Coming out of the crisis


WASHINGTON — This being a town where any change is immediately assessed for its potential to alter the equations of individual and collective power, the emerging belief that the world has seen the worst of the economic crisis is inspiring folks to pick winners and losers.

One focus is the stunning extent to which the return to prosperity will depend on the cooperation of the United States and China — two former Cold War foes that still harbor a political and strategic rivalry, but which will emerge from the downturn in intricate interdependence.

Indeed, if a winner does emerge from the current crisis, it may well be China. Though the United States still has commanding military supremacy and mighty economic assets, it is now but one of several powers — along with China — that will shape the post-recession terrain.

The "Great Recession" will "mark a turning point at the way the global economic world operates,” predicted Flynt Leverett, a senior fellow at the New America Foundation. From this point on there will be a “trend for greater Chinese assertiveness,” as the United States “increasingly comes to term with the limits” of its own clout.

One need only look at the itineraries of U.S. officials to gauge China’s importance.

Hillary Clinton made her first trip as secretary of state to China in February, and announced that the new Obama administration would not let human rights issues interfere with the U.S.-Sino relationship. House Speaker Nancy Pelosi and John Kerry, chairman of the Senate Foreign Relations Committee, visited China during last week’s congressional recess, talking about climate change and economic issues. And Treasury Secretary Timothy Geithner is in Beijing this week. He will meet with President Hu Jintao and pave the way for a cabinet-level summit between U.S. and Chinese officials this summer.

“No one at the National Security Council, the Department of Defense or the State Department is lying awake at night worrying about the rise of India,” said Gary Schmitt, an analyst at the American Enterprise Institute. “However, that is not the case when it come to China.”

The economic downturn is, of course, far from over. Treasury officials are quick to note how the American economy of the 1930s witnessed several false starts, amid premature joy that the depression had run its course.

Still, last week brought good news about job losses, factory orders, economic growth and consumer confidence in the United States. There were signs that traders were looking past the need for economic stimulus, and beginning to worry about inflation and America’s long-term debt.

The short term fate of the United States and China is clearly intertwined. China’s export-oriented economy needs Americans to resume consumption of imported goods. In order for that to happen, the U.S. needs China to continue to underwrite American debt.

“We are going to issue an ocean of red ink,” said Tim Adams, a former top treasury official, pointing to U.S. stimulus spending and other investments. But “they need us” as well. “We are a principal driver of global growth. They need us to do well to survive.”

This mutual dependence should keep the two countries, despite their differences, working in tandem. Look a little further out on the economic horizon, and it seems clear that the U.S. and China will need to face further challenges together, as each country tries to gradually do more of what the other is doing now. To address the imbalances that helped lead the world to the current economic bust, Americans need to save and invest, and the Chinese need to boost domestic consumption.

And in the long term, America and its Pacific allies will need to cope with China’s slow but steady emergence as a military power and regional economic giant. As other nations watch enviously, the Chinese are using their ample cash reserves to secure oil and other commodities, and developing a blue water navy to protect their sea lanes.

“We have returned to a period of 'Great Power' rivalry,” said Robert Kagan, an analyst at the Carnegie Endowment for International Peace. “And among these Great Powers, certainly, is China.

“Every nation that has acquired economic wealth has wanted to translate that into usable geopolitical power,” Kagan said. “China seeks, not because they are evil, but because they are normal … to supplant America.

“We should not be surprised” to see China attempt to “rebalance the international system in China’s favor and inevitably to America’s detriment,” Kagan said. “That is just a reality that is unavoidable.”

China’s leaders are increasingly bold in expressing their displeasure with the way the current economic system favors the United States. In recent weeks they have chastised the U.S. for its role in creating the worldwide downturn, cautioned America about reckless borrowing and suggested that the global economy might be better served if based upon a currency other than the dollar.

U.S. foreign policy is built upon the presumption that encouraging Chinese economic freedom will inevitably lead China toward political freedom as well. But one immediate effect of the worldwide downturn — and the resultant economic insecurity in China — might be a strengthening of the nation’s autocratic ruling party. To Western analysts, the emergence of a rude nationalism, particularly visible on some Chinese blogs, is alarming.

China’s urban population is thriving, but there is still desperate poverty in rural areas. Ethnic minorities are restless. The population is aging quickly and, because of China’s birth control policies, not being replaced by young cohorts. And, 20 years after the repression of dissidents at Tiananmen Square, “there is still that suppressed desire for freedom,” noted Xiao Qiang, a professor at the University of California at Berkeley and an expert on Chinese cyberspace.

And despite the economic wisdom of boosting internal consumption, China is finding it hard to give up its addiction to export-driven growth. “It is not possible to continue indefinitely,” said Steven Dunaway, of the Council on Foreign Relations. But the authorities “continue to be reluctant to shift away from a growth model that has been successful for them.”

These challenges lead some analysts to suggest that the Chinese threat to the United States is overestimated, as are the forecasts of American decline.

“A lot of the predictions … are a bit premature,” said the New America Foundation’s Michael Lind, in a debate last week with his colleague Leverett. “There will be a post-American world at some point. The question is: 'When?'”

Lind reminded the audience what Otto von Bismark said: “God favors fools, drunkards and the United States of America.”

Read more on the U.S.-China relationship:

Does China think the US is too big to fail?

Opinion: Sorry, Britain. China is America's new BFF.

China's economy: Pay attention to 7 little words