The great illusion

George Bush meets Hu Jintao (source White House)

Chinese president Hu Jintao will visit the United States this week, to meet George W Bush. What will they find to talk about?

President Bush, after all, is a self-styled defender of freedom; President Hu on the other hand leads a country that censors searches on Google and even text messages sent through Skype. China continues to lock up political prisoners without access to legal advice or representation; it continues to occupy Tibet; it maintains a military threat against Taiwan, an offshore island.

(Actually, you might start to have few ideas about what the two might be able to talk about, but that’s not the point of this blog. In any case, there is no comparison between the human rights records of China and the United States, as the authors of the Euston manifesto have made so clear.)

Think back to April 2001 when the American spy plane crash-landed in Hainan after colliding with a Chinese fighter plane. Tensions rose between the two countries, although they were high even beforehand as the Americans saw a resurgent China as a future strategic threat. It was the intervention of Osama Bin Laden, Mullah Omar and, eventually, Saddam Hussein that took the US-China relationship off the headlines, but it is bound to come back.

Given their different value systems and the tensions that we know lie only a little below the surface, what will the American and Chinese leaders talk about? I think it’s the economics, stupid.

A look at the mathematics shows how closely intertwined are the US and Chinese economies. America is currently running an annual trade deficit of nearly $800 billion, of which trade with China accounts for about a quarter, and which is funded by extensive borrowing from abroad (including from China). The latest figure for foreign exchange reserves suggests that China currently has more than $800 billion, much of it in dollars.

China needs America to continue to import its manufacturing output if it is to maintain its own rapid growth rate. The Americans, on the other hand, depend on cheap Chinese manufactures in order to maintain living standards in the face of falling real wage levels for much of the population. Even if they don’t like each other’s politics, they are condemned to be economic partners. There is too much at stake to allow the relationship to go sour.

Norman Angell’s classic work, “The Great Illusion”, described a similar situation 100 years ago. At the time, Britain was the long-established power and Germany was the rising challenger, but unlike the present day Britain was a net exporter of capital rather than a net importer like the US today. However, the effect of financial interdependence was the same. Norman Angell wrote his book in order to take on those, on both sides of the North Sea, who were demanding an arms race in order to protect trade or advance the national interest. He pointed out that the Germans owed so much money to the British that war between the two would be financially catastrophic for both. The idea that one country might, in victory, seize the other’s gold reserves or impose massive reparations payments (as Germany had done to France in 1871) was hopelessly insufficient to cover the wider economic consequences of war, not to mention the costs of the armaments themselves, nor even the casualties that would also result.

His book was often taken to argue that war between capitalist powers in the age of globalisation (and in 1909, by many measures, the world was more globalised than it is today) was impossible. He denied that this was his argument: war was perfectly possible, but it was mistaken. It would not achieve its aims. That it might was, he said, an illusion, the great illusion of the title.

His arguments turned out to be correct. War was possible, as 1914 proved, but it was also ruinously counter-productive, as the following 25 years proved. The British economy was devastated by the war, even if the empire just about survived: not only the German economy but the German state was smashed by its defeat, not to mention the consequences for Russia. The weakness of the post-war European economy then provided a fertile ground for the rise of fascism and a second, even more destructive conflict. The cycle was only brought to an end by Marshall Aid in the west and communism in the east (although the appalling negation of human rights that accompanied the latter means it was hardly any comfort).

In our own time, we can see very clearly the inordinate cost of war. There were suggestions floated, before the invasion of Iraq, that Iraqi oil revenues might be sufficient to cover the cost of an occupying force. Such an idea has turned out to be completely hollow (aside from the question of why Iraqi oil revenues should be spent on foreign soldiers rather than on the Iraqi people). War is an extremely expensive business: the peaceful resolution of disputes makes so much more sense.

While the US-China relationship is not so bad as to provoke any immediate worries, the rhetoric surrounding Taiwan (which America is pledged to defend against Chinese demands for reunification) and some of the wilder theories of international relations give one pause for thought. Things will work out so much better if America and China can find a way to be constructive partners, rather than rivals or even adversaries. Iraq has taken this question off the headlines, but it is nevertheless one of the most important issues in international politics today.

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