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US-China Economic Relations: Win-Lose or Win-Win?

There are estimates that China’s economy may surpass the United States’ by 2030. Some U.S. politicians and economists argue that China’s growth has come at the expense of the American jobs and growth. But as President Barack Obama and President Hu Jintao prepare to meet in Washington, others say one side does not necessarily have to lose in the struggle for economic health.

Economic relations between the United States and China have been bedeviled by a litany of contentious issues such as the yuan’s managed exchange rate, and accusations of intellectual property piracy in China and trade protectionism by both sides.

As President Barack Obama and Chinese President Hu Jintao get ready to meet in Washington, political pressure is again building in the U.S. to push China on those issues. However, a rising and more assertive China could mean more friction in the future.

Yukon Huang, an economist and China expert at the Carnegie Endowment for International Peace in Washington, says the tone from Washington over the years has not helped ease bilateral irritants.

“The message that’s been dominating the media and the comments from the mainstream China observers in the West tend to be one that is perceived by Chinese authorities as a win-lose message,” Huang explains.” It basically says for the U.S. to win or do better China must lose or do a little bit worse. Otherwise we cannot resolve these issues of trade imbalances or the fact that the U.S. growth path has been so troubled and China has been so strong. That’s unpalatable to the Chinese audience.”

When U.S. politicians and economists argue that the yuan is undervalued, they want a stronger Chinese currency to make American products cheaper in China and Chinese products more expensive in the U.S. That, they hope, will increase U.S. exports to China and decrease U.S. imports of Chinese goods

But China fears lower exports could mean slower economic growth and higher unemployment. Beijing has bristled at this trade-off, saying that exchange rate movement should be gradual to avoid destabilizing the economy.

Many Chinese economists and officials think China needs to grow at 8 percent to accommodate a growing work force. Beijing also rejects the argument that the exchange rate is the reason for America’s huge trade deficit.

Simon Tay, author of Asia Alone: The Dangerous Post-Crisis Divide from America and chairman of the Singapore Institute of International Affairs, says the bilateral equation is changing.

“At the end of the day, both sides are grappling the fact that we’ve reached a Mexican stand-off, one side cannot dictate to the other, neither can. America is certainly ahead in the macro [economic] terms,” Tay said. “But it can’t do everything at once and just stomp the table and get China to fall in line. I think this year is the year that it has to recognize that.”

Many economists and Asian leaders call for economic cooperation between the two giants, so that everyone prospers. Singapore Prime Minister Lee Hsien Loong said earlier this month that the relationship is the “most consequential” one in the world today and that both sides must learn to trust each other.

But both Mr. Hu and Mr. Obama have looming domestic concerns that could shape the outcome of their summit. President Hu is expected to step down next year, and China is trying to move away from an export-driven growth model toward a consumption-led one. And President Obama must gear up for a re-election fight next year, with economic recovery as his main focus.

Huang at the Carnegie Endowment says both sides could still win.

“It’s in the U.S. interest for the Chinese growth rates to stay high and stay stable. That increases global demand and is beneficial to the global economy and helps us to recover. The message has got to be we really appreciate and value the fact that China continues to grow well and its growth is stable, steady and sustained. And in the process we’re hoping that China actually would import a lot more,” Huang said. “And they would import a lot more from the U.S. and if they import a lot more from the U.S., then U.S. growth rates would increase and that’s a win-win kind of message.”

Foreign companies see China as a big opportunity, but many worry about the high rate of intellectual property theft - with Chinese companies accused of illegally copying everything from foreign cars to drugs.

The U.S. also complains about Chinese trade barriers, such as government subsidies to certain domestic industries. China’s government also pursues an “indigenous innovation” policy in public procurement, which U.S. companies say excludes foreign suppliers.

Beijing says its rules are fair and is unhappy that Washington has filed complaints with the World Trade Organization.

“What China is more or less seeing is that there are companies who are not so keen and a little bit cautious [to invest] but there are likely companies that are much more easy to work with and much more enthusiastic, and if I hold a really tough line, I’ll find those willing to collaborate and more willing than others,” Huang said. “From the U.S. side this is sometimes seen by companies as not fair.”

China’s currency has strengthened nearly 4 percent since last June when Beijing lifted its peg to the dollar. China’s trade surplus for 2010 also fell 7 percent to $183 billion. Some economists say these numbers could help cool down the rhetoric on the yuan and trade ahead of the summit.

Previously VOA incorrectly identified the title of the book, "Asia Alone: The Dangerous Post-Crisis Divide from America" as "Asia Alone: U.S.-Asia Relations after the Crisis."