Nuclear Security Summit May Bring U.S., China Closer

After months of frosty dealings between the U.S. and Chinese governments, the two countries' presidents plan to meet in Washington, D.C., on the sidelines of a nuclear security summit. There are signs that both sides may make concessions on the Iranian nuclear issue and trade and currency policies.

China's explanation for the chill in recent relations is that by meeting with Tibetan religious leader the Dalai Lama and selling arms to Taiwan, President Obama and his administration have trampled on China's core national interests, a term Chinese officials have been using a lot these days to denote issues they see as nonnegotiable.

But Vice Foreign Minister Cui Tiankai told reporters this week that the two presidents addressed this issue in a phone call on April 2.

"The two leaders reached a new and important consensus on U.S.-China relations and other matters of common concern," Cui said. "They agreed to respect each other's core interests, appropriately handle disputes and sensitive issues and increase dialogue and cooperation in all areas."

China's strongest response to the arms sales was to threaten unprecedented sanctions against Boeing, Raytheon and other companies involved in the sales.

Some experts believe that for now, Beijing may hold off on sanctions.

"This time we've just put out a warning," said Li Hong, secretary general of the China Arms Control and Disarmament Association, a think tank under the Foreign Ministry. "These companies should consider the results of their actions. If these companies aren't actually blacklisted, it's because China has made a concession in the interest of friendly ties and trade relations with the U.S."

Li said President Hu's attendance at next week's nuclear security summit is an important political gesture and a sign of reviving ties with the U.S. It would look odd if China did not send a senior official to the summit, given China's status as a declared nuclear power and its key role in the North Korean and Iranian nuclear issues.

The newly released U.S. Nuclear Posture Review calls for stable strategic ties with China. Li said Chinese experts are pleased with that, but they think the U.S. should have gone further and renounced nuclear-first strikes against all countries, not just non-nuclear ones. China declared an unconditional no-first-use policy after detonating its first nuclear weapon in 1964.

"China is not among the countries the U.S. has said it will not attack," Li noted. "It is a nuclear power, and therefore it still faces some threat from the U.S. So I don't think there has been any change in the basic content of U.S.'s nuclear posture."

China also recently signaled that it may not block U.N. sanctions targeted at Iran's nuclear weapons programs. The Foreign Ministry denied that there was any trade-off, playing along on Iran in exchange for the U.S. Treasury Department's postponement of a report to Congress that could have labeled China a "currency manipulator."

Washington was apparently trying to give Beijing time to decide to let its currency, the yuan, or renminbi, strengthen against the dollar. Beijing recently hinted that it may allow a modest appreciation.

Presidents Hu and Obama are expected to raise the issue next week, and currency and trade will figure prominently in cabinet-level talks between the two countries in Beijing next month.

But Carnegie Endowment for International Peace economist Michael Pettis argues that right now, both the U.S. and Chinese governments are more concerned with boosting GDP growth and employment.

"If you want to increase employment," Pettis says, "you should do what China's been doing in the past two years: reduce the appreciation of the currency, reduce real interest rates and significantly expand credit. The problem is that all of those things make the imbalance worse in the long term. So the debate in China is short term vs. long term."

Fixing the trade imbalance, Pettis says, will require more than currency adjustments. It will require the U.S. and China to change the engines that drive their economies. For the U.S., that's consumption; for China, production. But these are likely to be painful adjustments for both sides to make.

"What China wants to do is increase the consumption share of GDP without penalizing producers," Pettis says, "and the Americans want to increase savings without penalizing consumers. And both of these are quite hard to do."

Pettis argues that any easing of U.S. and China trade tensions is bound to be temporary. That's because no country finds big trade deficits and high unemployment politically acceptable. And right now, the U.S. has both.

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