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Powers that need each other

January 15, 2009
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THE 30TH ANNIVERSARY of diplomatic ties between the United States and China was celebrated this month in Beijing - and at the New York Stock Exchange. Today there is no more crucial pairing of great powers. As Henry Kissinger observed at one of the celebrations, the United States and China today have "a common opportunity" to build a stable new world order "because the international economic system has to be rebuilt."

For that rebuilding to succeed, US and Chinese policies will have to harmonize.

There will continue to be causes of discord between Beijing and Washington. China's harsh suppression of Tibetans' longing for autonomy remains a justifiable source of tension, as do China's callous partnerships with murderous dictatorships in Sudan, Burma, and Zimbabwe.

But the US-China relationship is one of the few bright spots on the new administration's foreign policy dossier. The passions engendered in the past over the errant US bombing of the Chinese embassy in Belgrade or a forced landing of a US fighter jet in China have largely subsided. And it has been many years since either camp was bothered by ideological differences over socialism versus capitalism. Paying lip service to communism, China's leaders have branded their market reforms as an element of "socialism with Chinese characteristics." After the Wall Street bailout, wags in Beijing joked that the United States is evolving toward socialism with American characteristics.

If there is a saving grace in the economic crisis currently battering both economies, it may come from the same economic interdependence that worries people in both countries. Having for too long lived beyond their means, Americans have become heavily reliant on China to finance the US national debt. China's dollar holdings are close to $2 trillion. As China seeks to stimulate its own economy, it will inevitably need to spend more at home, save less, and park less of its foreign reserves in US Treasuries.

Such a change of direction could harm the US economy badly, forcing an increase in interest rates at the worst possible time. But China would be hurting itself financially if it withdrew too much of its money too fast from US holdings. The value of its remaining dollar investments would plunge, and so would US demand for Chinese products.

So the need for cooperation is mutual. Americans need to emulate the Chinese by saving more and producing useful goods instead of phantasmagorical financial derivatives. For their part, the Chinese need to save less and sell more into their domestic market. The two powers will continue to have differences. But they depend so much on each other that they have little choice but to forge a new world order together.

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