Time on China's side in US ties
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There has been much discussion on the state of China-United States relations after a spate of negative actions from the US side. The recent regaining of control of the House of Representatives by Republicans is seen as ushering in a hard-line policy toward China and making the scapegoat for the US' economic ills. Pressure on China for the revaluation of the yuan has grown, and the problem of international imbalances has surfaced as a source of friction at most meetings of international leaders.
But China is in a strong position to wait all this out - the pressure is all on US President Barack Obama and his administrative team.
The economic malaise in the US has taken its toll on the US president's popularity after nearly two years in office - approval ratings are surprisingly lower than for many previous presidents after a similar period. The US midterm election results sent a clear message on the Obama administration's performance. Employment is the elephant in the corner that needs attention.
The US' weak recovery is widely expected to be a jobless one, and after the employment shake-out and significant growth of underemployment and part-time workers which gives employers more flexibility in uncertainty, the focus is on where new lasting jobs are to come from. Given the US government's unsustainable federal budget deficits and the cutbacks needed at state level to achieve mandatory balanced budgets, government spending cannot be a permanent source of new jobs - ask the university teachers, law enforcement officers, city librarians and others who have been losing their positions. A loose monetary policy seems inevitable as the next stage to avoid a US double-dip recession.
The service sector in an advanced economy is usually a growth area for jobs but the banking, finance, real estate services and retail sectors that are a bastion of that sector have been taking hits. Not surprisingly the question being asked is: "What has happened to US manufacturing jobs?"
It plays well to a domestic audience to look at China as a possible contributor to this problem (accusations of below cost exports and artificially low currency rates) but it is not a consistent explanation of what has been going on. During the many years of China's rise, US companies have come to China and negotiated great deals that have allowed them to make money along the value chain to the final retail sales in US. They have done this on the back of low wages in China and a favorable exchange rate, often leaving just a small percentage of the overall profit per unit with Chinese manufacturers. So one minute these great deals are case studies in MBA programs in the US, next minute they are the cause of concern for US politicians and businesspeople.
If we move to an area where products are usually too bulky to be imported and need local support networks - automobiles being a good example - China cannot be accused of causing the decline of the US car industry. We know that is the result of a combination of lack of investment in innovation, poor management and unsustainable credit policies to finance demand. Instead, the rise of China's automobile industry - now the largest in the world - has saved the bacon of several US firms operating in China.
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