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.
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
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)
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
US-China Relations TermBrief DefinitionSignificance Budget DeficitUS govt spends > earns, borrow $ to fund spending China funding up to 10% US debt…undue influence Trade ImbalanceUS buys more goods than it sells to China US pushing China to change policies to close gap TariffTax on importsUS free trade, China protectionist WTOGoverns global tradeBoth benefit from drawing China into internatl system, both critical of others practices Intellectual Property LawsProtect rights of businesses over their creations China pirates US music, film, and software products RecallRemove dangerous products from shelves Lack oversight & safety in Chinese manufacturing put Americans at risk (toys, pet food, medicines)
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.
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
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.
Activity – Understanding Perspective Watch- es/scholarsonline/erickson/ae4. php es/scholarsonline/erickson/ae4. php es/scholarsonline/erickson/ae2. php es/scholarsonline/erickson/ae2. php es/scholarsonline/erickson/ae3. php es/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?
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)