(Mr. Ben Mah is author of the books America and China, and America and the World.)

The China-U.S. Strategic Economic Dialogue (SED) initiated by the Bush Administration back in 2006, was originally designed to “extract concession from Beijing and preempt drastic action in the Congress”.1. These concessions include the upward revaluation of the Chinese currency and the opening of Chinese financial market. This course of action was favored by the coalition of financial service industry who supports the engagement with China and the continuation of the present trade policy.

      The Strategic Economic Dialogue which was held semi-annually started under the leadership of Henry Paulson, the former U.S. Treasury Secretary who played a prominent role at all the previous meetings. However, the oncoming Obama administration expanded the SED by giving the U.S. State Department a bigger role and re-named it as the U.S.-China Strategic and Economic Dialogue.

      Consequently, the agenda of this new U.S.-China Strategic and Economic Dialogue is much “broader and comprehensive” than the previous years and, according to the State Department official, it will include global issues such as climate change, North Korea, Pakistan and Afghanistan.2.

       This is in line with the policy as postulated by Zbigniew Brzezinski, one of the premier American geopolitical strategist who is an informal foreign advisor to President Obama. In a speech entitled “The Group of Two that could change the world” delivered in Beijing to celebrate the 30 years of the establishment of the Sino-U.S. relations, Brzezinski openly called for China’s participation in the dialogue with Iran, the mediations in Indian and Pakistan as well as the Israeli-Palestinian conflicts, and the Korean nuclear issue.3.

       To solve global issues such as climate change, the establishment of a large standby U.N. peace keeping force, or the zero-nuclear weapon options and the global economic crisis, Brzezinski declared that “we need an informal G2. The relationship between the U.S. and China has to be a comprehensive partnership, paralleling our relations with Europe and Japan.”3.

      It looks as if the U.S. in its relations with China has changed from the Bush presidency of strategic competitor to that of comprehensive partnership under the Obama Administration. However, the Chinese elites should not be so elated and delude themselves that the United States has finally conceded China’s position as a true global power. Notwithstanding that Secretary of State Hilary Clinton and Treasury Timothy Geithner have acknowledged in their joint article which appeared on the Wall Street Journal prior to the meeting that “Few global problems can be solved by the US or China alone. And few can be solved without the US and China together."4.

       Brzezinski, a cold war warrior whose main preoccupation was American dominance, but as a realist with keen sense of the need for China’s economic and financial cooperation, merely changed his tactics to achieve a temporary accommodation by bringing China into the American dominated global order amidst the economic crisis.

       Currently, America is experiencing the worst economic crisis since the Great Depression. The recession which began one year before was officially recognized. Most ominously, as according to American economist John Williams, who specializes on the accuracy of the government statistics: “The current economic downturn increasingly will be referred to as a depression, and it is far from over. There will be intermittent blips of new activity, such as the current cash-for-clunkers automobile giveaway program that appears to be generating a one-time spike in auto sales. Yet, this downturn will continue to deteriorate, proving to be extremely protracted, extremely deep and particularly non-responsive to traditional stimuli.”5.

       To stave off the economic crisis and in endeavoring to rescue the American economy, the Obama administration undertook a massive stimulus program accompanied with an unprecedented deficit finance with no consideration for the soundness of the dollar, the de facto world reserve currency.

       Not surprisingly, the greatest concern of the Chinese delegation to the 2009 Strategic and Economic Dialogue is the growing U.S. national debt and the rapid devaluation of the dollar. China, as the number one creditor of the United States, has two-thirds of its 2 trillion foreign currency reserves invested in U.S. Treasury bonds and other securities, expressed her apprehension. China’s vice-premier maintained that as the issuer of the world reserve currency, “the United States should properly balance and properly handle the impact of the dollar supply on the domestic economy and the world economy as a whole.”6.

       Unfortunately, to properly balance the dollar supply requires the controlling of the U.S. fiscal deficits and, with the U.S. budget out of control and on the verge of bankruptcy, this is a wishful thinking on the part of the Chinese vice-premier that the United States would pay attention to China’s concern.

       While the Chinese are worried about their vast dollar holding that will continue to depreciate and indeed one day may be worthless, the Americans did not display any anxiety. In fact, the vice-premier counterpart, the U.S. Treasury Secretary Timothy Geithner completely ignored the issue, and did not even put the creditworthiness of the dollar on the agenda, as he merely stated that “President Obama has committed to lowering the federal deficit to sustainable levels once recovery is firmly established.”7.

       Unfortunately, economic recovery in the United States might not be firmly established for a long time. As a matter of fact, since the third quarter of 2007, American household net worth has decreased by more than 21 percent. It lost more than $1.3 trillion alone in the first quarter of 2009. This is a mortal blow to the economy depending on asset inflation. Meanwhile, household debt as a percentage of disposable income has reached at all time high at 133 percent at the beginning of the recession and has not gone down substantially. One of the reasons for this dismal circumstance for many Americans is job loss. According to the Federal Reserve, unemployment will top 10 percent this year, and “it could take ‘five or six years’ for the economy and the labor market to get back on a path of full health in the long term.”8. However, according to economist John Williams, the real unemployment is more than double the official figure and has reached 20.6%.5.

       Consequently, increased unemployment led to the decline in income and the rising of mortgage defaults, which included the prime borrowers. Other potential defaults include $750 billion Option Adjust-Rate Mortgages, the nearly trillion dollars of credit cards and the half trillion of commercial mortgages which will be due in the next two years.8.

      Tax revenues, both at the Federal and state level, have fallen off the cliff, declined as much as 20 percent in April and May 2009. This will have another decided effect on both economy recovery and the reduction of deficit, since government spending accounts for 18 percent of GDP in the U.S.  Most importantly, the figure on U.S. industrial capacity utilization shows one-third of U.S. industry is now idle. The American economy is indeed in a comatose stage and the tens of millions of unemployed Americans are in dire straits.8.

      Economically for the American policy makers, the 2009 first Economic and Strategic Dialogue was nothing more than to gain further concessions from China to open up its financial market, solely for the benefit of Wall Street and, at the same time seek cooperation from China in the continuous purchases of U.S. Treasury bonds. Mr. Geithner has nothing to offer China that the soundness of the dollar will be guaranteed, and only came up with a false promise that American economy is on the way to recover by saying that “the Administration is committed to investments in energy, education and health care that will rebuild the American economy on a firmer foundation going forward.”7.  This should not be a big surprise, as after all, “this is a classical creditor-debtor conflict--- a debtor country never relegates domestic priorities to maintain the real value of what it owes or even to insure its ability to service its external debt.”9.

        Strategically, amidst the global economic crisis, the original Strategic Economic Dialogue was upgraded by the Obama Administration to include the State Department in dealing with the strategic issues with China. For the first time in this Dialogue, the U.S. Secretary of State is one of the main participants. Hillary Clinton, who has just come back from a trip to Asia, worked diligently to sign a defense pact with India with the purpose to strength military tie with that country. The agreement would allow the U.S. “to sell sophisticated military technology to India, including fighter jets.”10. This will increase India’s offensive military capacity and is a boon for U.S. military contractors, but it is also a major move of U.S. to encircle and contain China.

        Unfortunately, on the discussion of the strategic issues, China did not even raise the U.S. exports of sophisticated weapons to Asia, which would destabilize the region, nor did the Chinese delegation raise the U.S. funding of separatist movement in Tibet and Xingiang. This allows Clinton to place all the issues on the agenda solely for the benefit of America. These issues include the problems of North Korea, Iran, and nuclear proliferation, Afghanistan, Pakistan and the Middle East. Ironically, the cooperation on the part of China on all these issues as dictated by the United States turns out to be against China’s geopolitical interests.

       Ironically too, the top officials of both the U.S. and China are busy searching for ways and means to maintain the economic order of globalization, neo-liberalism, and the policy of global cheap labor, which currently are responsible for the worst economic and financial crisis since the Great Depression. As a result, both the United States and China are experiencing explosive social tension. In China, the killing of a manager in Jilin from a takeover firm and the riots in Xinjiang just weeks before the meeting heightens the social tension within the country. In the United States, the increasing numbers of homeless and 35 millions of Americans going hungry as a result of the “ frayed social safety nets, rising unemployment, gas prices and soaring health and housing cost have driven families to choose between putting food on the table or paying off medical bills and pay rent.”11.

      In the 2009 U.S.-China Economic and Strategic Dialogue, like many previous similar meetings, the Chinese delegation always negotiated from the position of weakness. China, as America’s numbered one creditor, should raise the legitimate questions of the enormous American deficits, the reckless monetary policy of zero interest rate and the printing of the unlimited amount of the dollars. It should demand the paring down of U.S. military budget, the reduction of military bases abroad, especially those that surround China with hostile intentions and, above all, the cessation of selling advance military weapons to China’s own province of Taiwan, the continuous funding of Tibetan and Xinjiang and other separatist groups against China. Instead, the Chinese vice minister of foreign affairs “expressed our appreciation for the moderate attitude of the United States so far for the Xinjiang violence.”12. In the eye of Washington, this kind of subservient stand is a sign of weakness, and an invitation for more violence and destabilization. This demonstrates once again the bankruptcy of China’s foreign policy and the impotence of Chinese diplomacy.

Notes:
1. Chan, John: “U.S.-China Strategic Economic Dialogue: underscore sharpening trade tension”,  December 20, 2006  World Socialist Website
2. FP Foreign Policy: “U.S.-China dialogue gets underway”,  July 27, 2009  Foreign Policy.com
3. Brzezinski Zbigniew: “The Group of Two that could change the world”,  January 13, 2009  Financial Times
4. Clinton, Hillary. Geithner, Timothy: “A New Strategic and Economic Dialogue with China”,  June 27, 2009  The Wall Street Journal
5. Williams John: “Depression Special Report”,  August 31, 2009
6. Lawder, David  Pleming, Sue: “U.S. China talk money, climate: no breakthroughs”,  July 28, 2009  Reuters
7. Geithner, Timothy: “Strategic and Economic Dialogue Closing Statement”,  July 28, 2009  Press Room  U.S. Department of Treasury
8. Christ Steve: “Nine Roadblocks for the Rally”,  July 30, 2009  Wealth Daily
9. Askiar, Hossein: “China’s sleepless nights”, August 6, 2009  Asia Times
10. Peter, Tom A.: “Clinton’s India trip could set new defense pact”,  July 20, 2009  csmonitor.com
11. Demos: “35 Million Going Hungry?  Only in America”,  www.opposingviews.com