Does America Have the Patience to Properly Negotiate with China?

The Obama Administration kicked off its highly touted “Return to Asia” tour last week by threatening Chinese President Hu Jintao that Americans are growing "impatient and frustrated" over China’s currency and trade policies that are hurting U.S. employment and Mr. Obama’s reelection hopes. Unfortunately for President Obama, the Chinese word for patience (pronounced as "REN") is symbolized by the blade of a knife on the heart:



To the Chinese, patience refers to the ability to practice the painful discipline of controlling the heart's emotions that is necessary for long-term success. The Chinese believe they have shown great discipline over the long term by continuing to fund America’s deficit spending in exchange for export access to U.S. markets. The Chinese believe Americans can't endure over the long term the painful discipline necessary to stop taking Chinese funding.

China has patiently grown its bilateral trade surplus with the United States almost every year since 1980, when the Carter Administration granted China “Most Favored Nation” status. Chinese exports to the U.S. have grown at a 20% compounded annual rate for the last 27 years, rising to from $102.3 billion in 2001 to a projected $388 billion this year.

President Hu Jintao must have patiently counseled President Obama that he need not be frustrated, since trade between their two great nations is growing at the same rate. But since China eliminated import restrictions in order to join the World Trade Organization (WTO) in 2001, over the last ten years U.S. exports to China have been growing at the same 20% compounded annual rate as China. He also would have emphasized how China has patiently managed to make sure that as U.S. exports to China grew since 2001 from $16.2 billion to $100 billion, virtually every state in the U.S. saw their exports to China more than double.

President Obama did acknowledge there has been a “slight improvement” in the appreciation of the Chinese currency, and he also said he did empathize with the Chinese leader that: “Changes are difficult for them politically, I get it”. But President Obama said he was frustrated that the trade relationship was unfair, because Chinese exporters “like the system the way it is”.

In an election year, it would seem a no-brainer for a U.S. President who wants to restrict imports coming into the U.S.; to simply talk Congress into passing tariffs and quotas against Chinese goods and services. But most financial analysts blame the U.S. dollar being over-valued on the Obama Administration’s active solicitation of Chinese purchases of U.S. Treasury bonds to help fund their $4 trillion in deficit spending.

But for President Obama’s to play hardball with the Chinese on trade issues runs the risk that the Chinese become impatient America’s deficit spending and in frustration retaliate by rapidly selling part or all of their $1.5 trillion in U.S. government securities. Described in official Chinese communist-run-media as using the "nuclear option"; such action might trigger a dollar crash, cause US interest rates to spike-up, hammer the wounded US housing market, lead to another downgrade of U.S. debt, and send the U.S. economy back into recession.

The Chinese understand the need to exercise patience and avoid being frustrated by statements from “impatient and frustrated" American politicians during election campaigns. Having successfully played the game since 1984, China has demonstrated that they have the long-term discipline to keep the blade of the knife on their heart. But if America tries to negotiate a change in the game, China will be willing to bring out the blade to protect their trade success.

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Thank you all the success of Chriss Street’s latest book: “The Third Way”; now available on www.amazon.com and available through Barnes & Nobel on November 28. If you would like to order a signed copy contact The Forum Press at: www.theforumpress.com

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