Tuesday, 9 February 2010

Financial Assured Destruction

When i was growing up, we had the Mutual Assured Destruction doctrine which meant that the Soviets and Americans would effectively annihilate each other in the event of a nuclear war, therefore assuring that both kept their most potent weapons pointed at each other but safely stored in their silos. It also kept each other from dominating on the World stage.
With the demise of the Soviet Union in 1991, the threat dissolved and America went on to aggressively push its agenda across the globe for the next 15 or so years but now it finds itself being stared down by a country with a very different sort of threat.
In a relatively short space of time, China has rapidly strengthened and is becoming a serious block on American global hegemony.
China scuppered the Copenhagen climate change meeting, is refusing to even entertain Obamas lectures over their currency and has taken a firm oppositional stand against US policies on Iran. America, in return, has recently sold $6 billion worth of Patriot anti-missile systems, helicopters, mine-sweeping ships and communications equipment to Taiwan.
Starting from such a long way back, China is far behind America economically and militarily although it is gaining fast but the main hold it has over the US is the amount of US debt it holds. If it dumped the US treasury bonds and shares, China could trigger a collapse of the dollar, world markets, and cause another global recession which it showed recently, only slowed its economy as everyone else's fell through the floor.
If it did collapse the American economic system, it would harm itself as it is not strong enough yet to survive without exports to America, its top trade partner.
So the US and China find themselves in a financial case of MAD. Both with the ability to crash each others economy as China would suffer without US exports and the US is dependent upon China buying its debt.
Interesting times ahead as the US and Chinese compete and begin to knock up against each other in other realms. Americas free run as unchallenged global top dog seems to have come to an end.


Cheezy said...

You seem to be saying that, in the future, the economic relationship between the US and China will mainly be characterised by conflict.

Conflict gets all the headlines in the media, of course, and this will continue to be the case, however I think that the relationship has mainly been a complementary, mutually beneficial one of late.

Bilateral trade between the two is massive (I think they're each other's second largest trading partners) so any political development that threatened this trade would be insanity. I can't see either party risking this in the short to medium term.

Long term, of course, is more imponderable. Generally though, I'd guess that it will continue to be multi-national companies (rather than nation states) that will be the things to keep your eye on, in regards to things like 'conflict' and 'competition'.

Falling on a bruise said...

How i see it, the reationship was cordial but recently China have been shifting into a more 'superpower' status with their actions ie: Iran, Copenhagen. This will only intensify as China grows but as the US and Soviets had MAD to stop each other from blowing each other away, China and the US will have a economic flavour of this doctrine.
They will come into conflict as they compete for the dwindling resources or influence.
The US will not be able to push China too hard because it owns it debt and could collapse its economy where China needs USA as they need to export their wares to them.
Both will need to find a way dance around each other as the US and USSR did but for economic rather than military reasons. Military may well come later.