But what will be accomplished during the visit? Not much. Mostly atmospherics. And for that, the Stiftung believes, we should be grateful.
First, let's get rid of the litany that talking heads will say are the 'substantive' issues between the countries:
Which leaves the tectonic issues of economics and finance. Here, the U.S. lacks leverage to do more than raise the issues. The Chinese hold the cards. Hu knows that China merely has to wait until the U.S. cedes its super power status. Moreover, even if we were able to engage the Chinese, the U.S. national leadership doesn't understand economics.
Proof for that? Free Market ideologues in the U.S. continue to place all blame for economic imbalances on the Chinese undervaluation of the yuan, their currency. According to this argument, if the Chinese re-evaluated their yuan, it would raise the cost of goods imported from China and thereby lower the trade imbalance. This would revive U.S. manufacturing.
Except, unfortunately, that it won't. But because the concept is easily explained and sold as a political meme, it continues to assume front and center status in the chatter about U.S.-China relations.
Alan Greenspan has warned about the undervalued Chinese currency. Senators as diverse as Chuck Schumer, Elizabeth Dole and Lindsay Graham all blame yuan valuation for threatening U.S. manufacturing. Their solution? “Convince” the Chinese to raise the yuan's valuation against the dollar.
The Plaza Accords
Remember that the the same arguments were advanced in 1984 with respect to a surging Japan. Then as now, the claim was that the Japanese had to accept a re-evaluation of the Yen and if accepted, it would eliminate the trade imbalance. U.S. manufacuring would be revived. (This was when the U.S. actually had a manufacturing center worth protecting). The result? The 1985 Plaza Accords brokered by James Baker. The Japanese accepted the higher exchange rate — a 50 % increase of the yen.
But what happened? Instead of protecting the U.S. manufacturing base, which continued to atrophy, or reducing the trade imbalance, which continued to mushroom, the Japanese discovered the yen's appreciation turned Japan and Japanese banks instantly into the world's leading creditor, supplanting the U.S. And the Japanese used their capital leverage and technology to integrate the other economies in the ASEAN and related areas into what amounted to as an economic reconstruction of the prosperity sphere they sought to impose for military and racial reasons 40 years earlier.
If the U.S. understood economics beyond a cable shout fest sound byte, the U.S. would examine the entire matrix of policies and trends before the two countries, including education, tax, consumer consumption over investment, as well as the exchange rate. Adjusting the latter without a simultaneous adjustment of the other factors will replicate the Plaza Accords by a factor of 2. And will accelerate China's rise as the World's Banker by a decade or more. The reasons for U.S. abandonment of manufacturing are not a simple matter of exchange rates. Broader social and economic policies are involved.
There is no indication that the Administration understands the complexities of the issues before it, nor has it prepared even the faintest package of economic programs designed to address this most pressing of issues.
Quite frankly, we are lucky that nothing will happen at this meeting. The best thing for the U.S. will be muddling through until this Administration deservedly expires. This crowd has neither the economic/financial expertise nor inclination for calculated policy based on empirical facts and economics. As the staff changes indicate, the addiction to atmospherics over reality remains. As does the commitment to irrational Belief over empirical evidence, and force over dialogue.
Given the Administration's ineptitude, no deal is better than a half assed one. Two and a half years may seem like an awful long time for muddle and drift. But that is the price we pay for this team.