Tags: China | US | EU | trade

China: It's Complicated

Thursday, 13 Jun 2013 08:05 AM

By Neal Asbury

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China's relationship with the United States is increasingly complex and competitive, and it's bound to get even more complex as China pursues an aggressive growth strategy.

As Chinese President Xi Jinping and President Obama met last weekend in California to try and mend their often tenuous relationship, it was clear that China had its own agenda and this meeting was more show than a sincere desire for the two leaders to work together.

While Obama resolved to address cyber security, particularly serious Internet hacking charges against China, Xi could barely suppress a smile knowing that National Security Agency leaker, Edward Snowden, was stowed away in Hong Kong. Snowden, arguably America's biggest turncoat since Benedict Arnold, was now fair game for interrogation and revelations about further security secrets. Obama was clueless.

It is obvious that the United States no longer intimidates China and that China no longer respects the American president, even to the point of putting him for ridicule.

When it comes to global trade, China no longer believes it lags behind the United States. In fact, China is making the bold move of negotiating with Nicaragua to award a Chinese company a 100-year concession to build an alternative to the Panama Canal. Nicaragua's new waterway would be a higher-capacity alternative to the 99-year-old Panama Canal, which is currently being widened at the cost of $5.2 billion.

Is it any coincidence that this comes on the heels of the free trade agreement the United States recently signed with Panama? Or that Colombia, another recent free trade partner with the United States, has accused China of influencing the international court of justice to secure the territorial waters that Nicaragua needs for the project?

Most experts agree that China's ambition is to increase its influence on global trade and weaken U.S. dominance over the key shipping route between the Pacific and Atlantic Oceans.

Last year, the Nicaraguan government noted that the new canal should be able to allow passage for mega-container ships with a dead weight of up to 250,000 tons. This is more than double the size of the vessels that will be able to pass through the Panama Canal after its expansion, it said.

What can be more symbolic to America's prestige in the Western Hemisphere (and the world) than the Panama Canal, one of the greatest engineering feats of all time? Yet, China has little regard for this "old" technology, pursuing instead an initiative that says to America that we are the future and you are the past.

This is not the only time where China has sought to interfere with U.S. global trade interests. Just take a look at the recent summit between the United States and all 27 members of the European Union — the Transatlantic Trade and Investment Partnership, which negotiates trade between the United States and the European Union. This is vital because trade with Europe accounted for $645 billion last year — about one-third of everything the world imports and exports.

Foreign direct investment between the United States and the European Union is more than $3.7 trillion. However, China has become the European Union's biggest trading partner.

So it's not surprising that China has raised concerns about EU plans to negotiate this ambitious free trade deal with the United States, "fearing it is a protectionist move," according to a senior EU official, Reuters reported.

Chinese officials questioned EU foreign policy chief Catherine Ashton about the issue when she visited Beijing at the end of April for talks with Foreign Minister Wang Yi and other Chinese leaders. Chinese officials raised the possibility of Beijing negotiating its own free trade agreement with the European Union, a prospect that the EU official did not rule out "in the medium to longer term."

In an interview with Deutsche Welle, Germany's broadcast giant, foreign policy expert and member of the European Parliament, Alexander Graf Lambsdorff, suggested that there's no reason for jealousy. It's difficult to say which relationship is more important — that of the United States and China, or that of the United States and Europe.

"They're very different relationships," he noted. "Geopolitically, the U.S. and China are rivals in the Pacific region. The U.S. has a bilateral security agreement with Japan and South Korea. China has its own interests in the region. And there are several disputes in the South Chinese Sea. That's a more intense and different relationship than what Europe has with China."

China has always been envious of the access that U.S. consumers have to top quality beef — something almost impossible in China, especially since much of China's food supply is inferior and often contaminated. So China resorted to its usual approach: China's Shuanghui International Holdings, has offered $7.1 billion to acquire Virginia-based Smithfield Foods, which will give Shuanghui International a valuable asset — control of Western food brands.

You don't have to be an expert on global trade to recognize that China's overriding ambition — the thing that keeps its leaders up at night — is to overtake the United States as the world's leader in trade and commerce. However, China will not be overtaking the United States anytime soon.

The U.S. economy is double that of China ($16 trillion vs. $8.5 trillion, respectively), which is even more impressive considering China's population is 4.5 times greater than the U.S. population. Although the United States is no longer the world's largest exporter, it is still the world's largest manufacturer.

Yet, China knows it controls America's purse strings and our debt, which could lead to the dollar's decline. They know this will accelerate their ascension, and conversely America's decline. The Chinese leadership understands all too well that Obama lacks the clout and will to prevent them from pursuing their increasingly transparent game plan to dominate the world stage.

There is a place in the world for a strong China and a strong United States. The "head master and schoolboy" relationship must end, but only when the United States reduces its debt and gets its economic house in order. This vulnerability reduces our worldwide standing.

The dangers of our present policies are reversible, but only if we return immediately to our tried-and-tested roots of economic freedom: entrepreneurship, innovation and hard work.

© 2014 Moneynews. All rights reserved.

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