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While China may experience a painful financial contraction as it increases private consumption, even a dramatic slowdown of Chinese growth will not prevent China’s share of global GDP from rising.
In gauging the prospects for U.S. strategy toward Afghanistan and Pakistan, it is important to understand and take into account China’s deep-rooted strategic interests in the region.
President Obama’s decision to meet with the Dalai Lama quietly is a recognition of the fact that almost every global issue requires cooperation between China and the United States, and some restraint must be shown on issues that China considers “core interests.”
Since China’s domestic consumption is unlikely to grow fast enough to adequately balance the rising savings rate in the United States, global trade tensions are going to continue to escalate until a long-term solution is reached.
While China is likely to enjoy solid growth again this year, its policy solutions to achieve short-term economic objectives have made long-term rebalancing even more difficult.
Given the deep and unbridgeable differences between China and the United States in terms of their political values and geopolitical interests, minor conflicts between the two nations should be expected and should not be viewed as signs of a rapid downturn in U.S.-China relations.
While China has adopted an increasingly tough stance in recent disputes with the United States, its rhetoric has not been matched by aggressive action, and fears about a new cold war are unfounded.
As the U.S trade deficit becomes increasingly politicized in the face of high unemployment and a global contraction in demand, there is an increasing likelihood of trade tensions with net surplus countries, especially China.
Google’s defiance of the Chinese government will likely remain a crucial moment in China’s relations with the West in general, and should be viewed as a lesson on China’s political calculations behind its policy toward Western companies.
The idea that massive levels of foreign currency reserves are a guarantor of economic stability is based on a profound misunderstanding both of history and of the nature of reserves, which are almost totally useless in protecting large economies from domestic bubbles.