Paul Krugman is absolutely right in describing the economic relationship between the U.S. and China; the United States has nothing to fear from a decision by China to stop buying U.S. government debt. However, the discussion of the U.S-China relationship may not be quite right.
Krugman has the United States meekly asking China to raise the value of the yuan since 2003, with little effect. This certainly has been the public position of both the Bush and Obama administrations. However, negotiations don't take place in public.
When the United States negotiates with China, there are many items on its list. Both the Bush and Obama administrations have pressed China about increased protection for U.S. patents and copyrights. They have pressed China for increased access for U.S. films and openings for the entertainment industry more generally. They also want to open the Chinese market to Citigroup, Goldman Sachs and other big financial firms.
No one ever expects to get everything on their list in negotiations. Suppose China promises better protection for Disney and Microsoft and more access for Citi and Goldman, but not much movement on the yuan. China feels it has been responsive to the U.S. position, after all it made major concessions in areas that are important to the United States.
We don't know what actually happens behind closes doors, but it is safe to assume that the U.S. negotiators do not pound the table and say: "we don't care about Mickey Mouse [Disney] and Goldman, we want to see the yuan rise against the dollar." If this is not what happens, then the blame lies as much with the U.S. as with China.
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