What would a US recovery mean to US-China relations?

The US economy, if not really growing at a sustained 3.5% GDP, seems at least to be touching bottom. (If you read Roubini or Financial Armageddon, you are excused from the rest of this.) With President Obama getting ready for his first big diplomatic visit to China in a couple of weeks, the economic mood swings in the US will likely affect the talks to a large degree. The agenda may be chock full of talks over military buildups and climate policies, but the stage will be set by relative economic strengths. Recovery headlines couldn’t have come a moment too soon for an Obama Administration that is desperate for an overseas win – but China-watchers want to know how it will play in Pingxiang? What will a recovering US economy mean to US-China relations?

There are three ways a sustained economy in the US could impact on the pan-Pacific meeting this month:

The Good:
A more engaged, confident, capable US will be less prone to hitting the trade-panic switch and a new sense of calm and mutual respect will characterize trade relations between the Pacific giants. A domestic recovery will keep the union bosses and congressional opportunists off Obama’s back – or at least give the President a little breathing room. The stronger economy will help shore up the flagging dollar – removing a thorn from the side of international trade relations in general, and big-lender China in particular. Peace will return to the valley and we will all find other things to worry about.

On the China side of the equation, a stronger US economy that is more capable of absorbing imports will be quite welcomed indeed. Nothing lubricates the gears of international relations like big slathers of consumption-driven spending. A US recovery in 409 or 1Q10 would be timed perfectly to help China wean its own consumption off of expensive Statist trickle-down stimulus spending.

A stronger US economy is Win-Win for everyone.

The Bad:
A recovering US economy will give US trade hawks and Buy-Americanistas the confidence and firepower to pursue their resentment. China has had it both ways – complaining about the weak dollar while still manipulating its own currency and thus preventing market mechanisms from doing their job. The recovery will be jobless at first, so the unions and the populists (i.e.: congressmen up for reelection) will be contending with uppity, unhappy constituencies that are sick and tired of being everyone’s whipping boy. First Washington, then Wall Street, and now China? Oh, No you don’t! A recovering US will be feisty and activist on trade.

A stronger US economy will also be met with mixed emotions in Beijing which has enjoyed the sustained glow of being the only stimulus hero on the block. China’s big swinging GDP has vindicated a lot of rhetoric – and burnished Beijing’s reputation as the policy-makers of the millennia. They were secretly hoping for pics of race riots and soup lines in to brighten up the People’s Daily homepage – a little payback for some unflattering Youtubery over the past couple of years. For China, this has been like Reagan and Gorbachev circa 1987 – with Wen Jiabao taking on the role of beneficent ascendant and Obama as the good-natured steward of a failed model. China has made great strides in international circles over the last 9 years – and the last thing the foreign policy people want to see is Obama’s charm backed up with muscular economic growth.

A stronger US economy is Win-Lose for China.

Most Likely –
Both sides will circle warily – with many photo ops and grand vagaries. The public sound bites will be about climate change – the back-room talk will be military cooperation. There may be an exchange or two about currency, but in the press each side will ‘endeavor to persevere” or something equally inconclusive. Cross-Pacific trade is, in actuality, one of the few global mechanisms that ain’t broke yet, and neither side is under much pressure to shake things up too much. In the grand scheme of things, US-China trade tensions don’t add up to a hill of cheap tires and chicken parts – yet.

A stronger US economy is not going to tilt the balance of power just yet.

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