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Economics

Un « partenariat de rivalité » est-il possible entre la Chine et les Etats-Unis ?

Jul 21, 2020 Mohamed A. El-Erian

LAGUNA BEACH – Pas un jour ne semble se passer sans une autre preuve de la montée des tensions économiques entre la Chine et les États-Unis, les deux plus grandes économies du monde. Cet antagonisme croissant aura un impact immédiat plus important sur la Chine que sur les États-Unis, car le découplage bilatéral alimente un processus plus large de déglobalisation en cours. Et les retombées négatives pour un sous-ensemble d'autres pays – que j'appelle les économies à double option – pourraient être particulièrement importantes.

Même d'un point de vue purement économique, il est difficile d'envisager une réduction durable des tensions sino-américaines dans un proche avenir. Et cela sans même prendre en compte les questions de sécurité nationale, ni celles liées à la technologie et aux droits de l'homme.

Les implications économiques et financières de la COVID-19 réunissent trois segments de l'économie américaine dans le découplage par rapport à la Chine. Il est peu probable que cette dynamique s'atténue de sitôt. Au contraire, ces évolutions se renforceront mutuellement : un plus un plus un fera plus que trois dans ce contexte.

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0 Comments on this paragraph, 9 Comments on this article

Marc A. Ross Jul 24, 2020

"America First" thinking coupled with pulling back from global demands and challenges is popular with voters and popular with elected officials in DC. If elected, Team Biden will attempt to revive a multilateral approach to China, but voter sentiment is not there today.
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Peter McLoughlin Jul 23, 2020

History is clear: great power rivalry ultimately ends in conflict. The events that resulted in World War One can be traced, the retrospective course obvious. To see the future we must look at the past. The trajectory they are on, has the US and China on course for war – world war.
https://www.ghostsofhistory.wordpress.com/
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David Punabantu Jul 23, 2020

The US is an economic super power, China is no match to it if the US can just get it's act together. For starters how does the US deal with China's cheap products? The answer to this is seen in the IMF fixed cross rates system. For example the IMF fixed cross rates on the 28th of May 2020 gave the exchange rate between the two trans-Atlantic nations as US$1 equal to £1.2284. When looking at the Euro the value of the US dollar and Sterling pound in Euro respectively is €0.91027 and €1.11826 giving a IMF fixed cross rate of 1.2284 which mimics the exchange rate of the two trans-Atlantic nations of the UK and USA.
The South African Rand shows a similar picture being ZAR17.4053 per US dollar, and ZAR21.3813 per British Sterling pound giving a cross rate when the two figures are divided of 1.2284. Similarly the North Korea Won with KPW165.848 per Sterling pound against KPW135 per US dollar gives a cross rate of 1.2284. South Korea gives a similar picture. KRW1,517.51 per Sterling pound against KRW1,235.32 per US dollar when divided together gives a cross rate of 1.2284. The Japanese Yen shows the same picture with JYP132.25 per Sterling pound and JYP107.65 per US dollar when divided together gives 1.2284. The Canadian dollar also shows the same image being CAD1.69181 per Sterling pound and CAD1.37721 per US dollar that gives a cross rate of 1.2284. The Indian Rupee at INR92.4590 per Sterling pound and INR75.2657 when divided gives 1.2284 which is the exchange rate between the US and UK.
Even the Chinese Renminbi at CNY8.9449 per Sterling pound against CNY7.15910 per US dollars gives a cross rate of 1.2284. Zambia with ZMK22.1715 per Sterling pound against ZMK17.925 per US dollar gives the same picture.
The question that arises from this is does North Korea have exactly in its money markets the same US dollar and Sterling liquidity to equal the cross rates as determined by the IMF? Does Zambia, Canada, Japan, South Korea, China, India to name a few countries have everyday day in and day out the same liquidity of Sterling pounds and US dollars in their money markets to justify the value given to the IMF fixed cross rates?
That means that the true market value of the US dollar between markets is not fixed but various from one market to another. In other words just as there are cheap Chinese goods there is also a cheaper US dollar which would make US goods just as cheap as Chinese products.Consequently a multiple currency condition manifests. This is caused by the fact that in relation to trade, with in their own money markets, the demand for the Euro, the Chinese Reminbi or the South African Rand against the US dollar and the British Sterling pound and other Sino-African-American currencies gives real value exchange rates and cross rates that are outside the IMF fixed cross-rate system.
“Multiple selling rates… discriminate either to the categories of transactions for which payment is to be made (e.g. payments to the United States may be penalized by making the US dollar dear). The latter type of discrimination inevitably corresponds very closely to disorderly cross-rates.” (Tew (1967) p.81)
A uniform and non-market driven value system between national currencies has been naturally imposed by the current position of fixed cross rate values anchored to the US dollar and the Sterling pound. The consequence of this is that global trade is being undermined regardless of the level of bilateral trade and available national currencies to facilitate that trade driven by national currencies.
A case in point in this dilemma was noted by the IMF Managing Director “Mr. M. Gutt at his Harvard University address on “The Practical Problems of Exchange Rates” on the 13th February 1948, where the indirect exchange rate of the US dollar to the Sterling pound was £1 per US$2.6 as US$1 equaled 600 Lire and £1 equaled 1,560 Lire, while the direct Sterling-US dollar rate stood at £1 per US$4.” (The Practical Problems of Exchange Rates cited in Tew (1967) p.79) Here, Italian exporters were allowed to retain half their export earnings that they sold to importers, while the other half was sold to monetary authorities. In both cases the export revenue was not directly offloaded on Italy’s money markets which in turn affected the cross rate parity.
Consequently, as Italy’s money markets like many money markets in developing nations today did and do not strictly adhere to the supply and demand doctrine, Americans found it cheaper to buy goods from the UK via Italy. Italy’s restricted money market liquidities against its traded goods with specific trading partners provided certain volumes of foreign currencies which did not duplicate the fixed cross rate position found in London’s money markets. Britain objected to Italy’s position as Italy was gaining US dollars at the expense of the Sterling Area gaining those US dollar inflows. This pushed the already delicate Sterling Area’s balance of payments with the US Dollar Area into a precarious condition.
The IMF moved in to impose the fixed cross rate regime in the name of “multiple currency practices” in favour of Britain. Italy thus lost out on trade with America and Americans now had to pay more for British goods. Unfortunately the IMF move once again undermined currency cross rates in relation to existing currency liquidities within national money markets in favour of Britain.
Free floating cross rates is the key to the US economy and global trade. Consequently, “it is the fact inconvertibility that makes possible cross-rates that are out of line and disorderly. If all currencies were freely convertible, ordinary exchange arbitrage, the purchase of currency in a cheap market and its resale where it was dear would equalize quotations in all markets. Inconvertibility [however] rules out such free purchase and resale” (Ellsworth (1953) p. 779).
It is here that price determines the degree of convertibility which is fundamental to the supply and demand doctrine and the free market ideology.
The picture that emerges, for example, may see country (x) having trade surplus with country (j). This creates an exchange rate of ¥1,000 per R1 as country (j) uses her Yen to purchase Rands, country (x)’s national currency.
To this, country (j) uses the purchased Rands to buy commodity (x), against which country (x) accumulates Yen in its market as the Fund “[assists] in the establishment of a multilateral system of payments in respect of current transactions between members and in the elimination of foreign exchange restrictions which hampers the growth of world trade.” ((Articles of Agreement: Article I (iv) (2011))
Although the exchange rate in country (x) for the US dollar, based on country (x)’s market liquidity may be R8 per US dollar, in country (j) it may well be ¥200 per US dollar as country (j) trades more with country (u) than country (x).
If a citizen in country (x) wanted to import commodity (p) from the country (u) pegged at US$500, it would be cheaper to buy commodity (p) via country (j), but this would in turn affect market liquidities in both the countries (x) and (j) money markets and hence exchange rates as exchange arbitrage operations occur.
As commodity (p) is valued at US$500 in country (x) in Rand terms based on its R8 per US dollar rate it would cost R4,000, but through country (j) the cost of commodity (p) would be ¥100,000 at ¥200 per US dollar, being through country (x)’s Rand/Yen exchange rate at ¥1,000 per R1 be worth R100, which is equal in US dollars based on country’s (x) US dollar/Rand exchange rate at US$12.50.
At US$12.50 for commodity (p), country (u) would be on an equal footing to deal with another country called country (c) with its cheap exports unless country (c)’s cross-rates are lower in the countries (c)/(u)/(x) exchange rate configurations.
It would then be a question of quality and finding the best value in currency arbitrage operations.
Country (u) would still get its US$500 irrespective of the value step up or step down and the problem of external disequilibrium is addressed provided each country settled its exports in its national currencies.
What emerges from this with regards to global trade and finance and the exchange rate creates three distinct exchange operations.
The first of these observed are currency arbitrage operations until a favourable yield is achieved, against which price determines the degree of convertibility as value is mopped up. A nation would still get inflows of its national currency irrespective of the arbitrage path that is taken. Here higher returns translates into more imports for one country while being exports to another, provided commodity prices remain stable, while reducing the effects of the Triffin Dilemma.
Alternatively the high currency yields can be used to build international reserves but risks concerning the Triffin Dilemma will undoubtedly manifest including a depreciation of the reserve currency which would have a negative impact of future imports. However an appreciation would add value. It would improve the prospects of a higher yield from currency arbitrage but may negatively affect local firms if cheaper imports are to compete with similar goods manufactured locally. This represents the second element.
The third component involves using existing exchange rate parities to buy national currencies fuelled by hard commodities to stimulate foreign currency inflows, while repatriating those unwanted currencies to their country of origin. Such an act terms these money operations as exports as no goods are purchased. Instead the value of the exports is added positively to the exporting nation’s exchange rate parity. This off sets a credit squeeze being imposed on the receiving nation as a result of the second operation, or the effects of a time delay caused by the first operation. The arising exchange rate condition from these currency exports encourages the first element of currency arbitrage.
In conclusion, international payments have to be settled in the commodity’s country of origin national currency in line with the supply and demand doctrine.
The US must understand as noted by Mr Geoffrey Crowther the former editor of the Financial Times who noted in his book "An Outline of Money" that, " “if a purchaser is someone who wants D-marks in order to pay for German exports, the fact that he can get his D-marks cheap is equivalent to a reduction in the price of exports; it will stimulate sales in exactly the same way as an ordinary depreciation of the exchange rate” (Crowther (1951) p.260).
China uses cheap commodities to stimulate inflows. The US can use a cheap US dollar based on market liquidities to stimulate US commodity sales. It all boils down to national markets and basic market economics. As noted Economics 101 Supply and Demand has underlying axioms. Adam Smith's Supply and Demand doctrine talks of Country X with Commodity X with Currency X. It is the supply of Commodity X and it's demand bought by Currency X that creates a price. If Country Y wanted Commodity X then Country Y would have to change its Currency Y into Currency X to buy Commodity X. That is why a Euro cannot buy anything directly from the US until it is changed into a US dollar. A US dollar cannot buy anything from the EU until it is changed into a Euro. But for Africa, Latin America, Asia minus China and Japan the US dollar buys directly their commodities by passing national currencies and thus violating Adam Smith's market doctrine. Remember China quotes in US dollars but the final settlement price is in Chinese Yuan to the firm as a result of its foreign currency regulations. It is as Crowther put it "D marks buying German goods" and it's "Chinese Yuan buying Chinese goods" the same outlook for the US should be it buying other nation's goods in their national currency in line with market doctrine. This brings an end to the "exorbitant privileged" which now has undermined the US economy as China stimulates inflows through commodity depreciation rather than currency depreciation as taught in the west. The only counter measure is for the US to create a multi dimensional value for the US dollar and let currency arbitrage equalise quotations between markets as traders look to get the best US dollar price.
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Charlie Hardy Jul 23, 2020

Surely the loyalty of so many nations has moved closer to China and away from USA fueled by the shambles re covid in US. Some Western economists do not seem to consider effectively the 50 year goals of what looks like Confucian Communist Xi thought when assessing the Chinese view of globalisation. Covid-19 is barely a pebble on the road compared to climate change and a 'degrowth' driven moderate prosperity seems to be the only sustainable path to keeping humanity safe beyond 2100.
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j. von Hettlingen Jul 22, 2020

Mohamed A. El-Erian says the US and China, despite rising hostility, still need each other. We live in a world of interdependence, as a result of global integration, and no country can manage a global crisis alone. Before Covid-19 hit, the economic ties between the US and China had become increasingly fraught, because globalisaiton is also a double-edged sword. Economic exchange can produce welfare gains, but it has been used as a political tool when trade relationship is lopsided.
Before the 2008 financial crisis, there was little outcry about American firms locating part of their production in China. The voracious US market had absorbed imports from China and suffered huge trade deficits. Beijing had been willing to hoard dollars and US treasury securities in order to subsidise Amercans’ consumption and to keep the value of its currency, the renminbi, artificially low. Millions of Chinese tourists visit the US yearly, and Chinese students pay tens of thousands of dollars a year for tuition fees in US colleges and universities.
In recent years, an assertive China has raised the spectre of the US in decline. Americans accuse China of stealing their jobs and intellectual property. As Xi Jinping plans to realise his “Chinese Dream” and “Made in China” 2025 ambitions, he has thrown down his gauntlet to the US. The world is watching whether the two countries can escape the Thucydides Trap – an apparent tendency towards war when an emerging power threatens to displace an existing great power as the international hegemon.
With no end to tensions between the US and China in sight, the author says the “preferred destination for all” is what former Google CEO Eric Schmidt calls a “rivalry partnership” between the US and China, “whereby healthy competition does not preclude the cooperation and shared responsibility that are critical to tackling major global challenges such as climate change and pandemics. The challenge will be to avoid a damaging derailment during what is likely to be a long and bumpy journey toward this goal.”
Covid-19 has highlighted the world’s reliance on China’s global supply chains, with drug manufacturers and high-tech firms looking elsewhere for supplies. All US companies have been urged to leave China, due to the trade war between the two nations. This will likely increase the scope of America’s efforts to decouple their economies. There is also the risk that when strategic distrust precludes even the most self-evidently necessary cooperation, it will likely increase pressure on the US to ensure that continued economic disengagement does not lead to a wholesale diplomatic rupture. This requires much skills and acumen. Unfortunately Trump puts loyalty before merits, with competence and public spirit in short supply among those working for him.
Amid the flurry of decoupling, there has been conflicting rhetoric from the administration. Chinese imports of US goods are rising, investment by American companies into China continues, and markets are wary of separating the two economies. Western multinationals are not going to abandon China anytime soon. Most will instead look to move toward an “in China for China” model. The author says, “this approach will lessen these firms’ involvement in the country, increase their vulnerability, and limit their ability to inform and influence outcomes that affect them.”
No doubt a “multifaceted decoupling process” will take a toll on the US and China. Yet “its impact is likely to be asymmetrical. Specifically, China is more vulnerable, because it still needs the global economy to facilitate its impressive development process.” The country had emerged from a relatively poor, developing country to a middle-class economy. A US decoupling “threatens to complicate” its transition, “which has proved to be the trickiest stage of the development process for many other economies.”
The author points out that diminishing growth “will also make it costlier for China to sustain some of its recent international economic ventures, such as the signature Belt and Road Initiative (a massive transnational infrastructure investment program) and its large-scale lending to many developing countries. In particular, the Chinese government may find it harder to push back against the narrative that too many of these alliances are transactional and one-sided, and not strategic enough.”
The world would be better off if the US and China could find a way to accommodate each other’s concerns. Many countries, such as Australia and Singapore, want to retain the “dual-option” to maintain “strong national-security”ties with the US and “equally strong economic” ties with China. They certainly would loathe to choose sides in a lasting conflict between the world’s two largest economies.
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Justme Andmeonly Jul 22, 2020

"The main challenge will be to avoid a damaging derailment during what is likely to be a long and bumpy journey toward this destination."

I guess the slavery they've employed since the beginning is a feature, not a bug.
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Petey Bee Jul 21, 2020

"tougher US stance ... unlikely to change, regardless of the outcome of this November’s presidential and congressional elections"

That seems fairly clear. What is less clear to me is how a strategy of sharper confrontation by the US will secure a more favorable strategic position 10-15 years from now. On that timescale, the Belt-Road links will have solidified from China to Pakistan, Iran-Iraq, Myanmar, central Asia, Indonesia, Malaysia, and perhaps Turkey. China's internal market market will be the world's biggest for first world consumer goods. Africa and South America, and the Belt-Road nations, will develop as export markets for Chinese industrial goods and infrastructure.

Already, the US has lost monopoly or control over on the economic levers of natural resources, energy, and capital goods. Technological goods are the final pillar in that group, and looking to be on its way out too. Consequently, the US is in the process of losing control of finance, since there are fewer categories of world trade that require western currencies to purchase. The flip side of accelerated "decoupling" means giving up the strategic lever of global finance.

What will remain as the principal US counter-strategy, will be to individually destabilize each of the aforementioned countries - to prevent their development as markets for Chinese trade. However, each time such a destabilization is successfully carried out, other Western countries absorb collateral damage - such as the refugee crisis that rocked the EU in response to strategic interventions in Syria and Libya, or the loss of trade from Iran sanctions.

It's hard to see how this pattern can be scaled up to multiple continents and still remain sustainable for US leadership of the "West", nevermind the world.
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Robert Wolff Jul 21, 2020

The Chinese have been through incredible gyrations in the last six decades from the Worker under Mao being in the “Superior Leader Class” to being slammed by Deng Xiaoping in his move towards idealizing “The Rich” who led the nation since the late 1970’s into their current successful capitalist state.

I am not a fan of George Soros, but his philosophy of Reflexivity applies – we are changing China and China is changing US. How this relationship turns out in the future is extremely interesting, and there are many theories. China has become capitalist while remaining authoritarian, and the US is now in a political and economic upheaval over how Americans will adjust to maintain economic and humanitarian relations with China.

Hope George Soros’ philosophy of Reflexivity works out, and China and the US can get along, without giving up American freedoms.
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Paul Daley Jul 21, 2020

The problem is that the United States has just absorbed a massive shock to its self-confidence as a result of its disastrously ineffective response to the coronavirus epidemic. That response has raised questions about the competence of the USG to meet modern crises and about the capacity of the United States to compete with other nations. That experience will take some time to digest. China hasn't replaced the US as the world's hegemon, but, over the next couple of years, will have more scope than ever before to act as one.
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