Newsweek correspondent Niall Ferguson writes, “Back in early 2007, it seemed as if China and America were so intertwined they'd become one economy: I called it "Chimerica." The Chinese did the saving, the Americans the spending. The Chinese did the exporting, the Americans the importing. The Chinese did the lending, the Americans the borrowing.”
With US debts to China estimated at $801.5 billion, and American consumption rates dropping due to the current economic crisis, this relationship has outlived its utility for at least one of the partners. Ferguson reports that, “America's highly indebted consumers just can't borrow anymore. The U.S. savings rate is soaring upward, and U.S. imports from China have slumped, down 18 percent between May 2008 and May 2009.”
Additionally, Chinese officials fear that their massive stock of US Treasury bonds (exchanged for Chinese loans) may lose value and end up hurting the Chinese economy. According to Ferguson, “Their great anxiety is that the Obama administration's very lax fiscal policy, plus the Federal Reserve's policy of quantitative easing (in layman's terms, printing money), are going to cause one or both of two things to happen: the price of U.S. bonds could fall and/or the purchasing power of the dollar could fall. Either way the Chinese lose.”
Ferguson cites Chinese economist Song Hongbing, author of the book Currency Wars, who warned that US borrowing would strike a blow to China’s economy when the international value of the dollar falls. Hongbing pointed out that this is exactly what happened to the Japanese in the 1980s, when “first their currency strengthened against the dollar”, and “then their economy tanked”.
The economics here may be hard to follow, but they foretell a very real problem for the future of US-Chinese relations. Ferguson claims that if China seeks an economic and political “divorce” from the States, its next step will most likely be “the empire option”.
As an empire, China would depend on their growing economic power (a GDP which will equal that of the US by 2027), and military clout to achieve global political power. Ferguson notes, “Their naval strategy clearly implies a challenge to U.S. hegemony in the Asia-Pacific region. Their investments in African minerals and infrastructure look distinctly imperial too.” In this picture, China’s conquest of Tibet is only the first and most explicit of the regime’s vast imperial designs.
Ferguson goes on to reason that a “post-Chimerican” China would have to be “not only an empire, but also a consumer society”. For this to happen, Chinese policy makers would have to promote consumption as much as manufacturing, “shopping malls as well as factories”. This domestic consumption would boost China’s internal market and trade with its neighbors, creating an self-sufficient East Asian bloc. China would no longer need to export its goods to the US and other Western customers.
“The global implications of this divorce are huge”, states Ferguson. No longer trade partners, China and America would be rival actors on the stage of world power. He describes, “Imagine a new Cold War, but one in which the two superpowers are economically the same size. Or, if you prefer an older analogy, imagine a rerun of the Anglo-German antagonism of the early 1900s, with America in the role of Britain, and China in the role of imperial Germany.” This last example was the economic partnership-turned-rivalry that led to the unprecedented destruction of World Wars I and II.
His Holiness the Dalai Lama and other peace advocates continuously call for the use of cooperation and diplomacy rather than economic and military competition. We can only hope that the US and China begin to listen to these voices and change their strategies before we are faced with a disasterous World War III situation.