Sunday, February 7, 2010

Obama needs another playbook for China

Recent geopolitical activity suggests that President Obama is playing his China cards in a traditional way set by his predecessors, but we need to ask whether those cards are still valid.

President Obama came into office last year facing the biggest financial crisis since the Great Depression. He knew he had to take swift and drastic actions and he did. He also knew he had to change the international image of the United States to a more humble and gentle one, and in concert with Secretary of State Clinton, he was largely successful.

In particular he dispensed with the usual antagonistic confrontations that his predecessor administrations indulged at the beginning of their relations with China. Instead he stressed the importance of collaboration between Beijing and Washington in solving the many challenges facing both nations.

Secretary Clinton’s first trip abroad after taking office was to China and she said all the right things. Secretaries Chu and Locke visited China more than once in the first year, partly because of the importance of their portfolios (energy and commerce) to the bilateral relations and partly because their ethnic Chinese background is regarded as useful for building goodwill. Defense Secretary Gates made overtures for military exchanges that China accepted and the relations between the Pentagon and the People’s Liberation Army began to warm.

Of course, as we would expect between the debtor and the creditor holding most of the notes payable, Treasury Secretary Geithner has devoted more face and phone time with Chinese officials than any other cabinet officer. He had to work hard to assure his counterparts in Beijing that the United States would control the deficit and protect the value of the dollar so that China would have reasons not only to hold onto the trillions of IOUs but would continue to buy Treasury notes and bills in the future.

For some reason the dynamics between the two countries changed after Obama came back from his trip to China in November. Since then the collegiality has been replaced by increasingly strident exchange of words, threats and counter threats. Obama’s administration has demanded that China revalue their Renminbi and open their market. Obama has announced the intent to sell arms to Taiwan and to meet Dalai Lama. It’s almost as if Obama had planned to build up a cache of goodwill with China in order to spend it in the second year.

Piling on is Pentagon’s latest Quadrennial Defense Review where they discussed potential military threats from China. Despite the protestations to the contrary, the U.S. military continue to look at China through cold war lens. They are obsessed with the "lack of transparency and the nature of China's military development and decision-making processes." They are fixated on the need to understand China’s military capability and intentions and to be able to measure against America’s own.

China on the other hand is unlikely to oblige. According to the Art of War, the classic tome on strategy written by Sun Zi, the weaker power will always cloak in deception and ambiguity and hide one’s vulnerabilities. The U.S. may have nothing but altruistic intentions in wishing to know China’s strength and plans, but it is not in China’s self-interest to make it easy for the U.S. to sleep at nights—certainly not when the U.S. comes across with so much hostility.

No one outside of Obama’s team can really know what prompted the White House to change. One obvious explanation is that with domestic political setbacks such as the loss of Ted Kennedy’s Senatorial seat as well as other potential losses looming, Obama felt the need to strengthen his ties to his core constituency, a key part of his support being well established China bashers.

If so, it would be disappointing because Obama should have the intelligence to see and the courage to tell the people of the United States that blaming the valuation of the Renminbi will not bring jobs back home—low paying jobs that nobody wanted for decades. Furthermore, since the financial crisis the bilateral relationship has undergone a fundamental change. China no longer sees itself as the 95 pound weakling that needs to absorb a periodic pummeling just to tag along and hang around with the big bully.

Having seen how China weathered the financial storm relatively unscathed, the people of China now believe that they have a system that works better than the West and they expected to be treated with the respect of a peer and not dismissed as a junior flunky. Right or wrong, this is increasingly their attitude. Given that, China’s leaders could hardly be seen to back down before hard nose demands from Washington.

Unilateral actions such as arms sales to Taiwan and meeting the Dalai Lama are particularly sensitive issues because China views those acts as direct interference into their internal affairs. In the past, Beijing might protest for a while and then let it fade away. This may no longer be possible because the Chinese now have heightened expectations consistent with their new self image. Their announced intention to impose sanctions on companies that participates in arms sales to Taiwan reflect the desire to back up rhetoric with real punishing consequences.

Similarly the confrontation over the valuation of the yuan could lead to mutually assured destruction of both economies with devastating global impact. Since a strengthening of the Renminbi is equivalent to a devaluation of the dollars in China’s possession, if backed to a corner, they may decide to walk away from supporting the dollar rather than be seen to acquiesce and do something against their own interest. Most recently, Vice Premier Wang Qishan rather ominously told Geithner not to bother making another trip to Beijing to explain the same tired U.S. position.

I hope cooler heads in Washington prevail before we get too close to the brink. As one columnist in Wall Street Journal recently asked, “How many enemies do we need?”

An edited version was posted on New America Media.

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