-interest of a rising China is, more often than not, compatible with the interests of the existing "world order," notably America's. But for reasons like those the reader's note lays out, this is the big judgment everyone will necessarily re-visit -- and that the Chinese government's choices will affect.

This article available online at:

http://www.theatlantic.com/international/archive/2010/10/china-and-international-rules-self-interested-or-malign/64747/