Both sides would suffer bitter losses, and the question arises as to who could outlast the other. Arguably the Chinese have less to lose. They already experience a relatively low standard of living. But that standard has been improving of late, and many Chinese could be loath to return to the days of mass starvation they experienced under previous governments. Americans by comparison are spoiled. Could we really do without our creature comforts and endure a bare level of subsistence? The recent declines in employment and housing may have conditioned us for such a reality.
It also comes down to which economy is more nimble. Both are like huge aircraft carriers, and turning on a dime is impossible. China is riding the tiger of growth, and holding on for dear life. It’s not a beast that’s easily tamed in a country of more than 1 billion people. The best the government can do is to attempt to guide it in the right direction. America, on the other hand, has tried to use government policy to waken a slumbering bear. If it succeeds, the bear may wake up angry and strike at whoever’s around. Thus, artificially stimulating growth may have destructive inflationary effects.
This does not have to be a zero sum game however. China faces difficulties in growing its domestic economy if it does not open up to other ideas. Its Draconian government policies — the one child policy, restricting free speech and political organizing — won’t work in the information-based economy of the future. Perhaps they could do well to import some of our social and political freedoms. They also have to begin stimulating internal demand — and that requires the higher wages that would result from a realistic currency policy.
On the other hand, the law of consumption has all but derailed the U.S. economy. Consumers up to their necks in debt will soon drown if they do not spend less and produce more. Perhaps we can learn from China’s example of prolific productivity gains. That requires paying down our debts, retooling the work force with better education and reinvigorating the spirit of creativity and innovation that got us to the moon and back in record time. How will these competing aims translate into a viable trade policy that averts a destructive conflict? The answer is not easy, but it starts with communicating and fostering mutual long term interests. A strong U.S. economy is arguably in the long term interests of China.
Could it make some sacrifices in the short term that would aid in the U.S. recovery? The answer seems fairly obvious.