In Relations with China, Beware Economic Nationalism

[ 37 ] special roundtable • advising the new u.s. president “The new president must take the initiative on economic relations with China before economic nationalists set the agenda. He can do so by stressing to the American public that the road to recovery begins with a rebalancing of the consumption and saving patterns between the United States and China.” • In Relations with China, Beware Economic Nationalism Mark Frazier New administrations inevitably face a difficult learning curve when it comes to China policy, and this time the new president will be consumed by the global financial crisis (GFC) and a likely global recession. While there are good reasons for assuming that the GFC will compel the new administration to work closely with China and other major economies, there are also grounds for concern. The GFC is likely to intensify a relatively new and intractable problem in U.S.-China relations. Economic nationalism— the sense that foreign goods and investment do harm to one’s economy—is deepening in both the U.S. and Chinese political landscapes (and in many other parts of the world). This sentiment will intensify in the coming years as politicians mobilize disaffected citizens who have seen their incomes and livelihoods threatened by the spillover effects of the GFC. According to the 2008 Pew Global Attitudes Survey, the percentage of Americans who think that trade is good for the United States has fallen from 78% in 2002 to 53% today. In contrast, 87% of Chinese surveyed said that trade was good for their country. Americans, in this survey at least, were among the weakest supporters of trade. The new administration will face a more assertive, Democrat-controlled Congress with potentially a veto-proof majority. On Capitol Hill, China will continue to be a lightning rod for legislation on trade, investment, and other foreign economic policy measures. Chinese officials and scholars are rightly concerned about the threat of expanded protectionist sentiment in the United States, as are many other leading U.S. trade partners. In addition to fueling anxiety over trade, the GFC will also deepen Americans’ skepticism over economic engagement with China. U.S. politicians will be tempted to address the sources of the GFC by drawing mark frazier is the ConocoPhillips Professor of Chinese Politics and Associate Professor of International and Area Studies at the University of Oklahoma. He can be reached at . [ 38 ] asia policy upon the mistaken notion that “we’re in debt to the Chinese” and the more legitimate suspicion of Chinese investment bearing the stamp of government ownership, such as China’s state-managed energy and natural resource corporations and China’s sovereign wealth fund. In China, a different but no less potent economic nationalism will grow stronger as China faces inevitably slower growth and challenges posed to a successful growth model based on exports and other international linkages. Certain Chinese politicians and bureaucracies already having successfully pursued nationalist economic policies will grow emboldened as they frame the GFC as a “lesson” in the excessive liberalization of crucial sectors. While economic nationalists in the United States may never assemble a majority coalition on key legislation, their enhanced power will be sufficient to threaten the tenor and substance of economic relations between the two countries. The new president must ensure that already-simmering economic tensions between the United States and China do not trigger a conflict that would, at best, reimpose trade and investment barriers that the two sides have worked so hard to dismantle in the past two decades, and at worst, lead the world toward a reprise of the 1930s, when the major economies effectively brought about the collapse of world trade and triggered a global depression. Economic nationalism has its opponents in both countries. A majority of citizens benefit from the status quo of robust trade and other economic ties between the two countries. However, the law of weak beneficiaries is applicable here—consumers and other large groups are far less likely to mobilize politically than are concentrated groups who face economic losses from trade and foreign competition. On top of this, the latter groups also wield disproportionate influence in the political systems of both countries. The textile sector in the United...