Abstract: China has become the world’s second largest economy, the main driver of global growth and an increasingly assertive economic power. The U.S. is by far the world’s largest economy and one of the richest. Even as their GDP levels gradually converge, a huge gulf remains between China and the U.S. in terms of their per capita incomes and their levels of institutional and financial development. Nevertheless, China has used its growing economic might to gain enormous strategic advantage in a number of areas. It successfully seized the high ground in the debate on global imbalances by accusing the U.S. of taking irresponsible monetary policy actions that hurt other countries; this argument has resonated with many emerging markets that are bearing the brunt of capital flows fueled by cheap money in the U.S. and other advanced economies. China has also used its economic leverage to build partnerships with a number of advanced and emerging market economies that back China’s policies as they see its strong growth as important for their own success. These developments have been aided by the defensive position that the U.S. has found itself in—as the epicenter of the global financial crisis and as a country with massive rising levels of public debt. The U.S. is also viewed as getting a free pass on its fiscal profligacy and excess consumption as it is the issuer of the main global reserve currency, a tenuous situation that persists perhaps only for want of alternative robust reserve currencies backed up by deep and liquid financial markets. From the U.S. perspective, a number of irritants continue to plague its bilateral relationship with China. Chinese currency policy, which involves the central bank’s heavy intervention in the foreign exchange market to prevent the renmimbi from appreciating against the dollar and other currencies, has been blamed for making a major contribution to the U.S. trade deficit and to global current account imbalances. The U.S. has
Publication Year: 2011
Publication Date: 2011-01-01
Language: en
Type: article
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