US-China Relations

1. US-China Relations

2. Objectives Review China’s economic transformation & growth. Identify & describe key issues in US-Chinese relations. Deconstruct the “currency war” Evaluate speeches to determine how perspective influences policy.

3. Warm Up How did a subprime mortgage crisis lead to a downturn in the global economy? Lending houses bundled mortgage-backed securities & lost $ with high foreclosures Credit-default swaps by AIG insurers threatened massive losses Collapse of Bear Sterns & Lehman Bros led to global market panic & credit crunch

4. Cartoon Review Economies are so interconnected that failure of bullish US economy led to a series of global events. US economy has the power to destroy the entire global economy. With collapse of US economy, China remains as leading power. Global panic when their market shows slight weakness. In the end, the US public will pay for Wall St errors in one way or another (higher taxes, or increased price consumer goods)

5. China’s Economic Rise • Mao Zedong • Command econ • Collective farming • Deng Xiaoping (1978) • Decollectivization farms • Lifted price controls • Allowed private enterprise • Opened foreign investment • Privatized industry • Socialist or free-market? • Impact Rapid Growth • Unemployment issues • Environmental impact • Pollution • Population growth • Govt corruption • Free thought • Rural-Urban divide • Rise crime • Inflation

6. US-China Relations

7. US-China Relations

8. Currency Wars • Currency Wars Explained • During recession a weak currency can stimulate econ growth • Weak currency = cheaper exports = lower prices to consumers = increased demand = more jobs = more income = economic recovery • Chinese Govt “pegs” currency– sets fixed exchange rate (rate at which bought/sold on foreign exchange markets) • Currently no demand for RNB/Yuan = weak value = cheaper goods • US Govt wants China to “float” RMB – allow rate to be determined on open market through supply & demand • Stable econ = high demand = increase value = Chinese goods more expensive = US goods more attractive on global market = smaller trade deficit.

9. Currency Wars • Currency Wars Continued • When one nation devalues its currency, other countries reciprocate to maintain competition & economic growth • Lower interest rates (US already at nearly 0%) • Buy assets from other nations (China buys our debt) • Greater demand for $ = $ value rises = local currency more competitive • Puts more Yuan in circulation = keeps value down • Increase money supply (“Quantitative Easing”) • Put more money in circulation by buying back its own bonds • Supply exceeds demand = value drops = weaker currency

10. Currency Wars • Currency Wars Continued • Problems: • Makes global market unstable • Discourage investment & trade = slows global economic growth • Increases inflation • More $ in circulation decreases value = buys less than it used to = prices of goods rise. • Decreased purchasing power, tapped out savings, no growth = recession/depression.

11. Activity – Understanding Perspective Watch- http://www.choices.edu/resources/scholarsonline/erickson/ae4.php http://www.choices.edu/resources/scholarsonline/erickson/ae2.php http://www.choices.edu/resources/scholarsonline/erickson/ae3.php In groups of 3 or 4: read the 2 speeches & answer the questions that follow. How does each side describe conflicts or areas of cooperation? What issues seem to be most important to each side? Why might the two sides convey a different tone? Is one side more right than the other? How might different perspectives & communication styles impact US-China relations?

12. Closure Can you think of other areas over which the US & China disagree? Taiwan Tibet Human Rights Military modernization (nuclear) & arms markets North Korea Role of UN Security Council (diplomatic vs. economic/military sanctions & intervention)