Beyond the Bubble

Following the G20 Summit meeting in South Korea, much speculation has been offered regarding the souring of relations between the American and Chinese governments. Though the Obama administration entered office with the widely acknowledged desire to strengthen ties with the rising superpower, officials now note that China’s recent stance on economic and security issues have led to less transparency and cohesion between the two nations.

One of the main sources of tension between the two governments is China’s refusal to allow their currency, the Renminbi, to rise to market levels. By keeping their currency artificially low they are able to sell their products to foreign clients more easily, and increase growth (at the expense of the living conditions of their citizens), much more rapidly than other nations.

Such policies not only limit the capacity for American goods to be sold in the international arena, but also decrease the attractiveness of domestic goods to citizens at home. It is quite telling that both Republicans and Democrats have a similar sentiment regarding this issue. The NY Times notes that, “At a time of partisan paralysis in Congress, anger over China’s currency has been one of the few areas of bipartisan agreement, culminating in the House’s overwhelming vote in September to threaten China with tariffs on its exports if Beijing did not let its currency, the renminbi, appreciate.”

American officials have also been critical of recent security measures taken by the Chinese government. The Times noted that China has been withholding shipments of “rare-earth minerals,” which can be used in the creation of advanced military equipment.

American officials have begun to shift their Asian strategy. Rather than bi-laterally meeting with Chinese officials, as has been the practice for the past two years, officials have begun to increase the relative importance of developing relationships with their other Asian allies. The NY Times notes that next month Mr. Obama will visit four major Asian states: Japan, India, South Korea and Indonesia.

Such a strategy seems to have been successful thus far. The Globe and Mail noted that at the G20 talks in South Korea on Oct 23-24 , “the G20 agreed to move toward more market-determined exchange-rate systems and to refrain from competitive devaluation of currencies.” Such a declaration is clearly in the interest of the American government, and has been one of the government’s main priorities. Analysts argue that the pressure imposed by other nations at the G20 had a great deal to do with China’s consenting to the policy.

The NY Times also noted that the total appreciation rate since the June of this year (when China last declared that it would loosen exchange rate controls) amounts to less than 3 percent. Analysts have further argued that the Chinese currency is still undervalued by at least 20 percent.

Though China continues to try and placate American unrest by assuming the facade of a nation undertaking a peaceful rise to power, one wonders how long American citizens and their government officials will view the nation in such terms. Without a swift appreciation in the value of the renminbi, and a subsequent increase in the desirability of the American dollar, it is difficult to imagine American officials relenting in their harsh criticism of China.