Wednesday, May 28, 2008

Somebody is educating McCain about China's economic policies

Senator McCain's position on China is shifting. In a column that he wrote with Senator Lieberman, "Renewing America's Asia Policy," that appeared in the May 27 Asia edition of the Wall Street Journal, for the first time (that I have noticed) he described China's policy as "mercantilist." This is an important word choice. It means that he (or Lieberman) recognizes that China's policy is to maximize exports while minimizing imports. Here is the relevant passage:

America must likewise get its relationship with China right. China's double-digit growth rates have brought hundreds of millions out of poverty and energized the economies of its neighbors. The U.S. shares common interests with China that can form the basis of a strong partnership on issues of global concern, including climate change, trade and proliferation. But China's rapid military modernization, mercantilist economic practices, lack of political freedom and close relations with regimes like Sudan and Burma undermine the very international system on which its rise depends. The next American president must build on the areas of overlapping interest to forge a more durable U.S.-China relationship. Doing so will require strong alliances with other Asian nations and a readiness to speak openly with Beijing when it fails to behave as a responsible stakeholder.

This paragraph can be compared to his naïve expectation of Chinese cooperation just 15 months ago (on February 23 2007), when he told the Seattle World Affairs Council:

And to talk about the Asian economies is to speak of China. I know some of our citizens fear the specter of Chinese economic growth, worrying that it will result in the loss of American jobs and the inability of our economy to compete. Others take the opposite view, trumpeting China's vast market potential, low labor costs, and exports, which allow American manufacturers to move up the value chain. America benefits from China's economic growth. But by the same token, its rising prosperity also raises legitimate expectations that China will behave as a responsible economic partner.

As Chinese businesses 'go global,' we must insist that they operate in an open, fair, and transparent manner, with sound, internationally-accepted standards for corporate governance. We should push Beijing to adopt a market-determined value for its currency, ensuring that trade is conducted on a level financial playing field. We need to convey to China that its go-it-alone approach to locking up energy supplies is unlikely to be either effective or sustainable, and that its environmental stewardship cannot fall prey to its economic ambitions.

In these cases, there is significant room for economic cooperation. The U.S. and China have a mutual interest in developing new and diverse energy supplies, improving energy efficiency, and developing environmentally sustainable energy alternatives. U.S. trade and investment in China's undeveloped rural areas can help create the broad-based growth Chinese leaders seek. China's rapidly aging society would benefit from U.S. private-sector involvement in building health care and pension systems, while Beijing's steps toward banking and financial reform will, if fully implemented, create new business opportunities for American companies. Finally, China's desire to construct a "knowledge economy" implies a mutual interest in protecting intellectual property and preventing counterfeiting.


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