Last week’s Economist had a couple of nice articles on China’s National Day on October 1st, when the Chinese showcased their military, including the DF-31 nuclear-tipped ICBM, which can hit any city in America.  Most of these armaments have “Made in China” tags, not unlike all of our clothes and toys.

The Economist leader on the subject lamented this show of militarism, even comparing modern-day China to Prussia/Germany and Japan in the late 19th century.  I recall attending Bastille Day celebrations along the Champs Elysee in Paris in years past, when the glory-obsessed French showcased their military hardware; yet nobody got bent out of shape about French militarism.

Yet the rise of China should rightfully be compared to the rise of powers-past, such as Germany, Japan, Russia and the U.S.  We should consider how status-quo powers such as Britain might have mismanaged some of these rises in the 19th century and how we might avoid such mismanagement with regard to China today.  The blame for German militarism rests largely on the shoulders of Germans, this is true, especially on the fragile shoulders of Kaiser Wilhelm II and his cabal (though even Bismarck shares some of the blame).  Even so, the Western Powers could have better managed Germany’s rise.  They lacked an agenda for providing Wilhelmine Germany with enhanced international privileges to match its rising power.  Matching privileges with power is key to peacefully managing a power’s rise.  And, anchoring a rising power in the institutions of the status quo is likewise critical.

With the Concert of Europe and the Congress system of Metternich dead by the late 19th century, there were no international institutions to anchor Germany.  China, by contrast, is a card-carrying member of the U.N. Security Council, the WTO, the IMF and World Bank, the G-20, G-2, and other institutions.  Furthermore, although China may still feel somewhat dissatisfied because Taiwan and other East Asian assets (such as oil fields in the South China Sea) are not being handed to it on a silver platter, Chinese privileges in the world are being equated step-by-step with Chinese power.  The ”peaceful rise” of the dragon is taking place, at least in part thanks to Western statecraft.

The parallel with Wilhelmine Germany is a nice one, but on one key parameter, China falls short of authoritarian Germany.  Germany of that era was a pluralist, if not a liberal, society.  There was the Reichstag, in which the Social Democratic opposition was well represented.  Sure, the Kaiser and his ministers were not beholden to the German parliament.  Yet the nascent democratic institutions were there, whereas Chinese communism has not provided such vehicles for democratic development.  Likewise, Bismarck had provided Germany of those days with the most progressive social security safety net in Europe, neutralizing in part the appeal of the left.  In China’s Workers’ Paradise, the social safety net is woefully inadequate.

A few months ago, observers worried that the global financial crisis could weaken the Chinese Communist Party’s hold on power.  As long as the CCP delivered economic growth north of 8% a year, few questions were asked by the populace.  But this social contract was seen as at risk.  These days, observers are applauding the resilience of the Chinese economy at weathering the storm.  However, China’s recovery has been driven by a huge fiscal stimulus and a massive state-directed lending boom, which could lead to banking sector weakness in the future.  True, China is much less-leveraged than the US or almost any Western nation, so it has room to be a little profligate.  Nevertheless, an economic shock in China, followed by political turmoil, cannot be ruled out.  Note that China’s leaders told Beijingers earlier this month to stay home in their crowded apartments to watch the National Day Parade on television, instead of thronging over to the Forbidden City, which couldn’t have a more suggestive name.  Since 1989, popular protests are the nightmare of China’s leaders.

Source: Google Images

An update on a post I did last week on the Obama administration’s swing toward trade protectionism with its action against Chinese tires:  enclosed is this nicely written NYTimes editorial…not an Op-ed, an editorial. 

The Times editorial board understands economics.  American workers in the tire industry, many represented by the United Steelworkers Union, may well lose their jobs with or without the new 35% tariff against Chinese tires.  The reality about trade, the Times points out, is that Americans will likely buy low-cost tires from other countries in any case, perhaps in Latin America, rather than from American factories.  These Latin tires will cost more than the Chinese variety, making American consumers worse off.

The Economist article I attached to the last post included a comment from an analyst suggesting that President Obama, by imposing these tariffs, is shoring up his left flank in order to achieve support for health care reform, that $900 billion budget-buster.  Maybe the linkage is far-fetched, but if true, putting at risk the global trading system in order to expand entitlements, is that what sound economies are built on? 

I hope the president deploys his considerable charm and intellect next week, talking things out with Chinese President Hu Jintao at the G-20 Summit in Pittsburgh in order to avoid a nasty trade war.  That venue would likewise be a fine place for the president to tell the truth to Rust Belt workers, the truth John McCain started telling in Michigan last year:  that the economy is in transition, we cannot artificially protect manufacturing jobs, job training and outplacement will be required.  The higher value-added, knowledge-based economy beckons…

During the Great Depression, international trade contracted by a third, as countries around the world erected barriers to trade, aggravating a sharp decline in output already under way and throwing millions out of work.  Thus far, in the Great Recession of 2008-09, the end of which some observers may have called too soon, the major powers have avoided trade protection.  Enter the Obama administration.

Last year, I published a piece calling for those supporting Democrats in America’s national elections to make sure they keep the Dems honest on trade.  Concerns about Obama’s commitment to free trade, due to his campaign strategy in Midwestern states last year, were dismissed as mere election-year politics.  His commitment to satisfying his friends in America’s trade unions is now abundantly clear, not only because he parrots their unfair accusations about abuses by the Colombian government, but also in the latest action by the Obama administration to raise tariffs against Chinese tires (see NYT imes article).

Trade wars can spiral out of control, even if this is not the original intention of protectionists.   During the 19th century, Britain, the unrivaled power at the time, ensured global prosperity through its commitment to free trade.  The U.S. since 1945 has played this role, through both Democratic and Republican administrations.  Doubts about President Obama’s commitment to free trade, a key pillar of international cooperation and a key strategy for broad-based global prosperity, have re-emerged, a point quite ably discussed in this Economist article.

Photo:  Chinese workers loading tires for export.  Source:  www.financialpost.com

Wu Bangguo, the head of China’s Congress, is enjoying a warm welcome in Washington. He met with President Obama, calling for closer economic ties, and attended a dinner on Thursday evening hosted in his honor. Secretary of State Clinton said, as she has done several times before, that “building a strong relationship with China is a central goal of the Obama administration.”

Putting aside differences (or at least not letting them overshadow the relationship) on human rights and trade, Clinton said, “We are entering a new era in China-US relations.” The United States needs China’s support and China needs America’s. The two powers should work together to curb dangerous actions by North Korea and Iran, and Clinton announced that the countries would be conducting joint talks on counterterrorism this autumn.

“We are two of the world’s three largest economies, two of the world’s largest populations, two of the world’s largest militaries, the world’s largest consumers of energy and producers of carbon emissions. For these reasons and so many more, our respective priorities and policies have a global impact, and therefore we have a responsibility to ourselves and others to work as effectively as we can to meet the threats and seize the opportunities of the 21st century.”

For his part, Mr. Wu emphasized economic, financial, trade and investment policies. He said that China would shift from an economy driven by exports to one more reliant on domestic consumption – rebalancing the economy.

Clip from US State Department.

Washington said that it would accept Tehran’s offer of comprehensive talks, even though Iran continues to refuse to negotiate over its nuclear program. The chess move – a strategy designed to force Iran to talk seriously or encourage rising powers to place greater pressure on Tehran to curb its hostile actions – was announced as Beijing and Moscow both refused to support new sanctions against Iran.

Earlier this week, American intelligence agencies reported that Iran has enough nuclear fuel to make a nuclear weapon. It would be risky to rapidly enrich its uranium to bomb-grade material, but possible.

Photo from president.ir.

Size. Strength. Potential. Neighbors. The world’s two fastest rising powers – China and India – are often considered strategic rivals, not close friends. Sure, Beijing and Delhi often sing the same tune in international powwows, but their differences are real and could become more pronounced.

Beijing and Delhi largely agree on climate change, trade and several other issues of global concern. India’s environment minister, Jairam Ramesh, recently said that “India feels closer to China than the United States” on the issue of climate change – the two are “standing 100 percent together.”

This united front is analyzed by Neeta Lal, a journalist based in New Delhi, and she argues that their resistance to strict carbon emissions is a noteworthy but rare display of solidarity “given the two Asian giants’ generally tenuous relationship, as well as previous fractiousness regarding which one should do more to combat global warming.”

Possibilities for cooperation seem to be extending beyond climate change. “In its attempt to stomp out the pro-Uighur movement in its restive western autonomous region, Xinjiang, China might be looking for help from a surprising partner: its major rival in the region, India,” writes Bahukutumbi Raman, who formerly served in India’s intelligence agency.

While this could bring the rivals closer together, “this new partnership only goes so far…although cooperation against acts of terrorism will continue to expand, the chances of China and India working together against terrorist organizations are remote.”

Their agreements will not forever overshadow their disagreements. The relationship is still burdened by border disputes, unease over growing military capabilities, competition for resources and influence and different friends in Asia.

China and India are both too big to ignore. And neither will ignore the rise of the other.

Photo from Eric Feferberg/AFP/Getty Images.

Should America be a great power? If so, can the United States remain a great power? Christian Brose, senior editor at Foreign Policy, and Rachel Kleinfeld, president of the Truman National Security Project, debate the future of the world’s hegemon and rising heavyweights on bloggingheads.tv.

Christian Brose argues that “the greatest advantage that the United States has going forward is that as other countries become more powerful there is always going to be the feeling among their neighbors and among others in the world that they are going to view that apprehensively and I think they are going to look to the United States…to provide you with a security partner.”

“The United States could destroy ourselves if we’re not careful,” warns Rachel Kleinfeld. And she argues that the previous administration in Washington “lost more of America’s power over the last eight years than we’ve ever seen before.”

Video from blogginghead.tv.

Angering China, Taiwanese President Ma Ying-jeou announced yesterday that the Dalai Lama will visit southern Taiwan next week. Beijing is always irritated when the Dalai Lama, the Tibetan spiritual leader, travels abroad and the government often issues strong rebukes to foreign hosts. Last November Mr. Ma stopped the Dalai Lama from coming, but Mr. Ma is under pressure at home with rising anger across Taiwan over the government’s response to the recent typhoon.

The visit follows a marked improvement in cross-strait relations – the hallmark of Mr. Ma’s first 15 months in office. With direct tourist flights, shipping links and strong bilateral trade, the ties are arguably better than they have been in 60 years.

The Dalai Lama’s stop will complicate dealings between Beijing and Taipei and could threaten Mr. Ma’s progress in warming relations. But Beijing has lately demonstrated greater understanding of Taiwan’s domestic politics, and so far the opposition party in Taiwan (members of the opposition reportedly invited the Dalai Lama) seems to be receiving the brunt of China’s ire. Rapprochement is not out of the question, but it won’t be easy.

Photo from AFP.

On Tuesday, South Korea launched its first rocket but failed to put the satellite in its planned orbit. Russia helped build the rocket after the United States refused due to worries that a regional arms race could take off. “With all its neighbors – China, Japan and North Korea – pursuing space programs, South Korea has been eager to have its own.”

South Korea and its northern neighbor are not the only ones with ambitions to reach space and contend with the well-established programs. Contenders in the new global space race also include Iran and Brazil. Russia has successfully put the most payloads into orbit in the last decade with the US close behind. China now launches more rockets than Europe and Japan and India send up less than five a year on average.

Images from The Economist and Jason Lee for Foreign Policy.

Back in 2007, Niall Ferguson and Moritz Schularick wrote about “Chimerica” or the “symbiotic economic relationship” developing between China and the United States in International Finance. “Not only has plentiful Chinese and Asian labor increased global returns to capital; Chinese excess savings have also depressed US and global interest rates.” China did the saving and lending and America did the spending and borrowing – a seemingly perfect marriage.

In the most recent issue of Newsweek International, Niall Ferguson, a professor at Harvard University and author of the The Ascent of Money, says that in the past Chimerica looked like “a marriage made in heaven: both economies grew so fast that they accounted for about 40 percent of global growth between 1998 and 2007.” But the question now is “whether or not this marriage is on the rocks.”

“It’s a bit like one of those marriages between a compulsive saver and a chronic spender,” he writes. “Such partnerships can work for a certain period of time, but eventually the penny-pincher gets disillusioned with the spendthrift.” Beijing feels as though the country has enough US government bonds and is worried about America’s loose fiscal policy.

China may begin to “go it alone” and increase domestic consumption. “So a post-Chimerican China needs to be not only an empire, but also a consumer society…The global implications of this divorce are huge.” Will cooperation give way to competition? Will a strategic rivalry develop?

“We are a very long way from outright warfare, of course. The tectonic plates of geopolitics don’t move that fast. But the danger signs are there. In a succession of official and semi-official statements, Chinese spokesmen have signaled their interest in a substitute for the dollar in the form of International Monetary Fund Special Drawing Rights, or even gold. At the very least, a gradual increase in the share of euros and yen in Chinese reserves must surely be in the cards. But they could go further than that. It’s not impossible that, at some point within the next five to 10 years, the Chinese will feel ready to remove their capital controls and allow their own currency, the renminbi, to develop as a freely convertible international currency. At that point, the Chimerican marriage will be over. Not too surprising, really. As the name implied, such an unbalanced relationship was always something of chimera.”

The video above is Mr. Ferguson speaking at the Carnegie Council for Ethics in International Affairs last year about the global financial crisis and its implications. For his entire speech and a discussion on Chimerica, see the Carnegie Council’s coverage.