Business, Finance & Economics

The US-China economy

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Watermelon bought at Walmart in Xian, Shanxi Province, China (Image: Flickr user Robert Thomson (cc: by-nc-sa))

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The US and Chinese economies are increasingly intertwined, and there's concern in Washington about some key aspects of the relationship. That includes a big trade deficit, and China's huge holdings of US government debt. But like it or not, the two economies are now fused into one integrated system, says Zachary Karabell.  

Karabell is a former investment fund manager and the author of "Superfusion: How China and America Became One Economy and Why the World's Prosperity Depends on It."

While to some it may seem like a pusher-and-junkie relationship -- with China the pusher and the US the hopeless junkie, hooked to its products -- Karabell believes that it's not about one side needing the other more than the other. Instead, he says the two economies are "superfused."

"I'm trying to focus a little bit more on the functional take on the relationship. Look, I think there's been this incredible intertwinement of these two economies that happened gradually in the 1990s and then really gathered steam throughout the past decade, and in a surprising way, was cemented by this financial crisis the world underwent. 

"And so I think these countries find themselves joined at the hip, probably more than either government or either peoples want, but in the greater scheme of things, at least in my view, this has been a source of stability, or more stability, than there would have been in the absence of this relationship."

To many Americans, the relationship manifests itself in the many "Made in China" products they see on the shelves at Target or Walmart, but says Karabell, it's a lot more complex than trade.

"And what gets lost in the trading statistics is that not all that money goes to China.  Some of it makes its way into the American economy by people who need to offload the ships that those goods come on when they enter the Port of Long Beach. And then other people need to ship those goods to Wal-Mart stores throughout the country, and then it gets sold, and that employs people. So there's a much more integrated way in which that money, which just looks like an import, actually makes its way into the American economy."

When politics comes into the picture, the relationship between the US and China gets a little uncomfortable. Karabell believes that the economic "fusion" will ultimately impact the political process. "But it's going to be a while before politicians wake up and recognize that their ability to do what they want to do is becoming constrained and reshaped by this economic relationship."

He also believes that the idea of a national economy, contained within a country's borders, is now an anachronistic concept.

"So it would be great if in these meetings between Obama and President Hu Jintao of China that there was an attempt toward great coordination of economic policy, rather than discussion of mutual differences about national economic policy.

"A model for this might be the European Union, and as outlandish as that seems, it was pretty outlandish in 1960 to think about a European Union that was actually making joint economic policy. And while there's a lot to criticize about the European Union and its bureaucraticness, it certainly has been an exercise of countries giving up a little bit of national sovereignty for collective prosperity. 

"So you could imagine a time when America and China undergo a similar transition toward making joint policy about fundamental matters of economic growth and economic stability.  We're not there yet by any means."

 

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