Question One: How the US should deal with China
In the course we had discussed a number of readings that suggest that the US should deal with the rise of China by employing balance-of-power tactics. Other readings argue that the US can manage its relations with China more optimally by making China an equal co-partner in international institutions. I agree with the first perspective which states that the US should deal with the rise of China by employing balance-of-power tactics. The optimal option which aims at making these two countries equal co-partners in international institutions would not work and if attempted would be likely to fail shortly after it starts. This essay aims at first laying out the history of these two countries, why the US should apply balance-of-power tactics and why the other option of making China a co-partner in international institutions would not work.
The US and China have always had a relationship that is a bit strained due to their history. This stems from the world war era. Although various steps have been taken by the international community to ensure harmony and international cooperation there has been a lot of tension in the world. The tension has been mostly between the East and the West and particularly China. The tension is mainly due to the rate at which China is rising economically and these could potentially hurt the position the US has held in the international affairs. Since the tension has been high and the competition between these two countries is likely to intensify over time, urgent steps need to be taken by the US so that it protects its interests and maintain the position and role it has always played in international affairs.
The balance-of-power tactics is the best strategy when dealing with China. This is because China is not willing to cooperate with the US. Although a number of gestures have been shown by the former to demonstrate that they are friends of the US and that they would like to cooperate with the latter their policies and economic strategies suggests that they would like to oust the US out of the position it plays in the international affairs. One of the gestures demonstrated by China was seen in 2008 when the Chinese government spent 2 million dollars in the US for Chinese festival. For China the ultimate goal is to ensure that there is an economy without the West and particularly the US. The US cannot therefore try to cooperate and make a country an equal partner while the country is aiming at displacing them and taking over their position. The BRIC economy for example which is the collaboration among Brazil, Russia, India and China is very dangerous for the future of the US hence steps need to be taken to ensure that there is a balance of power.
Another reason why the US should employ the balance-of-power tactics is because this tactic has worked in the past making the US the world power. China and the US are very different. One country is a communist country while the other is a capitalist country. The dynamics of these two countries are different hence trying to make them co-partners is a strategy that would likely fail. The strategy of China is to take over and not share economic power with the US hence the US also has to be hostile when it comes to its dealing with China.
In conclusion, the cooperation between the US and China could result in a huge profit and benefit for both countries but the opportunity costs for conflicts would be too high to bear hence the best strategy when dealing with China is the balance-of-power tactics.
Question Two: Comparison between the Dollar and the Euro
Some analysts have suggested that despite the existing economic problems in Western Europe, the Euro may eventually replace the US dollar as the central reserve currency in the world. Some scholars like Ben Cohen argue that this claim is fallacious and the euro would not challenge nor take the position of the dollar now or even in the long run. I agree with Cohen’s claim that the euro would not displace the dollar. In his article he brought out four major reasons why the euro would not replace the dollar and I agree fully with the points he brought forth.
First of all the euro came about because the European countries thought that they contributed to the economy and trade just as the US hence there was no reason that the US currency would be stronger than the currencies of the European countries. The euro would not replace the dollar first because of the persistent inertia characteristic of all monetary behavior, which can be expected to inhibit any rapid market switch from the dollar to the euro. For the dollar to have its position in the market, it took a very long time hence for the dollar to be replaced by the euro it would equally take a very long time and alot of lobbying has to be done by the European countries. This therefore means that it usually takes an extremely long time for a currency to establish itself and it would take an equally long time for that currency to be replaced. The dollar has received alot of trust from the global users. This would makes it difficult for the euro to replace it because the dollar has established itself as a major currency in the market. The euro has been successful over the years although it has equally faced a couple of challenges. It would be the second major currency in the world but may not replace the dollar at the top.
Another reason why the euro would not replace the dollar is because the cost of doing business in Euros is unlikely to decrease as opposed to the cost of doing business with the dollar. The European countries are facing an economic crisis especially in Western Europe hence the stability of the euro is not assured. This means that the cost of doing business would not decrease, rather it would increase because of the hard economic times in Europe. For the euro to replace the dollar, the cost of doing business with the former has to decrease significantly and be lesser than the cost of transacting with the dollar. The dollar has gained stability over the years and hence the cost of doing business with it is relatively lower as opposed to most currencies. Since the euro is a currency that is used by many countries, it is less stable because it is affected by the economies of these different countries.
There is a serious anti-growth bias that has been built into the institutional structure of the European Monetary Union. This has made many international investors prefer the dollar to the euro hence the euro would not be replacing the dollar anytime soon. The store of value function has to be present and it is not only the purchasing power that has to be positive but also the future rates of return have to be considered. If there is no radical political change the investors have a high probability of having disappointing rates of return in the future hence most international investors would prefer the dollar to the Euro.
Lastly, the euro would not replace the dollar because of the confusion as to who governs the European Monetary Union. The European Central Bank executive board is composed of the president and other political figures. This governing council is bloated because it has to have representatives from all the countries and hence the decision making is difficult because of the many people that are involved. Another issue in the governance relates to determining the exchange rate policy which has been very difficult. It is also difficult to determine who is to represent the interests of all the countries in the external monetary affairs.
All these issues facing the euro show that it still has a long way to go. When many countries come together to have a common currency, it is anticipated that there would be complications since the interests of all the countries have to be considered. This further shows that the euro would not replace the dollar in the market anytime soon.
Question Three: Manipulation of the Economy by the Chinese Government
In the foreign policy section of the 2012 presidential debate, the Republican presidential candidate—Mitt Romney—bluntly accused the Chinese of manipulating their currency to ensure that China’s exports to the US surpasses the volume of American exports to China. This view was also echoed by Niall Fergusson (Professor at Harvard University) in the documentary “The China Question”. I agree that the Chinese government manipulates its currency to keep the prices of its exports to the US and other countries artificially low. The Chinese government has always been aggressive when it comes to their quest to take over the economic market. Studies that have been conducted show that one of the reasons the Chinese economy has gotten a major boost is because of the manipulation of their currency and the lack of following the rules by the Chinese government when it comes to business. This has led to the Chinese being able to have a lot of exports over the years. The Chinese government has no regard for the international trade practices that have been laid down and this is very worrying since other countries cannot compete fairly with the manipulated currency.
In my view the consequence of the Sino-US trade imbalance to the US economy would be the US losing its position in the international market and hence not being able to compete with other stakeholders. The imbalance would lead to the US getting fewer funds from its exports and even its local products having low sales; this because of the low prices of the Chinese products whereby people prefer to get the Chinese products. The ultimate result would be a major economic crisis in the US because of the invasion of the US markets by Chinese products.
How the US should deal with the Chinese currency manipulation has always been a controversial issue. People have different views on how the US should deal with the manipulation. The two divergent approaches are the neorealist versus neoliberal institutionalism debate on dealing with China. In my opinion the US should take the neorealist approach when dealing with China because the latter has not given the US a fair ground when dealing with them. China has consistently looked at a world without the West strategy hence the US has to take drastic measures so as to deal with the China threat. In business both parties should act in good faith when dealing with the other. China has not acted in good faith in its business endeavors. There are many instances where China has failed to meet the international standards of trade. The manipulation of the currency should be the last straw for the US. If radical measures are not taken, the US economy would be damaged for good.
In conclusion, my opinion is that, China has manipulated its currency and is not providing a fair ground for other countries to compete. The result of this imbalance would be the US losing its position in the market and China getting huge economic benefits. To avoid this, the US has to take radical measures to deal with this unfair competition created by the Chinese government. This, however, should not disrupt world peace because already there is a lot of tension between some of the countries. Some economists and political scientists have argued that economic war is very dangerous and conflicts brought about due to economic rivalry may be worse than the results of armed conflict. Some international organizations therefore have a huge rule to play in ensuring that there are fair trading grounds for all countries. In overall, it is essential to appreciate the stakes for both countries even as both nations compete for the control of international affairs in efforts to retain their own national interests which are of a competitive nature.
