Painting a bull’s-eye on China hurts U.S.

TREASURY SECRETARY John Snow, Federal Reserve Chairman Alan Greenspan and SEC Chairman Christopher Cox will be in Beijing this week to meet with their Chinese counterparts. But don’t expect the meeting to produce any breakthroughs in what has become a very difficult U.S.-China relationship. The fundamental reason is that Washington is ambivalent about what its grand strategy toward China should be.

Should the United States, as it did during the Clinton administration, actively support China’s rise as a global power through free movement of trade, investment and people between the two countries? Or does increasing economic competition from China, plus its status as the United States’ only foreseeable geopolitical rival, demand a cooler and more cautious, if not openly adversarial, approach, as U.S. domestic politics seem increasingly to insist?

China-bashing is in vogue in Washington these days, with strong parallels to the Japan-bashing of the 1980s, when that nation’s economy also “threatened” the United States. Against a backdrop of large and growing U.S. trade and budget deficits, American complaints against China over unfair trade, artificially low currency values, unwanted foreign ownership and too much saving and not enough consuming are growing in number and volume.

An unholy political alliance in the U.S. among protectionists and security hawks has painted a bull’s-eye on China. Things reached their nadir over the summer in Washington, with the near-hysteria generated by the Chinese oil company CNOOC’s bid to buy Unocal and President Bush’s subsequent unwillingness to grant official “state visit” status to Chinese President Hu Jintao’s proposed visit.

CNOOC’s withdrawal of its bid averted an overt political crisis in August. Hurricane Katrina provided a face-saving way to cancel Hu’s visit in September. But the underlying tensions with China are going to be much harder for the United States to resolve than was the case with Japan in the ‘80s.

The U.S.-Japan rivalry effectively ended when Japan fell into a deep economic funk in 1990 from which it has not recovered. Although the Chinese economy faces significant challenges (such as its insatiable demand for energy, rapidly rising inequality and an aging society), there is little chance that the same fate will soon befall it.

More important, whereas conflict between the United States and Japan was purely economic, geopolitics and security cast a huge shadow over the U.S.-China relationship.

The rise of China represents the most important shift in the global balance of power in at least 60 years. Under any circumstances, this friction among the world’s tectonic plates would be hard for the U.S. to deal with.

But the problems are made much worse because China is a communist state with nuclear weapons and because security tensions are running high between China and its East Asian neighbors -- and close U.S. allies -- Japan, South Korea and Taiwan.

Of course, economists are quick to point out that China’s ongoing economic miracle continues to be such a boon for the United States that nothing should be done to jeopardize it.

American-owned multinational firms use China as a cheap producer for global sales and salivate over the market potential of its emerging middle class. American consumers enjoy the high quality at low cost of so many things “made in China.” The United States’ trade and budget deficits are sustained by China’s holding of massive quantities of American bonds. The ensuing low interest rates are great for American homeowners.

But having economists inside and outside government preach about the win-win nature of free trade and investment never seems to penetrate the hard shell of American populist politics.

Nonetheless, economic engagement with China remains the right strategy for the U.S. This is not only because its economic benefits dwarf the costs. Americans from Washington to Main Street need to understand that economic engagement with China is also the best way to ensure against global political instability.

History shows that economic linkages between great powers help cushion the inevitable butting of heads between them. This has proved so with respect to U.S.-China relations in recent years. The free flow of goods, capital and ideas has also proved a powerful agent for progressive political change in country after country, including China. Moreover, China’s growing prosperity is lifting all of Asia.

All of this would be threatened were the U.S. to disengage economically from China, as it did with the Soviet bloc after World War II and with Germany, Japan and other nations in the 1930s.

Treating China as a rival rather than a partner would be a self-fulfilling prophecy with very dire consequences. The temptations for the U.S. to act in this way are clear. But they must be resisted not only for the good of the United States but also for the benefit of China, Asia and the rest of the world.