America’s Banker Calls Loans in WikiLeaks World: William Pesek
The Nobel Peace Prize is normally about those who bring nations together. Events in Oslo tomorrow will show how far two vital ones have moved apart.
China is enraged that the Nobel Committee is honoring jailed dissident Liu Xiaobo. The U.S. is thrilled that human- rights failings in its fast-emerging rival are in the spotlight as rarely before. Talk about divergent views.
Yet the Nobel brouhaha is merely a preview of what’s to come. The dreamers who thought things would go smoothly for the Group of Two are having a tough reality check. China’s refusal to rein in Kim Jong Il is another sign that the G-2 is entering a difficult phase that will unnerve markets.
America’s $14 trillion economy still towers over China’s. Yet massive U.S. debts, protracted wars and waning influence give China a big window to flex its muscles and consolidate power. There’s little evidence U.S. officials fully grasp this dynamic. The year ahead might be a banner one for U.S.-China tensions. Here are four potential flashpoints.
One, currencies. There is a growing school of thought that after the deep freeze in relations this year, 2011 has to be better. Perhaps. With U.S. unemployment on the verge of 10 percent, though, hostility is more likely to soar.
U.S. politicians will see China as a convenient bogeyman as voters demand to know why jobs are scarce. It’s doubtful that China, desperate to maintain the export-led growth needed for social stability, will agree to let its currency jump in value to placate officials in Washington.
This issue alone exemplifies the folly of thinking the G-2 will join hands to fix the world economy. A 2009 comment by U.S. Secretary of State Hillary Clinton to then-Australian Prime Minister Kevin Rudd says it all. Clinton, according to cables released by WikiLeaks, asked Rudd: “How do you deal toughly with your banker?”
That’s the whole point. That $884 billion worth of U.S. debt in China’s vault means the U.S. can only ask China for policy steps, not demand them. China won’t be pushed around and many U.S. lawmakers haven’t gotten the memo.
Two, North Korea. If there is anything we know for sure about Dear Leader Kim it’s this: little of what he does is random and timing is everything.
At the very moment Sunday when South Korea held a press conference to talk up the merits of its free-trade agreement with the U.S., the North lobbed fresh bombs -- verbal ones. The North accused the South of raising tensions, thus hogging the headlines. A coincidence? I doubt it.
Kim is raining on China’s parade, too. His recent provocations raised the stakes at a time when China has plenty on its hands. The year ahead will see the U.S. calling on China to shorten Kim’s leash, and China probably refusing. Markets and credit ratings hang in the balance.
Three, patriotic hackers. Computer enthusiasts backed by Chinese authorities conducted extensive attacks on U.S. government agencies and companies, including Google Inc., according to the New York Times, which cited WikiLeaks.org.
Cyberwarfare is no longer the stuff of Tom Clancy novels. The more we learn about China’s “patriotic hackers,” the more it becomes clear the Internet is emerging as the battlefield of globalization. Sure, China’s military buildup is raising eyebrows. Yet this cyber arms race is a more immediate threat.
Four, Asia’s future. The Korean trade agreement is a rare U.S. victory in the world’s fastest-growing region. It demonstrates a renewed U.S. focus on Asian trade after 10 years of neglect.
A year ago, officials from Seoul to Jakarta might have bristled at U.S. efforts to muscle its way back into Asia. After America’s bad advice during the 1997 crisis and the mess its own economy has become, who needs the White House in this region? That was before recent events.
China’s over-the-top reaction to territorial disputes with neighbors spooked Asia. So did its rationing of rare-earth metals exports and continued support for a belligerent North Korea. China has been lobbying governments around the world to blow off tomorrow’s Nobel Peace Prize ceremony. The ham- handedness of China’s diplomacy may prompt leaders to welcome U.S. influence back to the region.
There is a lot for the U.S. and China to cooperate on: restoring balance to markets, anti-piracy efforts off Somali’s coast, fighting terrorism, investing in Afghanistan and Central Asia, building high-speed trains in California and freer trade. The risk in the year ahead is that the disagreements pile up faster than areas of cooperation.
America’s banker has its own plans for 2011. The U.S., too, if Senator John Kerry is any guide. The Senate Foreign Relations Committee chairman said on Dec. 7 that Congress is impatient with China’s mercantilist ways and may take action. Lawmakers are clamoring for progress on the yuan before President Hu Jintao visits the White House next month.
The U.S. must tread carefully. China is skilled at calling America’s bluff. One of these days, perhaps in 2011, it may call something more vital: America’s loans.
(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)
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