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Couple’s Counseling for the US and China

BEIJING – China has undoubtedly benefited from the world system created and supported by the United States. Indeed, Richard Nixon’s journey to China in 1972 opened the door for China’s return to the international community.

Most of the next two decades were a honeymoon for Sino-American relations. On the economic front, the US not only granted China most-favored-nation trade status, but also tolerated China’s mercantilist approach to international trade and finance, notably its dual-track exchange-rate regime. In the 1990’s, bilateral economic ties continued to expand. American support for China’s integration into the world system culminated with the country’s accession to the World Trade Organization in 2001. Since then, China’s exports have grown five-fold.

Of course, China’s inadequate intellectual-property protection has damaged relations (a shortcoming that may be harming Chinese firms more than US firms by deterring American – and other advanced country – companies from deploying new technologies in China). And the role of China’s state-owned enterprises and official Chinese support for technological “national champions” (privileged companies that almost certainly use government money carelessly) has also hurt relations.

In fact, China’s approach is akin to gambling against the odds. Successful hi-tech innovations are random events that follow the law of large numbers. When left to the market, many firms and individuals try to innovate, so the overall probability of success can increase dramatically. The market allows the law of large numbers to work, whereas concentrated government support for a few favored firms undermines it.