US presidential elections of 2012 will take place in the most challenging environment, which will not be immune to catastrophic crises.
In the coming months, the US economy will be close to or in recession territory. Due to the Eurozone crisis, risks are heavily tilted to the downside. Meanwhile, large emerging economies, spearheaded by China and other BRIC nations as well as the surging Asia, are driving global growth.
To make things even more complicated, the US presidential election will coincide with China’s 18th Party Congress in 2012, when current Vice President Xi Jinping will succeed President Hu Jintao, and Vice Premier Li Keqiang is expected to replace Premier Wen Jiabao.
From Washington to Beijing, the US-China relationship is seen as the most important bilateral relationship of the 21st century. What are the implications of the 2012 elections on the bilateral relationship?
One part of the answer is relatively well understood; it has to do with the symbiotic relationship between the two nations. During President Obama’s first term, the broadened U.S.–China Strategic and Economic Dialogue (S&ED) has been the administration’s primary venue for a high-level dialogue to discuss a wide range of bilateral, regional and global political, strategic, security, and economic issues between both countries.
The bilateral strategic issues extend from issues of security (China’s military modernization, US-China military-to-military relations, maritime disputes, nuclear non-proliferation), and Taiwan to climate change and clean energy cooperation, as well as human rights. In turn, the economic issues comprise global rebalancing, currency policy, bilateral trade deficit, U.S. Treasuries, WTO commitments, innovation policies and intellectual property rights.
In the long term, the election is likely to support bilateral efforts toward global rebalancing and lower bilateral trade deficit; but in both cases, appropriate solutions can only be multilateral and international.
In the short- and medium-term, however, the election may destabilize the current environment in which China will remain a major creditor nation and the largest foreign holder of U.S. public debt, while U.S. will be the major debtor nation with massive trade and budget deficits.
The 2012 election is bound to reflect the tensions of the symbiotic relationship. If managing the symbiotic relationship was not difficult enough, there are greater problems ahead.
Leading a World-Historical Transition
Another part of the implications of the 2012 election is that it will pave way to the most complicated international power transition in the past 140 years.
In the early 1870s, the United States, the largest emerging economy of its era, took over the UK, as measured by gross domestic product. Some three decades later, Americans caught up with the British also in terms of wealth, as measured by GDP per capita. During this historical hand-off of power, the Victorian Britain had to come to terms with the relative decline of the Empire and its free-trade doctrine, even as it sought to manage America’s relative rise and its trade protectionism.
If the next president will govern two terms, he/she will likely also have to lead this unique relationship during a period, when China will take over the U.S. economy, in terms of total GDP, whereas the catch-up in terms of average prosperity will take decades longer.
One should approach complexity and uncertainty, as if crossing the river by feeling the stones, as Deng Xiaoping once said. The transition requires extraordinary caution.
In the recent Asia-Pacific Summit in Hawaii, President Obama declared that China must play by global trade rules and act like a “grown up.” Coming only months after the Chinese leaders were appalled by the U.S. debt-ceiling impasse and the subsequent downgrade of the U.S. credit rating, as well as Vice-President Joe Biden’s visit to Beijing to assure that “a successful China can make our country more prosperous, not less”, such rhetoric would seem to carry substantial risks for both Washington and Beijing.
Usually, U.S. presidential elections are governed by domestic issues. Due to the difficult economic environment, the year 2012 will not be an exception and the track record is not promising.
In the 2008 election campaign, even leading candidates occasionally portrayed China as America’s key economic and strategic rival, even though it is Chinese growth that has sustained the world economy since the mid-2000s. In the 2010 mid-term election, the situation deteriorated further as China emerged as a scapegoat in campaign ads, as reported by the New York Times. In October, the Senate began to weigh “whether to punish China for undervaluing its currency and taking away American jobs.”
In the 2012 election, the issue of China is likely to come up through the issue of currency, as a litmus test of sorts. A few weeks ago, the Senate’s bill was stopped in the House. Next year may witness a new bill in the House, which will be then send to the Senate, which is likely to pass it. The President cannot afford to be seen as neglecting the U.S. workers.
However, if the currency bill is adopted, it could risk substantial trade tension with China, trigger a trade war and result in counter-measures and protectionism worldwide – as reflected by the Smoot-Hawley Tariff Act of 1930, which turned a severe U.S. recession into a near-worldwide Great Depression.
This is just one potential scenario, but it highlights the risks and opportunities in the 2012 election and the U.S.-Chinese bilateral relations.
In the past, Washington, faced with terror, flirted with unilateral security policy, which alienated much of the world community. More recently, Washington has flirted with unilateral trade policy, which risks deteriorating the world economy when the advanced economies can least afford it.
America does not need a president who talks tough, but a president who knows that “the only thing we have to fear is fear itself.” The greatest American presidents have not just responded to change; they have sought to shape the future. In the next election, the choice is between leadership over the future – and fear over the past.
Dan Steinbock is Research Director of International Business at the India, China and America Institute (USA) and Visiting Fellow at Shanghai Institutes for International Studies (China) as well as in the EU Center (Singapore)