This week Timothy Geithner completed his first trip to Beijing as U.S. Treasury secretary, and from his account the three-day visit was a great success. The Chinese, he said, backed the Obama administration’s stimulus program, understood the temporary need for enlarged federal budget deficits and supported the dollar’s dominant role in the global economy. Summing up his short stay, Geithner said he received Beijing’s full backing for his plans: “I’ve actually found a lot of confidence here in China, justifiable confidence, in the strength and resilience and dynamism of the American economy.”
Geithner’s hosts seemed equally upbeat and, according to the Treasury chief, did not raise concerns about American deficits or interest rates. Moreover, the Chinese appeared especially hopeful about the plans of the two nations to build a new framework for consultations. “Through the dialogue, we will send a message that China and the United States are cooperating substantively to get over the difficult times, which will help boost the confidence, promote global financial stability and world economic recovery,” said Vice Premier Wang Qishan, Beijing’s economic troubleshooter.
The two nations plan to meet in Washington in late July to kick off the “Strategic and Economic Dialogue,” which will replace the “Strategic Economic Dialogue” maintained by Geithner’s predecessor, Henry Paulson. Paulson ultimately got nowhere with the Chinese on crucial issues, and the question is whether Geithner will make any headway with a China that is now more confident, assertive and stronger than it was just a few months ago.
The answer, in short, is no, for two fundamental reasons. First, Obama’s Washington thinks the U.S. has little or no leverage, economic or otherwise, with China. The new administration is wrong for many reasons. For instance, it grossly underestimates Beijing’s dependence on the American market. In 2007, 97.7% of China’s overall trade surplus related to sales to the U.S., and in 2008 the figure was 90%.
Moreover, American policymakers do not understand that, given the current structure of the Chinese economy, Beijing has little choice but to continue to buy American debt.
Finally, Washington overestimates the Communist Party’s ability to take corrective action and move away from Chinese reliance on exports to the U.S. Until the Obama team substantially changes its perceptions of China, Washington will not use its power to influence the policies of Beijing’s leaders.
The U.S. Has All the Leverage With China – Gordon Chang, Forbes
