U.S. policy changes needed to achieve U.S. goals (2)
14:04, May 14, 2010
China is the largest importer in the world and currently America and China are each other's second largest trading partners. In the global economic crisis China and America have both suffered from shrinking exports, but their bilateral trade fared well compared to their trade with other partners. While U.S. exports fell 18.9 percent in 2009, its exports to China only decreased by 2.6 percent. China's exports to the United States fell 12.5 percent, far less than the decline in its trade with Japan and the European Union.
Policymakers within President Obama's administration seeking increased China-U.S. trade and currency exchange rate cooperation need to propose policies that align and protect China's as well as America's economic and national security. Instead, they have been getting involved in trade disputes over short-term benefits and in a politicized exchange rate confrontation that strikes at the core of America and China's interdependent economic and national security.
Recently President Obama issued a strongly worded statement that the United States needs to make a decision on listing China as an exchange rate manipulator in a soon-to-be-released Treasury Department report. His statement as America's head of state seeking China's cooperation was not what Chinese policymakers had come to expect and they deemed it entirely unacceptable. America's president publicly threatening a serious currency exchange rate confrontation with China is an example of why it is an illusion to think that disputes touching China's core economic and national security interests can be compartmentalized from impacting collaboration on America's core economic and national security interests.
Chinese policymakers know that American policymakers have managed the value of the US dollar to benefit America at the expense of other nations. The US dollar became the currency used in international trade as a result of the Bretton Woods Agreement in 1944 that required that the Federal Reserve hold gold supporting each US dollar printed. At that time America held an estimated 60 percent of all nations' gold reserves. In 1972 as America opened diplomatic relations with the People's Republic of China, it abandoned the pegging of the US dollar to gold, which enabled America, with its monopoly on printing US dollars, to unilaterally revolutionize global investment and trade. America manipulated the value of its currency to create the subsequent huge American economic growth with investment and trade advantages it unilaterally imposed.
In the 21st century the US dollar declined in value 33 percent from 2000 to 2008 while China gradually increased the US dollar exchange rate of the RMB by 21 percent from 2005 to 2008. Then America's emergency stimulus spending plans significantly increased the US debt and deficits, which make it likely that the American dollar will further decrease in value. Nonetheless, in a show of support for America, China increased its holdings of US dollars and debt while America's other major trading partners decreased their holdings. China currently remains the largest holder of United States government debt and US dollar currency reserves.
The articles in this column represent the author's views only. They do not represent opinions of People's Daily or People's Daily Online.
John Milligan-Whyte and Dai Min are the executive producers and co-hosts of the Collaboration of Civilizations television series adapted by the eight books they wrote in the America-China Partnership Book Series published in English and Mandarin in 2009-2010. They founded the America-China Partnership Foundation and Forum in 2008 and the Center for America-China Partnership in 2005. E-mail: info@CenterACP.com