Bad Analysis

Some of the reporting on US-China relations in the US media is good and some not so good.  But every now and then something comes along that is really awful.  My most recent example of the latter category is an AP story titled “Geithner Lacks Much Leverage in China Talks” (full text here (via Fox news):  http://www.foxnews.com/politics/2009/05/30/geithner-lacks-leverage-china-talks/).  Time does not permit an exhaustive presentation of all the misunderstandings offered in this piece, but I will point out a few.  I’ve got quotes from the article in bold, followed by my comments:

“…Mired in a brutal recession, the United States needs Beijing to boost its purchases of U.S. goods, let China’s currency rise and take other steps to narrow an enormous trade gap. And it needs China’s help to combat any military threat from North Korea…”  Comment:  This misses the whole point of the interdependent dynamic that exists between the US and China today.  China “needs” the US economy to recover as much (more actually) than the US “needs” China to increase imports from the US.  Even on the political front, the North Korea situation is just as much a problem for China as it is for the US.  On both the economic and political fronts we need to be working together.  Of course when you get down to specific policy approaches the issues we will have different perspectives based on each country’s concrete situation.  The challenge is to work through these differences and come up with coordinated approaches on the common problems we share.

“…The problem is Washington’s leverage has waned just as China’s power over the U.S. has grown…”  Comment:  Ugh.  This whole “leverage” myth really gets to me.  The notion of “leverage” is increasingly outmoded in an interdependent world, especially among the major countries.  And it certainly does not apply in US-China relations.  Per para. above, the goal is for two major countries to seek win-win solutions that advance both countries’ interests and address global challenges.

“…Even so, as Geithner headed Saturday to China to meet Monday and Tuesday with top Chinese officials including President Hu Jintao, he brings an ambitious U.S. goal: persuading Beijing to adopt policies that would transform its nation of savers into spenders…”  Comment:  China’s leaders recognize they need to increase domestic consumption as a main driver of their economy (and they are taking steps in that direction).  They now view this goal with increased urgency because of the global downturn in demand for their exports.  No doubt Geithner will discuss this issue with China’s leaders, but describing this as an “ambitious goal” of “persuading China’s leaders” of the wisdom of the US view sounds dramatic, but it’s just not consistent with the situation.

“…Those comments, plus remarks by the head of China’s central bank about whether the world needs a new top reserve currency to replace the dollar, jolted financial markets…”  Comment: maybe my memory is off here, but I recall those comments created a lot of discussion, but don’t remember they “jolted” financial markets, which have much bigger issues to be jolted about.

“…But the fact that the administration’s chief economic policymaker is going hat-in-hand to the Chinese to explain the soaring deficits shows how much has changed since his predecessor, Henry Paulson, met with the Chinese as the Bush administration’s treasury secretary in 2006…”  Comment:  this is really obnoxious.  No “hat in hand” here.  China and the US have a common set of problems.  China needs the US economy to recover and the US (and the world) needs China’s economy to continue to grow.  Our relations today are not the balance of power politics of 19th century Europe 

“…Back then, Paulson managed to arm-twist China into agreeing to a new round of economic talks. Those talks were aimed at prodding Beijing to move faster to let its currency, the yuan, rise in value against the dollar. Doing so would make U.S. exports cheaper for the Chinese to buy…”  Comment:  great example of a journalist creating drama from nothing.  Chinese did not need “arm-twisting” to establish the SED with Paulson.  They were happy to do it because they saw it as a useful forum for dialogue.  And the SED was not “aimed at prodding Beijing to move faster to let its currency” rise.  Paulson raised that issue (under political pressure from the Hill) but it was never a major focus of the SED.

“…But this time, Geithner is expected to adopt a softer tone on the issue, even though some U.S. lawmakers want to impose tough sanctions on countries like China that are deemed to manipulate currencies to gain trade advantages…”  Comment:  Geithner’s tone on this will be similar to Paulson’s I’ll wager.  Currency is not now and has not been a significant issue with regard to employment in the US.  The main pressure on the currency issue has come from some manufacturing groups and the Congress.  But it is more of a political than an economic issue and is treated as such in US-China interactions.

“…Though the crisis has given Geithner a weak hand, Treasury officials said he’ll push for something of a grand bargain. The United States would work to reduce its budget deficits once the crisis ends and urge U.S. consumers to save more and shrink the trade deficits that are pumping dollars into the hands of Chinese and other exporters.

But to replace diminished U.S. spending, the administration will push for the Chinese to step up their own spending and stop saving so much. The administration says this can be done if Beijing improves pensions and health insurance so Chinese households don’t feel pressured to save so much…”    Comment:  Again with the “weak hand”!  This is not an arm wrestling match.  “Grand bargain”?  Both the positions stated here (US to reduce deficits after the crisis ends and encourage savings; China increase consumption) are already the stated positions of both governments.  I’m sure each side will want to reassure the other on its goals, but our interests are aligned here already, as are our stated policies.

I think you get the idea.

The story as I see it should read something like:  “The US and China (and the world) are facing the worst economic crisis in two generations.  Both sides have made clear they understand this and are working closely together to contribute to a recovery.  Of course, there are some differences of view on specific policy prescriptions.  Also, each side wants the other to move more quickly than it is to make changes in its economy to ensure sustained global growth going forward.  But the huge changes each side needs to make will inevitably take time.  Geithner on his trip will explore all these issues and work to coordinate even more closely with China on this set of critical issues.  We can expect announcements from the trip reiterating both sides commitment to addressing the current crisis.”

I understand the imperative to make a story exciting and create dramatic tension (Geithner is going hat in hand!  Will he prevail?).  But this is important stuff and deserves more thoughtful treatment.

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One Comment on “Bad Analysis”

  1. Erin Ennis Says:

    Well said. The leverage issue in particular is on that I’m surprised so many people buy into without thinking through. Exactly where is it that China would invest other than the US that would promise a good rate of return?

    Until someone comes up with a destination that might fit the bill, one could hardly characterize China’s position as having leverage over the US — because they’ve got few options to execute if they were to opt to try to use it.

    What that leaves you with is two economies that are deeply entwined and that must work toward the successful recovery of each other’s economy to ensure their own successes.


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