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Since 2008 – Progress Through Politics

Superfusion: How China and America Became One Economy

Cross-posted at River Twice Research.

The economic relationship between China and the United States is the defining issue of our day. While debates over health care are vital to American society, and while challenges ranging from Iran to Afghanistan to North Korea are real, nothing will determine the arc of the coming decades – or will shape domestic life and prosperity in the United States – more than the emergence of China as a global economic superpower unrivalled except by America.

The rise of China is hardly a secret, but because it is a complex economic that is constantly evolving, it gets less attention than hot-button issues. Absent a real crisis between the two, the relationship is more about the flow of capital and the nature of global business than it is about heated battles inside the Beltway or on Main Street. And while the rise of China and America’s increased dependency on Chinese loans to fund its deficits certainly generates anxiety, it’s mostly amorphous barring some specific issue to focus it.

How that relationship came to be is the subject of my new book, Superfusion: How China and America Became One Economy and Why the World’s Prosperity Depends On It. While this economic fusion has taken more than two decades to evolve, with the crisis of the past year, it has become both a tighter embrace and one more fraught with tension. It’s to the credit of both governments – for now – that those tensions have not boiled over.

For their part, the Chinese are concerned about the viability of the American economic system and about the long-term value of their more than $1 trillion of investments in American bonds. They are also dependent on the market even a recession-mired America offers, with exports to the United States still near $300 billion a year. Americans are worried about the effect of lower-cost Chinese labor on U.S. jobs, even though most of the lost jobs were lost long ago and have as much to do with the corrosive effects of technology on labor as they do with cheap production in China. Meanwhile, China offers turbo-charged growth for American companies, as the Chinese government turns to companies like Caterpillar and GE to help with the industrial build-out and as Chinese consumers buy more goods – even a bankrupt GM sold 1.6 million cars in China this year, more than in the United States.

But tripwires abound. The Treasury Department just submitted one of its many required reports to Congress, this one on currency and the Chinese currency especially. The Treasury, Secretary Geithner and by extension the Obama administration decided not to label China a currency manipulator, though the report did express serious concerns that the value of the Chinese currency pegged to the dollar left it undervalued and hence responsible for continued global imbalances.

These reports are dry in nature and are nothing if not wonky. But make no mistake: this was a delicate decision and a consequential one. If the Obama administration had labeled China a manipulator, the next step would be automatic sanctions. That in turn might have generated a domino effect of epic proportions. And given how entwined the U.S. and Chinese economies have become, any negative ripples threaten to halt what is for now a very delicate and incomplete global economic recovery.

For now, the relationship between the two economies is symbiotic, and is providing a degree of stability to both societies. In the absence of Chinese money, the Obama administration could not be spending its way out of recession, and without American companies operating in China and without Americans purchasing Chinese goods, China wouldn’t have the money to lend and spend. But no country likes to see its sovereignty eroded and its ability to be master of its own fate undermined – and that is precisely what the economic relationship between the China and the United States does to their respective governments. National sentiment in both countries is also strongly suspicious, and that is likely to intensify.

But for now and for many years to come, we are joined at the hip, China and the United States, and how that relationship is managed by both will determine whether the world ahead is one of increased prosperity or ever-more conflict between winners and losers, between haves and have-nots, and between powers on the rise and powers on the decline.

For a look at additional blogs and other writings of mine, feel free to visit River Twice Research.


  1. It is the elephant in the room, but as long as it doesn’t flatulate we stop noticing it.

    In the end I could not be a whole lot happier with what is happening in China.  For all the potential (and actual) problems associated, an institutionally communist and impoverished China that could have existed today would have been infinitely more dangerous and negative than what we have.

    It is interesting to see the difference between the paths taken by Russia and China as they recover from their Communist Experiments.  China has the position it does because it has followed the long and slow plan that has always been the hallmark of Chinese success.  And inasmuch as their path to success is to “emulate” the path that has given the US it’s century of leadership, it is hard to say we could ever really lose.

  2. twsmithca

    Living in Hong Kong, my experiences corroborate what you’re saying.  I’ll have to read your book…

    I would emphasize that there is only an Economic Chimerica, where fundamentally if one nation suffers economically, the other will also.  When one is prosperous, the other will be as well.  

    Ideally China would be as open to US imports as they are to US exports, and I think that could happen as the RMB reaches it’s fair value, slowly.  And, as China’s long term and long standing objective to improve the standard of living for their citizens.  They’re not trying to change all at once, but they have gone a long way such that today more than half live in relatively decent standards of living.  The other half is benefiting as well, just not as much.  There are still 600-700 million people living in a China that do not have a living standard much different than they have had historically.  Many are still without heat or running water.

    One of the biggest threats to Chinese national security is these people becoming upset seeing their brethren in the 100+ cities over 1 million in population which are enjoying the lions share of the prosperity, and becoming restless or rioting.  I think this happens more than is reported.

    In order for the US to remain an ‘equal’ it will require the US to be more competitive and cost effective.  Otherwise, the pairing will eventually end with China being the dominant economy, the US economy perpetually shrinking in terms of real GDP.  This could be in USD-RMB equivalency, or in USD to a basket of currencies.

    More competitive means people choosing math, science, engineering and other productive educations.  China is graduating in the neighborhood of 600K+ engineers per year.  According to the next link, the US is graduating ~200K+, and India ~200K+.…  

    According to that report the numbers aren’t all apples to apples, and are open to substantial question.  Again my experience in the US, particularly for advance degrees is that Americans are not pursing them.  So even if we are still graduating a fair number, many of those are not Americans.  

    In my graduate program, there were exactly 5 US born Americans.  A handful of naturalized citizens, and 150 that were primarily from China and India, with a small number from Europe and Emerging countries (South America, Russia, Eastern Europe.)  I’ve kept in contact with many, and while many worked in the US for several years under H1 and other visas, none that I know became citizens.  Most are already working back in China or India.

    In other non-economic areas including government, socioeconomic, military, foreign and domestic policy separations are still very distinct.  There is no pairing at these levels, no more than there existed an Ambritica or Briterica 60+ years ago.  In many cases there are inverse relationships.  As the average Chinese standard of living has risen, the average American standard has stagnated or shrunk.

    Nationalism is on the rise in China.  Chinese are feeling their oats, and want to take their place as equals (or more-than-equals?) on the world stage.  Maybe it would be good for America to recognize their accomplishments from time to time in a positive light, rather than with fear.  I really do think both nations, or peoples, like and respect each-other for the most part.  Of course, if you feel your job was outsourced to a guy in China, or you’re in the PLA and have been hearing how threatening the US is in relation to their long lost Taiwan…

    Given that China operates towards a 50 year plan, and chunks it out with five year execution strategies.  While our part-time government is looking to the next election, we may not have high-level strategies to be as successful.

    China is able to do this because there is only one party, and effectively only one branch of government – which often causes internal problems, as well as international criticism, but also leads to the majority of China marching to reach the one set of national goals with more efficiency than happens when we change horses every 2,4 or 6 years…  They are also less susceptible to setbacks along the way to their goal.  If at first they don’t succeed, they will try again a different way.

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