In the first four months of 2010, relations between the United States and China have never been out of the headlines for long, reflecting the complex and multi-faceted relationship between the world’s leading imperialist power on the one hand, and the world’s leading developing (and socialist) nation on the other; the relationship between that bilateral relationship and international relations as a whole; and the potential for confrontation between the two nations that exists across a broad swathe of issues.
The headlines in January through March were full of confrontation and talk of a deteriorating relationship, across a range of topics, including the fall-out from last December’s Copenhagen conference on climate change; internet search engine Google’s accusations of hacking against China followed by its unilateral decision to withdraw from the Chinese market; President Obama’s meeting with the Dalai Lama, leader of the Tibetan counter-revolutionaries; the US decision to sell a huge amount of advanced weaponry to the renegade Chinese province of Taiwan; the marked Chinese reluctance to back tightened sanctions on Iran and its refusal for several months to even discuss the issue; the US pressure for China to revalue its currency, the Renminbi, and its threats to designate China as a country that manipulates its currency, which, in turn, would leave China open to punitive US tariffs and other protectionist measures; and a range of other issues.
However, there was an apparent mood swing in April, with both countries reducing the level of public accusation and polemics, instead laying apparent emphasis on the prospects for constructive cooperation between them. This was highlighted by Chinese President Hu Jintao’s visit to Washington DC, to attend the Nuclear Security Summit convened by Barrack Obama, which had become something of a pet project for the US President. Most significantly, the US postponed any decision on labelling China as a currency manipulating country, which had been due to be made on 15 April. And, whilst China also gave some indications that it may be about to make some minor changes in its currency policy, in what was seen in the west as almost a direct quid pro quo, China dropped its refusal to discuss the possibility of a new sanctions resolution against Iran being introduced at the United Nations Security Council.
However, it should be noted that, having already successfully delayed the whole process for several months, China has so far only agreed to discuss the possibility of new sanctions against Tehran. This is far from agreement on actual additional sanctions and this whole phase of the crisis over the Iranian nuclear issue may yet be dragged out for several more months. Indeed, no sooner had China agreed to such discussions, than newspapers started to report that Chinese and Russian diplomats were using these talks to argue against sanctions and for dialogue, which remains Beijing’s repeatedly stated public position. Moreover, besides the veto-wielding Chinese and Russians, the current, non-permanent members of the Security Council include such countries as Brazil, Lebanon, Nigeria, Turkey, Gabon and Uganda, none of whom have any inclination to back stronger sanctions against Iran, but rather have close diplomatic and economic ties with the country. Currently, the United States is, therefore, far from getting its own way on this issue in the Security Council, much to the chagrin of President Obama and his Secretary of State Hilary Clinton, let alone the forces to their right in US politics. The former Chinese Ambassador to Iran was quoted in the China Daily, in remarks which would almost certainly have had to be cleared for publication at a higher level, as saying that, even if China finally agreed to any new sanctions against Tehran, they would not be of a nature as to have a serious adverse impact on the friendship and cooperation between China and Iran and that the Iranian leaders knew and understood China’s position very well. A Beijing visit by Iran’s chief nuclear negotiator served to underline the point.
Moreover, if China is prepared to make some adjustments to its currency policy, these are in fact derived from and respond to domestic concerns and are considered to be in China’s own best interests. Furthermore, they are unlikely actually to benefit the United States greatly or even at all. Both these facts were acknowledged in an 8 April article in the New York Times, which stated: “The Chinese government is preparing to announce in the coming days that it will allow its currency to strengthen slightly and vary more from day to day, people with knowledge of the emerging consensus in Beijing said on Thursday. The move would help ease tension with the Obama administration about the United States’ huge trade deficit with China.”
However, the paper continued: “But if China allows only a small move in the renminbi, the effects on the American trade deficit may also be small. Chinese companies are formidably competitive and, while labour costs are rising in China, transportation and communication costs are plunging because of heavy investment in new expressways and rail lines.
“A marginally stronger renminbi would make Chinese goods only marginally more expensive in the United States and make American goods slightly cheaper in China, which is now exporting more than four times as much to the United States as it imports.”
The New York Times failed to add that making Chinese goods “marginally more expensive” in the United States would, in any event, be far from a net gain for the US economy, as many of these “Made in China” items, that are ‘piled high and sold cheap’ in the Walmarts and other stores the length and breadth of the United States, are in fact made by US companies operating in China, either as joint ventures or as so-called WFOEs – Wholly Foreign-Owned Enterprises. And an increase in the price of Chinese goods in US stores would hit the pockets of millions of working and middle class Americans, who rely on cheap yet reasonably good quality Chinese-made products. At a time when the US is struggling to lift itself out of recession, such a move may hit the purchasing power of millions of American consumers whilst doing little or nothing to alleviate the USA’s double digit unemployment rate. “Be careful of what you wish for” would seem to be the apposite expression here!
Turning to the real reasons behind China’s currency calculations, the New York Times report continued: “The move is being made for domestic policy reasons in China, primarily as an inflation-fighting tool, people with knowledge of the emerging consensus in Beijing said… Allowing wider variation in the currency would also make it easier for China’s central bank to fight inflation, which Wen Jiabao, the premier, identified last month as a top concern for the leadership. Consumer prices were 2.7 percent higher in February than a year earlier, after prices were falling as recently as last October. Inflation is accelerating in China faster than most Western economists expected. A stronger currency helps hold down prices by making imports cheaper.”
Against this clear benefit for China, the paper cautioned: “A stronger renminbi [as repeatedly demanded by the United States – Ed.] could prove to be a mixed blessing for the United States. If China cuts back sharply on purchases of Treasuries, then the Obama administration could find it harder to finance American budget deficits.”
The potential downside for China, identified by the New York Times, is that: “A slightly stronger renminbi that fluctuates each day against the dollar would mainly hurt low-margin, labour-intensive industries in China like shoes and textiles. Many Beijing officials have been worried about job losses in these industries if the currency appreciates.”
But irrespective of any impact on China, this cannot bring any particular benefit to the United States, as the days are long since gone when the United States could compete with developing countries in such sectors as shoes and textiles. The key reason for China’s massive trade surplus with the United States lies in the fact that the United States itself refuses to sell to China the very things that China most wants and needs to buy, which are big-end, high-value goods, such as super computers and various advanced technologies, which would add billions to the US trade figures, were they not banned for cold war, anti-communist reasons and the USA’s continued strategic, if doomed, goal of frustrating China’s development.
Furthermore, another contributory factor to China’s trade surplus with the US is that many Chinese exports to the US are actually of goods where only the final assembly has been done on the Chinese mainland, with the actual manufacture of components, and hence the real added value, occurring in other Asian markets, such as Taiwan, south Korea and Singapore. China’s trade surplus with the US is therefore complemented by a trade deficit with many of its neighbours, whereas what are in effect, at least in large measure, Taiwanese, Singaporean or south Korean exports to the USA, via China, appear only in China’s trade figures with Washington.
Additionally, such low-end manufacturing industries as textiles and shoes are already in relative decline in China as the New York Times also notes: “Much of this production is already starting to move out of China, notably to Vietnam and Bangladesh, where labour costs have stayed low. And Chinese factories producing these goods have been struggling to find enough workers over the last two months as the economy grew powerfully this winter, stimulated by heavy bank lending, strong demand for workers in the retail sector and rising government spending on high-speed rail lines and other infrastructure investments.” (All above quotations from ‘China Seems Set to Loosen Hold on Its Currency’ by Keith Bradsher.)
Whilst the United States constantly tried to pressure China on its currency and to support toughened sanctions against Iran, China was more vexed over the blatant US interference in two of the most sensitive core issues related to its sovereignty and territorial integrity, namely Tibet and Taiwan.
China responded to the US announcement that it intended to sell $6.4bn worth of sophisticated armaments to the anti-communist holdout regime in its island province of Taiwan, not only with verbal protests, but with an announcement that sanctions would be enforced against leading US companies involved with the arms sales, which include Boeing, Lockheed Martin and Raytheon. The projected sales include 60 Black Hawk helicopters and 114 Patriot missiles.
Such sanctions could have real bite. In the last three years, Boeing has derived some four percent of its total revenues from China. For its part, Boeing estimates China’s total commercial aviation market at $400bn over the next 20 years.
China also dropped a heavy economic hint as Obama planned to meet the Dalai Lama, the counter-revolutionary feudal leader of the Tibetan separatists. Leading Chinese official Zhu Weiqun opined: “If the US leader chooses this period to meet the Dalai Lama that would damage trust and cooperation between our two countries, and how would that help the United States surmount the current economic crisis?” (Quoted in ‘China warns US over Dalai Lama’, Financial Times, 2 February 2010.)
After Obama finally met the Dalai Lama on 18 February, the Chinese news agency Xinhua released an important commentary, setting out the background to the meeting and explaining why China feels so strongly about it.
Stating that Obama had met the Dalai Lama despite “stern warnings from China”, it said that the Dalai Lama “must have forgotten that the fate of Tibet never relies on him and a few foreigners but has always been decided by all the Chinese people, including all ethnic minorities in the region.”
The commentary went on to set out the historical context as follows: “The so-called ‘Tibet issue’ was fabricated by imperialists to serve their intention of invading, partitioning and containing China.
“Back in 1888 and 1904, troops of the United Kingdom intruded into Tibet twice, but failed to take it away from China due to strong revolt from the Tibetan people backed by the whole Chinese nation. Since then, foreign forces turned to cultivating their agents for ‘Tibet independence’ in the upper strata of Tibet’s local ruling echelon. After the Second World War, the United States directly interfered with Tibetan affairs, sabotaging China’s cause of national unification and liberation of the people.
“In order to maintain the theocratic feudal serfdom, local rulers in Tibet colluded with foreigners to first violently resist the peaceful liberation of Tibet and then start an armed rebellion against democratic reforms.
“In 1954, the US Central Intelligence Agency (CIA) recruited spies among Tibetans, sent them for training and then secretly took them back to China. The US had been supplying weapons and ammunition to these spies through secret border transport and air-dropping.
“In March 1959, when the Dalai Lama and his followers failed in an insurgency and fled Tibet, he was closely accompanied by a CIA radio operator, who helped keep contact with outside forces and guided them to air-drop materials to the fleeing group.
“Since 1959, the Dalai Lama has been relying on foreign forces. A declassified document showed the US spent up to 1.66 million dollars in 1964 on the ‘Tibet project’ alone. The money was spent supporting 2,100 ‘Tibet guerrillas’, buying equipment and educating senior ‘Tibet officials’. Other expenditures included transport and intelligence training.
“Meanwhile, the Dalai Lama received an allowance of 180,000 dollars, a huge amount of money compared with a salary of 100,000 dollars for the then US president.
“We can say that the ‘Tibet issue’ would have vanished long ago if the foreign forces had not spared any effort to support the Dalai Lama. In recent years, foreign financial support to the Dalai Lama and his followers became a little more hidden, but remained equally strong.
“Despite the serious financial crisis, the US government’s 2009 fiscal budget planned 16.8 million dollars for the Dalai clique, an increase of 25 percent over the previous year. It also ‘paid’ the clique in the name of non-governmental organisations and foundations or by inviting the Dalai Lama for sermons…
“Even in the poor and weak old China, imperialists and local separatist forces in Tibet could not succeed in splitting the region from China. Any ‘Tibet independence’ conspiracy nowadays is no different from a farce as socialist China grows increasingly stronger.” (‘Foreign backing gives Dalai Lama no room but doom’, Xinhua, 20 February 2010.)
Although China continues to seek good and constructive relations with Washington, the inherent and basic contradiction between a rising socialist China and a declining US imperialism means that periods of amelioration in their bilateral relationship are temporary and cannot obscure the fundamental contention that can only intensify in the months and years ahead.