What’s So Funny ‘Bout Love, Peace and Understanding in Chimerica?
by Edward Harrison
I was watching the Obama – Hu Press conference this afternoon and it was a veritable lovefest considering the acrimonious backdrop from 2010. You lot were thinking it was going to be like this Obama-Hu press conference on Saturday Night Live last year.
That was then. This is now. As I wrote yesterday, "the pressure on Obama to do something, anything about China has diminished due to the upswing in the economy and the Republican house leaders unwillingness to go protectionist." Barack Obama is in full re-election mode. He wants a strong economy and has been out burnishing his pro-business bona-fides. Correct me if ‘m wrong, but I don’t see protectionist language as supporting those objectives.
What I saw during the press conference suggests that Obama is using a closer relationship with China to push more aggressive rhetoric against Iran in order to cover his ‘strong on defense’ re-election platform and to help push exports into China, which American businesses are keen on. The President specifically referenced exports saying they are growing twice as strong to China as elsewhere, the implicit message being we need a good relationship with China to create US jobs.
Hu Jintao, for his part, also said that China is a strong believer in free markets and abhors protectionism. He indicated that China would support the US in its efforts at macro economic coordination on a bilateral and international level to prevent another financial crisis. The fact that the Chinese have been in the news because of plans to buy Spanish and Portuguese bonds suggests that this purchase has been undertaken to dovetail with Hu’s talk of China as global team player.
Obama is politically savvy in trying to recast anti-protectionist sentiments as creating export jobs. Nevertheless, over the longer-term, the currency issue is still the sticky wicket in the China-US relationship. And no amount of talk is going to change that. A gradual revaluation is in everyone’s interest, especially China given its high level of consumer price inflation. I anticipate that this is what we will see in 2011. When the next recession hits, however, the protectionist sentiment will return.
Update: here is a CNBC video discussing these issues
Also see: U.S. and China reach $45 billion in export deals from Reuters