Friday, 6 November 2009
Sino-US marriage: Is it on the rocks?
‘SUPERFUSION’ - that’s the name of a new book by Zachary Karabell, which describes how ‘the unique relationship between China and the United States has become the axis of the world economy’. It’s a catchy concept in a world that struggles to find the terms to keep pace with a rapidly changing economy.
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Sino-US marriage: Is it on the rocks?
New book contests earlier take on the two economic giants
By RICHARD BERNSTEIN
06 November 2009
‘SUPERFUSION’ - that’s the name of a new book by Zachary Karabell, which describes how ‘the unique relationship between China and the United States has become the axis of the world economy’. It’s a catchy concept in a world that struggles to find the terms to keep pace with a rapidly changing economy.
It’s pretty much identical to another neologism, coined a couple of years ago by the economic historians Niall Ferguson, who is a professor of history at Harvard, and Moritz Schularick to describe the Sino-American economic relationship. That one was Chimerica.
China and the United States are of course enormous economies with an enormous volume of business - US$150 billion in trade in 2002; nearly US$450 billion in 2008, and not much less than that in 2009, despite the economic turndown. But superfusion and Chimerica suggest something beyond mere amplitude.
The analysis is, as Mr. Karabell describes it, that the two giants have become ‘one intertwined, integrated hypereconomy’. Or, as Prof Ferguson has put it: Chimerica is ‘the real engine of the world economy’.
That would seem to indicate a great deal of agreement, a consensus even, and yet Mr. Karabell’s book appears at a moment of debate, in which the coiners of the new expressions are on very different places in the spectrum of opinion. Essentially, Prof Ferguson warns both of dangers and fragility in Chimerica.
Effects of crisis
In recent speeches and articles, he has blamed Chimerica for contributing substantially to the global financial crisis, even as he’s been arguing that its days may be numbered, possibly to be replaced by new conflicts and antagonisms.
By contrast, Mr. Karabell thinks that superfusion is both permanent and mostly good.
It mitigated the effects of a global crisis that would probably have been a lot worse without it, he says. And he feels that superfusion’s continuation will be a lot like its creation, something that happened largely outside the control of national governments and that will remain largely outside their control.
‘Normally a time of crisis like this would be the perfect time for attempts at economic retaliation, like trade restrictions and higher tariffs and the like,’ he said in a telephone conversation this week. ‘In fact very little along those lines has happened.’
One reason for that, he says, is that ‘the ability to take measures is pretty limited’.
Unresolved questions
The different perspectives of Mr. Karabell and Prof Ferguson reflect something fairly consistent about the analysis of China, which is that experts examining the same data often come to different conclusions about what China means to the US. Even such basic questions as whether China will be a partner or a rival remain unresolved, and that lack of resolution is illustrated in the different perspectives on the two countries’ fusion into a single interdependent economy.
Prof Ferguson’s numerous books include The Ascent of Money: A Financial History of the World and Colossus: The Rise and Fall of the American Empire.
For him, Chimerica comes down to a simple formula: China does the saving; America the spending. One has lent more than US$2 trillion; the other has borrowed it.
‘For a time,’ he wrote in a recent Newsweek article, ‘Chimerica seemed like a marriage made in heaven. Both economies grew so fast that they accounted for 40 per cent of global growth between 1998 and 2007.’
‘The big question now is whether or not this marriage is on the rocks,’ he added.
In the worst-possible case, Prof Ferguson has been arguing, China could end up quite a lot like Germany did at the beginning of the 20th century, a rising power whose extremely high level of economic integration with the rest of the world did not prevent World War I.
‘With China decoupled from America - relying less on exports to the US market,’ Prof Ferguson wrote in The American Interest Online a few months ago, the ‘end of Chimerica would have arrived’.
In Mr. Karabell’s overall position is that too much has been made of such matters as China’s trade imbalance with the US and China’s holdings of American debt, while other matters have been given less importance. Among these other matters is a pattern of increasing sales to China by companies that have, essentially, been saved, because they had run out of other markets.
‘There can be no argument,’ he writes in his book, ‘that US companies reaped extraordinary profits from the growth of China’, and he includes case studies of companies as diverse as Kentucky Fried Chicken, Federal Express and Avon in his account.
At the same time, he argues, the often overlooked amount of American investment in China lessened the impact of the financial crisis, because that money didn’t go into things such as the real estate bubble and its attendant financial instruments, such as credit default swaps.
Moreover, if China’s manipulation of its currency contributed to the American housing bubble - one example of superfusion at work - Chinese lending to the US has also financed the stimulus package, which has prevented things from being a lot worse.
Intertwined economies
But what of Prof Ferguson’s argument that conflict could come, spurred by things such as China’s naval development in the Pacific and Indian oceans, its search for natural resources in Africa - so reminiscent of the scramble for empire of the late 19th century - and its willingness to maintain close, even protective, relations with countries high up on the American disapproval list, like Sudan and Iran?
‘The two economies have become so intertwined that neither can extricate itself without considerable harm,’ Mr. Karabell said. ‘The US remains not only the most important market for Chinese goods but the source of much of the innovation and investment that has fuelled China’s domestic growth. China is not only a vital source of funding for US government spending but an essential market for companies large and small looking for a new frontier for growth.
‘Close economic ties don’t preclude conflict,’ he said, ‘but there is no sign on either side that conflict is either desirable or feasible, and the economic fusion is the primary reason.’ - IHT
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