Chimerica and Australia
Geoffrey Garrett
For more than a decade, the modus operandi of United States-China relations has been pragmatic, interest based and disciplined. Both sides have focused squarely on economic win-wins, managing down their lurking geopolitical rivalries and keeping a lid on potentially incendiary political disagreements and military tensions. Presidents Hu Jintao and Barack Obama have already signalled their strong intentions to keep relations between their two countries on this path. The problem for both, and for the world, is that after the global financial crisis it will be become increasingly difficult to keep delivering the economic benefits that have proved calming emollient for the inherent strains in US China relations.
The leaders of both countries know that their “trade for T-bills” ties were a major contributing factor to the global financial crisis. China was happy to provide a bottomless pit of cheap American credit by buying up dollars and Treasury bills so long as Chinese goods continued to sail off American shelves. The United States was willing to live with a massive trade deficit with China and an apparently undervalued Chinese currency so long as the low interest rates made possible by China’s hunger for dollars kept the US economy humming. The historian Niall Ferguson calls this co-dependent arrangement “Chimerica”.
Now that the bubble has burst, Chinese and US leaders have joined the “never again” global chorus when it comes to what has become the most imbalanced bilateral economic relationship in human history. But undoing what everyone now agrees is most unhealthy co-dependence between the world’s top two economies will be hard. It will demand nothing less than a re-coding of the economic DNA of China and the US, one that will likely take decades rather than years.
Americans are born with the consumption gene, and the government has always fed their habit through enabling regulation and tax breaks—above all, allowing Americans to borrow, not earn, their way to the American dream of home and business ownership. Chinese, on the other hand, have the thrift ethos drummed into them from birth. Their government has continued to pour money into investment in infrastructure and industry for export to drive growth and raise living standards. But the Chinese government has not built the kind of social safety net and retail financial system that would lead its citizens to save less, consume more and build a vibrant and sustainable domestic market-led model of economic development.
Whether they like it or not, China and the United States will be stuck with Chimerica for a long time. But an economic relationship that has soothed tensions between the two countries for more than a decade is poised to become, after the GFC, a major source of frustration and irritation.
Amid the hoopla surrounding the crisis-induced coming together of the 20th century Western powers with the emerging powers of the 21st century at the April 2009’s G20 summit, the World Bank’s president, Robert Zoellick, and chief economist, Justin Yifu Lin, spoiled the multilateral party. “For the world’s economy to recover,” they wrote in the Washington Post, “the two economic powerhouses must co-operate and become the engine for the Group of 20… Without a strong G2, the G20 will disappoint.”
To read the full article please subscribe »
Next: America as an idea
Subscribe!
In the news
Interview with James Hansen: The Grandfather of climate change science
11 Mar 2010
In this interview renowned climate scientist James Hansen explains why the 'cap and trade' model mooted at Copenhagen is inferior to the 'fee and dividend' model for reducing carbon emissions. Additionally, Hansen argues that a shift toward renewable energy and away from fossil fuels need not involve cuts to economic production. He also states that the recent 'climate-gate' and IPCC related controversies have been blown out of proportion.
In the news
Obama's health Bill at crucial stage
10 Mar 2010
The Canberra Times
In this article Lesley Russell examines the likelihood of the new health Bill being signed prior to President leaving for this month's scheduled visit to Australia and Indonesia.
This week, President Barack Obama will begin making what White House officials are calling the ''closing arguments'' on why the Congress must urgently move to enact health-care reform, focusing on steep increases in insurance premiums and an insistence that a comprehensive overhaul is needed rather than the incremental approach Republicans are demanding.
In his weekly media address last weekend, the President set a new deadline for action, stating that he's asked leaders in both of Houses of Congress to finish their work and schedule a vote in the next few weeks. Later, White House spokesman Robert Gibbs was more specific, saying the president wants the Bills passed by both houses before he leaves the country on March 18 for his trip to Indonesia and Australia.
That timetable may not be met in full. The House leadership is preparing for a vote on the Senate Bill, quickly followed by a vote on the reconciliation Bill that will effect the President's proposed compromises, on March 17 or 18. But the Senate will still need to vote on the reconciliation Bill, and in the absence of firm prior agreements and strict controls over process, any amendments added on the Senate floor could set up a ping-pong process that will add days or weeks to the time for a Bill to land on the President's desk for signing.
The scramble is on to get the votes needed for passage: reconciliation means that only a simple majority is needed in the Senate, but the House Speaker, Nancy Pelosi, will need all her formidable skills to marshal the 216 votes needed in the House. The hope is that anyone tempted to drop their previous support for the Bill recognises that this will be seen as a flip-flop stance that will draw no votes in the mid-term elections.
Despite the White House summit on health-care reform and Obama's inclusion of Republican proposals from the summit in his plan, health-care reform will almost certainly be enacted without a single Republican vote.
The conservatives are in full rallying cry on why health-care reform must be stopped. They are ignoring the assessments of the independent Congressional Budget Office that the Bill costs around $950 billion, is fully paid for, and will in fact help reduce the deficit, and are now using their own calculations to claim that the Bill involves $2.5 trillion in new spending.
Their mantra is that it will increase taxes, cut Medicare, and represents a government takeover of health care. Their confected rage at the use of the reconciliation process ignores the fact that this is precisely how president George W.Bush got his tax cuts passed measures which have added $2 trillion to the federal debt.
Obama's efforts to drive passage of this key election promise must take place against the backdrop of an economy and employment that is struggling to emerge from a deep recession. That's why he so often refers to the rising cost of health insurance and the industry practice of dropping those who need care. These consumer protections test well in opinion polls. He has also revived his criticism of the United States' political culture, something he promised to change during his 2008 campaign. His efforts have been rebuffed at every opportunity by a Republican party that ultimately wants less not more government intervention in the health sector. Republicans who might once have been willing to engage in bipartisan efforts are now intimidated by the Tea Party ultra-conservatives into doing nothing.
For Australians anxious to see Obama and his family Down Under including surely the Prime Minister and his government the chances of that happening look increasingly iffy. It would be quite difficult for the President to cancel his trip to Indonesia, the political ramifications of that are significant.
But telling an understanding ally like Australia that issues with health-care reforms back in Washington require that a planned visit is rescheduled is an easier matter. Such news should be received with considerable understanding by a Prime Minister just beginning his slog to sell health care reforms prior to an election campaign.
Dr Russell is the Menzies Foundation Fellow at the Menzies Centre for Health Policy, University of Sydney/Australian National University, and a Research Associate at the US Studies Centre, University of Sydney. She is currently a Visiting Fellow at the Center for American Progress, Washington DC.
© 2009 The United States Studies Centre | Privacy Statement
University of Sydney NSW 2006, Australia
Phone: +61 2 9351 7249 | Fax: +61 2 9351 6877
Email: us-studies@sydney.edu.au | Web: ussc.edu.au
ABN: 85 122 586 341 | CRICOS Number: 00026A
Site by CDW
