U.S.-China Relations and the Global Economic Crisis

President Obama called Chinese President Hu on Friday to discuss the trade imbalance and ways to build "a more positive and constructive relationship". President Hu Expressed a desire to strengthen cooperation between China and the US while emphasizing that the interest of each country should be respected by the other. 

China recently surpassed Japan to become the US government's largest creditor and the U.S. trade deficit with China is the largest ever recorded with a single country. For now China continues to help finance the US budget deficit by buying treasuries and government securities. However, they may be considering slowing this practice due to their own economic slowdown and irritation over criticism of China's currency policies by Vice President Joe Biden and Treasury Secretary Timothy Geither. Geither has accused China of manipulating it's currency and Biden told CNBC that the Obama administration would "say to China - which occasionally the last administration was reluctant to do - 'your a major player on the world scene economically, and you've got to play by the rules that everybody else plays by.”’ Biden also stated that China as well as other counties are focused on their own economy and are taking action to protect themselves. 

China has already begun cutting back their holdings in Fannie Mae and Freddie Mac as well as establishing their own $586 billion stimulus plan to build railroads bridges and dams. Germany has also approved a €50 billion stimulus package in an effort to combat the current economic downturn. As the world's largest export driven economies China and Germany have agreed to support each other in their economic stimulus plans as well as to strengthen dialogue on economic, trade, and currency policies in an effort to stabilize the global economy. Chinese Premier Wen Jiabao said “We can overcome the crisis together,” and German Chancellor Angela said, “Our opportunity lies in open markets,” And warned against turning to protectionist policies. 

The controversial "Buy American" provision in the President's new stimulus package is also causing concern. The provision is intended to stimulate manufacturing jobs in the U.S. by requiring government contractors to use equipment and materials "Made in America". 

Supporters of "Buy American" provision argue that it is the only way to insure that we create jobs and stimulate the economy at home as opposed to exporting those jobs. One example of the desire for this type of act is all to obvious in a car commercial currently running in Richmond, VA. Two competing dealers have joined together in the commercial. The opening is what would be expected from any commercial however the closing line says it all. Dealer A says (referring to dealer B) if you don’t want to buy from me then buy from him, the important part is to “Buy America”. 

Those who appose the provision, including some of the biggest American manufacturers, fear retaliation from counties that currently buy their products. They have compared it to a declaration of war on free trade. Opponents go on to argue that it would violate existing trade agreements as well as sending a protectionist message to the world. 

According to the China daily China acknowledges the US effort to stabilize the financial market and stimulate the economy. They go on to say that China will join hands with the United States at the April GE 20 summit to promote a healthy and stable economy. 

With over 100,000 jobs lost in the US last week alone, Iceland's government becoming the first to fall due global economic crisis, and the effect of the economy being felt worldwide it is clear the nation's will need to work together to overcome the problem. This could include a great deal of fancy footwork on the tightrope of protectionism and free trade.