SCSU Now

China and U.S. joined at the hip

Thursday, March 5, 2009

David Olson, chair of the MnSCU board of trustees, addresses a breakfast audience Feb. 27 in Atwood Memorial Center.

David Olson, chair of the MnSCU board of trustees, addresses a breakfast audience Feb. 27 in Atwood Memorial Center.

Nicholas Lardy, economist for the Peterson Institute for International Economics in Washington D.C. Wing Thye Woo, Brookings Institution economist and University of California-Davis professor. Dignitaries at the 2009 Economic Education Winter Institute David Olson, chair of the MnSCU board of trustees, addresses a breakfast audience Feb. 27 in Atwood Memorial Center. 

A leading expert on China's economy says the Asian powerhouse is in a co-dependent relationship with the United States.

"The United States is the addict. We are addicted to consumption," economist Nicholas Lardy told a Feb. 27 Ritsche Auditorium audience at the 47th Economic Education Winter Institute.

"China is the dealer. They're supplying the credit that makes it possible for us to over-consume," he said.

Lardy is a fellow at the Peterson Institute for International Economics in Washington D.C. He is a former fellow at the Brookings Institution and the former director of the Henry M.Jackson School of International Studies at the University of Washington.


China's and America's households are a study in contrast. China's citizens are among the world's top savers, while Americans are "disavers," prone to spending themselves deeper and deeper into debt, according to Lardy.

"Household debt today, in the United States, is equal to about 130 percent of our after-tax income," Lardy said.

Three decades of explosive growth has transformed China from an isolated nation with a closed economy into an economic superpower. Today the world's No. 2 exporter enjoys a $265 billion trade advantage with the U.S. and is the federal government's largest foreign creditor.

That kind of imbalanced economic relationship has the potential to spark protectionism, which is the use of tariffs and restrictive quotas to discourage imports, according to Wing Thye Woo, who shared the stage with Lardy Friday morning. Wing is a senior fellow at the Brookings Institution in Washington D.C. and a professor of economics at University of California-Davis.

"We have seen the enemy and it is us," said Wing. "Now is not the time to start a trade war."

Anti-China feelings are on the rise in wealthy countries and the global consensus that free trade is beneficial is eroding, according to Wing.

Wing disputes the notion that competition with cheap Chinese labor has depressed American wages. The real cause: Since 1990, the number of workers worldwide participating in international trade has doubled. That massive influx of labor happened when Russia, the former Eastern bloc nations, India and Brazil joined the global economy, according to Wing.

Rather than erecting barriers to Chinese imports, America should solves its healthcare problem, Wing said.

"So, in order to make sure that workers get the fruits of their labor, we have to fix the healthcare problem in the United States," Wing said. "Healthcare is absorbing too much of the earnings of workers."

Wing said the trade imbalance cannot be corrected by appreciating the Chinese currency, a solution favored by more than a few Washington politicians. If the yuan rose in value -- making Chinese imports more expensive -- the American consumer would simply buy products made elsewhere. Our national trade imbalance would still exist, he said.

Despite the dire condition of the U.S. economy, in general, and the American banking system, in particular, Wing insists that China will continue to purchase U.S. Treasury bills and that the dollar will remain the world's dominant reserve currency.

The Winter Institute, which regularly attracts 200-300 business and community leaders, is known for world-class speakers. Ben Bernanke, chairman of the Board of Governors of the United States Federal Reserve, was a Winter Institute speaker, as were the late economist Milton Friedman and former Federal Reserve chairman Alan Greenspan.

In its 47th year, the Winter Institute is managed by the Center for Economic Education, 329 Stewart Hall, St. Cloud State University.

 

- Jeff Wood

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