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Two Smart Guys Trying to Figure it All Out

At first it does look like a very long way down. But gravity would make a fast trip of it. All it would take is a cliff-edge miscalculation or a losing of the balance by one or the other—then there could be a huge geopolitical slip. China and the United States, the odd couple of the first half of the 21^st century, would be at the bottom of the canyon of international stability.

It was that breathtaking possibility — that arid abyss — that caught the attention of the two leaders of China and American in Beijing earlier this week.

US President Barack Hussein Obama was on the third leg of his Asia tour, after first hitting Tokyo (long-time Asian ally) and then Singapore for an international meeting.

All smiles, but little evident warmth, China President Hu Jintao greeted him for a two-day stay in Beijing.

Afterwards, many media assessments were gloomy about the summit. They said the two leaders of the world’s two giant countries were talking past one another, not looking at one another—not, in effect, communicating.

That’s hard to believe. Both Hu and Obama are smart – and they are smart to be wary. The modern-day China-US relationship is in its early chapters: Remember the international skies over the 1989 Tiananmen Square implosion? They were so ugly that they kept American Presidents away from even summiting in Beijing until Bill Clinton was able to break the ice in 1998.

And today all of the issues are quite tough. They’ve got to figure out the national mess of North Korea, which has scraped together a handful of nuclear bombs. And they’ve got to figure out the national ego of Iran, which wants to them too. Beijing itself has Muslim agitations on its western edge and a tense Tibet that somehow touches nerves and hearts all over the world. Washington has Iraq to get out of, Pakistan to get more involved in, and Afghanistan to make a major decision about. Doing the same-old-same-old hasn’t been working. But overhanging these issues is the question of the Chinese and American economies. Both have serious problems – and in many respects are quite different. Their currencies are intertwined, almost like the famous DNA double helix.

Fundamentally factors underlying the economic tensions are political. And the main one is this: Both Presidents understand their system’s vulnerabilities should unemployment continue to rise. They would be edging toward the cliff of catastrophe.

I put the matter this way to two of my very favourite international economists. I asked Professor Michael Intriligator of UCLA whether he agreed with this idea: “America doesn’t work, if people are out of work. The Chinese need to know that.” To which American Economist Mike replied: “I absolutely agree with this and the Chinese need to know it. People seem to have lost sight of the economic commitment of the US government to full employment. This is in the Full Employment Act of 1946 and it is still on the books.”

Unemployment in the US now hovers around 10 per cent. Should it rise much more, it will become the most explosive political issue on Obama’s White House desk.

True enough, but for another perspective I ran the proposition (that “America doesn’t work if people are out of work”) by Asia-based Economist Kenneth Courtis. The former Managing Director and Vice Chairman of Goldman Sachs Asia is based in Tokyo, now runs his own firm called Courtis Intergalatic, and probably deserves the distinction of predicting (better than almost anyone) Japan’s economic slide together with China’s rise.

His reaction was different than Mike’s and extremely interesting. He rewrote the proposition to take the focus off the US He came back with this: “China doesn’t work, if people are out of work.” The point these two sharp economists make is simple but vital: The key issue in the US-China economic and indeed strategic relationship is unemployment. Translated politically, it is “too many angry and frustrated people with no jobs, a lot of grudges and too much time on their hands.”

Thus, the Sino-US understanding, for the immediate future, needs to adhere to this rock-bottom principle: Neither side will do anything significant to exacerbate the unemployment problems for the other guy. Sure, this is easier to say than to do. It will mean achieving a tense trans-Pacific balancing act, trying to avoid getting too close to the edge and falling over. It will take constant communication, easing off and signing on, ignoring minor irritants. Because if the most important bilateral relationship in the world falls off the cliff, the probability is that the rest of the world goes down with it.

Syndicated Columnist, former long-time university professor and author Tom Plate is writing a trilogy of books on Asia.