U.S. and China Should Break Mutual “Addiction”

A few days ago, South Korea’s JoongAng Ilbo newspaper published an article claiming that over the past ten years, the U.S. and China have become “addicted” to each other. They've enjoyed a very close relationship, but the Korean paper says it's time the U.S. and China break the addiction.

The original text is below:

Making a New Year’s resolution to part with a “sweet addiction” does not apply only to smokers, but also to the U.S. and China. In the past few decades, the U.S. and China have become addicted to each other. Their relationship has become very close and has even gone through a honeymoon period. Because the U.S. continues to buy lots of cheap goods “made in China,” China’s economy has maintained a double-digit growth rate.

At the same time, the massive amount of U.S. foreign currency that China earns through exporting is being reinvested in the U.S. national debt. Thanks to China, Americans can get a step ahead in buying brand-name cars and luxury houses by relying on loans. The American government and the American people do not understand the dangers of debt and continue to live the lives they want by spending other people’s money.

Harvard professor of economic history, Niall Ferguson, calls this phenomenon “Chimerica” (a new term coined from the names of China and America). He also believes that this is one of the important reasons for the economic crisis engulfing the world today. Recently, The New York Times also pointed out that the Chinese only know how to save, not how to spend. America relied on low interest rates when borrowing from China, and that brought about the American consumer craze and the real estate lending boom.

However, trying to decide whether China or America is most responsible for the addiction is absurd. Fareed Zakaria, the editor-in-chief of America’s weekly magazine Newsweek, wrote a book called The Post-American World, which compares the close, unified China-U.S. relationship to the Cold War’s “balance of terror.”

In order to destroy each other during the Cold War, America and the Soviet Union stored up substantial amounts of nuclear weapons. Both sides had enough nuclear weapons to destroy the whole world many times over, but they were only used to deter the other country from using their weapons. The U.S. and China’s economic “balance of terror” is similar, and the peace and prosperity brought about by the “Chimerica” phenomenon is just a non-existent fantasy.

The U.S. and China need to break this addiction and bring back healthy bilateral relations even if the process is painful. Experts say that America should become more competitive with its exports and improve the current trade deficit. China, in turn, should expand its domestic demand and use it to prevent the economic stagnation brought about by the decrease in exports. Although the process will not be easy, it is the right medicine to save the two countries’ economies.