One issue that's wasn't on the agenda at this week's White House economic gabfest was China. But it should have been. Having just returned from Down Under, I can attest to China's growing power.
The giant sucking sound you hear in Southeast Asia these days is raw materials being pulled into China from all quarters -- iron ore and coking coal from Australia, nickel and copper from South America, food from everywhere. The giant grinding sound you hear is Chinese factories, now consuming more than a quarter of the world's steel, producing more steel than the United States and Japan combined, manufacturing more of everything than any other nation. Indeed, China has doubled its share of world manufacturing exports in the last decade. And the giant gushing sound you hear is Chinese financial capital, buying up whatever it needs all over Southeast Asia, and even propping up the dollar.
As China's influence grows, America's wanes. Australian business executives tell me they're more interested in their new trade pact with China than in their new trade accord with the United States. The exploding Chinese demand for raw materials is fueling Australia's boom. And China's economic power translates directly into political power. Australia's conservative government -- which had been willing to send some 200 troops into Iraq as part of the broad "coalition of the willing" -- now defies Washington by assuring the UN Secretary General of its full support, in the face of White House criticisms.
And, of course, China's new influence extends far beyond the Pacific. The European Union is now eagerly responding to China's request to lift the arms embargo imposed after the 1989 massacre in Tiananmen Square -- China's newest crackdown on political and civil rights notwithstanding.
With China holding more than a half a trillion dollars of United States debt, it also largely determines what happens to the dollar. America's dependence on Chinese financial capital means that China has a big influence over American domestic policy -- for example, over whether George W. Bush can borrow trillions more to finance his plans to privatize Social Security and make his tax cuts permanent, without sending long-term interest rates into the stratosphere. And also how far Alan Greenspan has to go in raising short-term interest rates to ward off inflation.
In short, China is now a significant player in the American economy and in American politics, even though few American politicians actually dare admit it.
Robert B. Reich is co-founder of The American Prospect.
