Rivals or allies? China and the USA

There was a distinct sense of de ja vu surrounding the Olympic games this summer. Once again the red flag of a communism and the stars and stripes of capitalism battled fiercely for the top spot on the medals table.

While the Olympics are held up as a paragon of peace and co-operation the writing’s on the arena wall and medals matter. And the old flame of east-west rivalry, which the world tried to bury under the Berlin Wall, is alive and well in the changing rooms of the Olympic Stadium.

Despite the glamour of the Games, the relationship between The People’s Republic of China (PRC) and the USA is both complex and opaque. Most fundamentally, unlike during the cold war, the PRC and USA compete on the same field of capitalism. This is no longer a world divided into blocs, but one interconnected by trade.

The figures paint a relatively balanced picture. China’s GDP is still significantly less than the USA’s (US$11,440tr and US$15,290tr respectively).

Compounding this, China’s manufacturing muscle, and this economic growth, is directly tied to western demand for the products its factories pump out. The potential for a trade war (that is, tit-for-tat increasing of tariffs to make it harder for a target nation to enter markets) threatens to hurt China just as much as it does the USA.

By manipulating its currency, China lowers the value of the Renminbi, making exporting much cheaper. This is of as much a benefit to western consumers as it is to Chinese industry. The huge variety of consumer products on offer in the west is a direct result of the Chinese government’s enthusiasm for international trade.

Furthermore, The PRC’s membership of organisations such as the World Trade Organisation (WTO) solidifies rather than challenges the markets. The benefits go both ways: as China’s economy has boomed it has become the third largest receiver of foreign direct investment (FDI) in the world, achieving a total of $115bn in 2011.

The more multi-national companies balance themselves between China (with its low labour cost, solid infrastructure and high productivity) and the United States (with its advanced technology, highly skilled work force and global influence) the more China becomes a counter-weight, or even a partner to the United States.

The cold war was marked out as a very literal clash of civilizations, with missile defences, barbed wire and machine gun nests acting as a buffer between the two ideologies.

The People’s Republic of China and the United States of America are more like a grumpy, old couple: distrustful of each other but with their finances still firmly locked together.


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