144A Policy Paper

One of the classes I am taking during my summer in the U.S. is a Political Science class focusing on International Conflict. The class teaches different political theories/perspectives, such as Realism, Liberalism, Critical Theory, World Systems Theory, Constructivism, Feminism, and others, and applies them to the Kosovo conflict. In addition, we had to select a current world conflict and write a research paper, Op-Ed, and Policy paper. I selected the US/China debate over China’s renminbi exchange rate.

Here is the Policy Paper–the assignment was to summarize the research we had done on our conflict in about a page, then outline three possible policies to take in regards to the conflict. They had to be from three different political theory perspectives, and we had to provide a cost/benefit analysis, as well as projections of the possible outcomes of our policy. All in 3 pages double-spaced. That last requirement proved to be the biggest challenge.

Grade Received: Not yet known.

Possible Approaches to Foreign Policy Regarding China

As two of the largest world powers yet with fundamentally different ruling ideologies, US-Sino relations are complicated on several levels.  This is evident in the differences in the perception of the Sino-US relationship in America and in China. The Obama administration originally took a very conciliatory stance in regards to China, taking steps to not be overly critical of China’s monetary policy, starting the Strategic & Economic Dialogue, etc. This stance caused domestic criticism of Obama, but the gesture was intended to be acknowledged and reciprocated by the Chinese. Instead, the Chinese viewed America’s stance as to be expected. As far as the Chinese see it, America’s accommodations are in line with China’s rise as a dominant power on the world stage—to the Chinese, America should have acted the way it did, not as a courtesy, but as a legitimate reaction to China’s growing power. The most recent development regarding China’s currency exchange rate is just the latest manifestation of this relationship.

China’s ascension to the WTO has made its trade policies in theory more susceptible to international pressures. Still, Chinese response to these pressures has been decidedly slow and lackluster. In regards to the pressure put on China by America to unpeg or revalue the renminbi due to the damage that its ‘artificially’ low value has exerted on our economy, the Chinese have technically ceded to our demands by unpegging the RMB, but they have made it clear that they will not bend to international pressures regarding the value of their currency, preferring to let it float according to market values, but within strict limits placed by the People’s Bank.

Policy 1: A meager floatation of the RMB within strict limits effectively changes nothing in terms of its effect on the American trade deficit, which is not in line with how we want China to act. China continually refuses to revalue the RMB despite the negative effect it has on the American trade deficit. Chinese growth needs to be set to an international pace, and this needs to be implemented before Chinese economic and military power grows too strong to control. America can achieve this through the use of protective tariffs on Chinese exports as well as full embargoes on Chinese products, which would negate the benefit that their currency exchange rate gives them. These actions, if not forcing a complete revaluation, at least will coerce China to more freely let its currency float. As America is still China’s biggest market, this will put pressure on Chinese economic development, and thus pressure on the CCP to take American demands seriously. These measures, however, can backfire because they do not take into account China’s other world trading partners. Even losing its biggest trade partner, China still has a lot of other partners in the world to keep its economy afloat. While in the short term China would feel the pressure, increased trade with other countries will in the long run ensure China’s survival. Additionally, because China has accumulated the majority of foreign-owned US debt, they are in effect financing our world undertakings. By further penalizing China, we could be choking off the last supply of money that our government has to work with.

Policy 2: Another possible approach is to work with China through the WTO. By taking our relationship with China to the IO level, exerting subtle pressure from multiple countries through the WTO, we can use the high consequences that the WTO can inflict upon member countries who do not follow WTO policy. In this way, China in due time will have to let its currency appreciate according to market demand, and we can then focus on subtly molding our relationship with China to be beneficial to all countries. We can show them that despite the negative effects of their exchange rate on our economy, we (and the rest of the WTO countries) are able to see the long-term benefits of having a developed, powerful China in our midst, a China that will be able to work with us to further world economic development. The downside to this is the aforementioned fundamental difference between America and the Chinese; making this conciliatory approach work requires long-term cooperation on China’s part, which in no way can be guaranteed. Additionally, this approach would mean that America needs to tough out the economic burden China places on our economy for a period of time that, given our continued domestic monetary mismanagement, is possibly not sustainable.

Policy 3: Despite our two countries’ nearly four decades of relations, little real progress made towards establishing an effective working relationship. Regardless, China is still rising up. Therefore it may be time for America to rethink its place in the world. We tend to think that what is good for us must be good for the world too—this is one of the main issues that China (and the rest of the world) has with us. Instead of pointing towards China’s exchange rate as the cause for our problems, we should look to domestically fixing our budget deficit. We need to work with the Chinese like two powerful allies that can, through their differences as much as their similarities, promote cooperation and further world. We need to acknowledge that China is different and stop forcing it to be ‘American.’ Especially given that China has more sway over the nuclear problem embodied in N. Korea and Iran, taking this approach, while not immediately alleviating American economic stresses, will make it easier for us to elicit China’s help in controlling those two potentially dangerous countries. If China sees that we are not trying to impress upon it our values, it will be more willing to work with us. This rivalry is socially constructed, and thus can be de-constructed, especially if America takes the initiative in reconstructing its China policy. In such a quickly changing world, we as great powers need to be pragmatic with one another and reassess the very methods that we employ in order to deal with one another in order to ensure the future flourishing of both countries.

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