Can an Eagle Hug a Panda.doc

Can an Eagle Hug a Panda?Having spent a week in Asia and three intense days in China, President Barack Obama set aconstructive tone for the future. He welcomed the emergence of China as a new force in the globaleconomy and rebuffedsuggestions that its rise should be seen as a sign of American decline. Chineseofficials expressed concern about a weak dollar but committed to working with the U.S. to stabilize theglobal system. Hardly anything concrete was accomplished, but the trip cemented the centrality of the U.S.-China economic relationship and the fact that the two economies are, for now, intertwined. Nonetheless, as Obama returns to pressing domestic issues and international flash points such as Iranand Afghanistan, two awkward numbers linger in the background: 3.5 and 8.9. The first is the rate ofgrowth for the U.S. in the third quarter of 2009; the second is how fast China grew. And while GDPstatistics are a flawed indicator, the contrast between the two economies remains stark.China has been on an unconventional and unexpected journey that began after the tragedy ofTiananmen Square 20 years ago. The U.S., after half a century of global economic dominance, finds itself at a crossroads, unable to generate the growth that so many Americans expect and the services somany need, and still struggling to revitalize an economy that for so many years was the envy of the world.The U.S. has been accumulating debt and owes about $800 billion to China alone; China has beenbuilding reserves and now has in excess of $2.2 trillion. China remains a poorer country on a per capitabasis but is rapidly becoming an economic superpower. The U.S. is one of the most prosperous andstable countries in the world, but its system is showing signs of age. Both Chinese and Americans view their economic interdependence warily. Yet in many respects therelationship has been mutually beneficial and may have been the primary reason the financial crisis didnot result in aworldwide Great Depression. China was able to spend aggressively because for 20 yearsU.S. businesses had been investing in the Chinese economy, building factories, adding liquidity toChinese banks, opening stores ranging from Avon boutiques to Kentucky Fried Chicken outlets, makingcars, selling power turbines and semiconductors all of which were essential to the rapid urbanizationand modernization of China and the emergence of a vibrant middle class.Scrap Metal and Bridal GownsYou could throw a dart at a chart of S&P 500 companies and come up with a China story. Intel isspending hundreds of millions of dollars to build a gleaming new factory in the northern Chinese city ofDalian. Nikesigned up Chinese basketball wunderkind Yao Ming and then a gaggle of lite Chineseathletes to become the most popular sports brand in the country, growing 22% this year in Chinacompared with barely 2% in the U.S. FedEx invested billions in logistics in China and the Pacific Rim, notjust enabling foreign companies to function more smoothly but also exporting knowledge of modernshipping in the process. The cumulative result was a transfer of capital, yes, but more vitally ofknowledge that has been the key to Chinas success.But the benefits have flowed in both directions. Take Walmart. By some estimates, over the past severalyears, the retailer alone has accounted for 15% of U.S. imports from China, which would mean in excessof $30 billion this year. As those goods enter the port of Long Beach, Calif., they require Americanworkers to offload them, American trains and trucks to ship them and American workers to sell them.None of those facts are visible in the trade statistics, yet they are real. And take a company like SchnitzerSteel of Oregon, a once regional company that collects and sells scrap metal. Had it not been forChinese demand driving up the cost of scrap, Schnitzer would not have seen the soaring profits thatallow it to employ more than 3,000 people. Or consider the Greek-American businessman I sat next to ona long flight to Hong Kong who was able to turn his small wedding boutique into a regional chain with hisown line in department stores because of the efficiencies that flowed from making his dresses in China.Those stores employed American workers and helped women of modest means realize their weddingdreams. You could fill a years worth of magazines with similar examples.And yet its fair to say that the relationship between China and the U.S. is not something that mostChinese or Americans like. Say China to many Americans, and they will speak of cheap and potentiallydangerous products, unfair trade practices, human-rights violations and outsourcing. Mention the U.S. tomany Chinese, and they will speak of arrogance, mismanagement of the economy and hypocrisy. One ofthe most popular books in China this year is China Is Not Happy, and the source of that unhappiness isan overly dependent relationship with the U.S. The two governments share some of those anxieties.Beijing worries that the continuing struggles of the U.S. economy will impair a $338 billion market for its exports and imperil its dollar-denominated investments. China pegged its currency to the dollar years agoin order to hitch its wagon to the worlds most dynamic economy but today worries that a declining dollarwill impede Chinas growth. Many in Washington and on Wall Street believe that Chinas currency policygives it unfair advantages in trade and that its reliance on state spending rather than domesticconsumption is a core cause of the global economic crisis. (See pictures of the global financial crisis.)Chicken Parts and TiresBut the same Americans who speak darkly of the China effect routinely seek out the least expensive cellphones, televisions and clothing and demand that companies whose stocks they invest in showdouble-digit profit growth. Procter & Gamble needs the supercharged gains of its Oil of Olay brand inChina to remain compelling to investors. The Otis Elevator Co., a unit of United Technologies, makesgreat elevators, but its China thats erecting thousands of skyscrapers. And the same Chinese who snapup copies of China Is Not Happy seek business deals with American companies, crave access to U.S.intellectual property and hunger for the brand-name goods produced by American multinationals. Other than complain, theres little either can do to halt this integration. Punitive tariffs backfire. TheObama Administrations 35% tariff on imports of Chinese tires potentially hurt Goo