I am hopeful that China will emerge as a partner to the U.S. on such issues as terrorism, disaster relief, and nation-building, but we should be aware that as we have made economic choices to pursue these objectives in an almost single-handed fashion, we now find our economy exposed to a trading partner whose interests may differ from ours.
James Fallows replies:
I agree with Matthew Downing that the financial imbalance between the United States and China is a problem. I disagree about why.
As I have argued in several previous articles (including “The $1.4 Trillion Question,” January 2008 Atlantic, and “China’s Way Forward,” April 2009 Atlantic), the long, unbroken years of Chinese trade surpluses with America, which have led to the Chinese government’s accumulation of U.S. Treasury notes and other dollar-denominated assets, reveal a distortion in each country’s economic management. China, which still has hundreds of millions of peasants, has been living on much less than its people collectively produce. The United States, by comparison so rich, has been living beyond its natural means—and making up the difference by borrowing from China. In the long run this isn’t good for either country, and it makes the people in each feel vulnerable to the other. Many Americans have fears like Downing’s; many Chinese worry that too many of their national assets are sunk in one economically volatile, perhaps politically hostile, foreign site.
If China and America had a major strategic collision, for instance over Taiwan, the Chinese government might indeed sell its bonds—but that would be only one of many weapons each country might use against the other. In normal circumstances, the Chinese surpluses matter mainly as a sign that both countries need to correct the balance between savings and consumption in their own economies.
The January/February Atlantic contains two ungrammatical French expressions. “What Would Wilson Do?” uses the words grand guerre. The word guerre is feminine; since the modifying adjective should also be feminine, the correct version of this is grande guerre. In “Cultivating Failure,” the expression haute-bourgeois appears. This expression is also hermaphroditic: haute is feminine but bourgeois is masculine. It should have been haut-bourgeois.
“The Great Grocery Smackdown,” by Corby Kummer (March Atlantic), noted that a partnership called Agile Agriculture included the National Sustainable Agriculture Coalition and the University of New Hampshire. The coalition is not a member of Agile Agriculture; the university is about to enter a formal relationship with the program, but had not yet done so when the article was published. We regret the errors.
Dow Loses Points, but Reader Wins 10-Year-Old Bet
More than 10 years ago in these pages, James K. Glassman and Kevin A. Hassett argued a new theory of stock valuation, writing that the Dow Jones Industrial Average would rise “to the neighborhood of 36,000” (“Dow 36,000,” September 1999 Atlantic). In January 2000, J. Douglas Van Sant of Stockton, California, wrote in to say that their theory was “a giant fallacy.” He bet Glassman and Hassett that in 10 years, the Dow would be closer to 11,000. The writers agreed to the bet: “If the Dow is closer to 10,000 than to 36,000 ten years from now, we will each give $1,000 to the charity of your choice.”