Trade spats and the US budget deficit were centre stage as Barack Obama paid his first visit to Beijing since becoming president of the US. The meeting with his counterpart Hu Jintao was part of a longer tour of Asia, but overshadowed all his other stops, given the growing importance of the US-China relationship, which many have dubbed the ‘G2’.
What the commentators said
Obama “faces a different reality in China than either Bill Clinton or George W Bush did at the start of their presidencies”, said John Watkins in Foreign Policy. China runs a huge trade surplus, supplying the US market with goods. It then recycles the proceeds into Treasury bonds to finance the US budget deficit.
This means that “these two giants are now more dependent on each other than ever before”. But new tariffs on imported Chinese tires and steel pipes have left Beijing wondering about Obama’s commitment to free trade. Hence the tone with which the US delegation was greeted, said Andrew Peaple in The Wall Street Journal: “Welcome to China, Mr President. By the way, why is your country becoming so protectionist?”
Added to trade niggles is China’s concern about US monetary policy. Liu Mingkang, head of its banking regulator, said that the Federal Reserve’s decision to slash interest rates to zero and its commitment to hold them there for a year or more is causing “massive speculation” and risks, creating asset bubbles.
And the resulting weakness of the dollar, alongside America’s efforts to spend its way out of recession, have made China worry again about the long-term value of its huge Treasury holdings. That’s why officials “have been quizzing their US counterparts so robustly about how they intend to pay for healthcare reform”, said the FT.
Still, China is not yet in a position to tell America what to do, said John Foley and Edward Hadas on Breakingviews. com. Dumping Treasuries would cause a rout in the greenback, hurting the value of the rest of its portfolio. Meanwhile, refusing to lend the US more would threaten the trade surplus and risks destroying exports and jobs at home. “For this meeting, the relations look like a stand-off.”