Monthly Archives: February 2010

The Future of U.S-China Relations

President Obama and Chinese Premier Hu Jintao

President Obama and Chinese Premier Hu Jintao

While most of the (political) world was transfixed on the spectacle of the health care summit yesterday, the U.S.-China Economic and Security Review Commission was holding hearings on the current and future status of U.S.-China relations. The hearings, which interestingly included testimony from two of my favorite bloggers, Daniel Drezner and Simon Johnson, as well as about a half-dozen other experts, provides a compelling analysis of the challenge of U.S. debt for China.

The basic issue under consideration was the degree to which China, which boasts a massive currency reserve held mostly in U.S. dollars, could leverage its fiscal resources into achievements in its other foreign policy goals. China currently holds at least $755 billion in U.S. Treasury Securities as part of its estimated $2.5 to $3 trillion in dollar-denominated assets. This massive financial reserve was garnered primarily as a result of China running massive trade surpluses with the United States. Ironically, however, those trade surpluses led to a situation of mutual dependence, in which the United States depended on China’s willingness to buy U.S. Treasury certificates and other dollar-denominated assets in order to finance its large trade deficits, which in turn allowed China to continue to increase its exports to the United States.

So what of the future? Sino-American relations have suffered some setbacks in recent months, as witnessed by the Google-China incident, the Obama administration’s decision to move forward on arms sales to Taiwan and meet with the Dalai Lama, the inability of the two countries to negotiate a meaningful outcome at the Copenhagen summit, various bilateral trade disputes, and continued and repeated rumblings in the United States regarding the perceived overvaluation of the Chinese renminbi.

In his testimony, Drezner argued that despite the widespread rumblings about the threat posed by China’s massive trade surpluses, it has generally been unable to covert its massive financial wealth into other foreign policy goals. With the notable exception of a couple of very minor cases (for example, using the promise of aid and assisting in the financing of government debt to Costa Rica in exchange for switching its diplomatic recognition from Taipei to Beijing), the Chinese government has been limited in its ability to use financial resources to achieve other foreign policy aims. The fungability [glossary] of financial power in the international arena is, in this respect, limited.

What’s more, while the Chinese government has expressed a desire to move away from the dollar as the de facto international reserve currency, the feasibility of most alternatives remains limited. China could push harder, but such a strategy would entail considerable costs for the Chinese government and economy, not the least of which includes a devaluation of its $3 trillion in dollar-denominated assets. As a result, it appears the U.S. and China remain in an uneasy situation of mutual dependency, each expressing dissatisfaction with the current political and economic arrangements, but each equally unable to move away from them.

Quick Updates

There’s a number of good posts coming from the political blogosphere over the past couple of days. The following are definately worth a read:

How to Write a Political Science Essay

Tip of the hat to Daniel Drezner, whose latest blog entry points out  Henry Farrell’s “Good Writing in Political Science” primer. It’s now required reading for all of my courses!

The IMF’s Policy Shift

IMF Board

IMF Managing Board

Last Friday, the International Monetary Fund released a staff position note  (basically, a working paper) entitled “Rethinking Macroeconomic Policy.” The impetus for the paper, writing in a surprisingly clear and jargon-free tone, seemed clear enough. In the introduction, the authors argue that macroeconomists and policymakers had been lulled into a false sense of complacency about how to conduct macroeconomic policy. The onset of the global economic crisis—or perhaps more accurately, the inability of our macroeconomic policy toolkit to address the crisis—challenged that complacency, creating the need to rethink our policies.

But the surprising part doesn’t come from the paper’s assertion that we need to think about what our post-crisis macroeconomic policy might look like. Rather, the surprising part—and the part that has generated considerable discussion in the blogosphere—are the recommendations themselves. The report recommends that central banks and the International Monetary Fund make several key changes in their policy outlook:

  1. Increasing the inflation target from 2 to 4 percent.
  2. Automatic lump sum payments should be introduced for poorer families if unemployment crosses a pre-determined threshold.
  3. Exchange rate intervention should be permitted for developing countries heavily dependent on international trade.
  4. Central banks should be granted greater regulatory authority and capacity.

These proposals represent a dramatic departure from the Washington Consensus [glossary] that dominated international economic policy since the early 1980s. Indeed, the Financial Times noted that, “The suggestion that inflation targets should be raised to 4 per cent will cause many central bankers to choke on their breakfasts, since they have spent their whole careers gaining and preserving the creditability of keeping inflation at levels close to 2 percent.”

Needless to say, the proposal has sparked considerable coverage. While Ben Bernanke still seems to be committed to keeping inflation under the 2 per cent target, Paul Krugman and James Vreeland have both already chimed in the on discussion, offering some important contributions. (Krugman importantly notes that the current financial crisis facing Greece and the other PIIGS countries has its roots in this low-inflation policy). And Joseph Stiglitz has written several books critiquing the Consensus. But the new position note comes from within the IMF, suggesting a more dramatic policy shift may be on the horizon.

So why the move? The argument presented in the position note concludes that because the inflation targets were set so low, there was no room for central banks to maneuver once the global economic downturn hit. Central banks quickly lowered interest rates, attempting to stimulate the economy. But when this did not work, monetary policy provided few good options for addressing eh economic crisis.

Inside North Korea

The Korean Border

The South Korean-North Korean Border (courtesy flikr)

I just rediscovered VBS TV, a group of investigative journalists who do some great reporting. They have a new documentary in which two of them manage to get into North Korea. Their report gives an unusual inside view of one of the world’s most reclusive regimes. After enduring days of indoctrination, scripted tours, and “unique” restaurants, in the final clip they conclude that the division between North Korea and the West is similar to the division between the West and the Soviet Union during the height of the Cold War. The challenge, they note, is that North Korea remains an authoritarian society isolated from the rest of the world. As they note in the video, “They [North Koreans] didn’t have punk. They didn’t have jazz. They didn’t have blues. There are no cultural similarities whatsoever…This is a time machine. This is 1930s Russia; 1950s Soviet Union. So they see me as the imperialist aggressor, and I see them as the land that time forgot.”

It’s an interesting notion. And it leads to some interesting conclusions. If the threat of hard power against North Korea (in the form of sanctions or the use of military force) has been unsuccessful in deterring them from pursuing nuclear weapons, is it possible that the use of soft power could be more effective? Could student and cultural exchanges bring down the North Korean regime in a way that the threat of force could not? And if so, what does this suggest about U.S. policy toward Cuba? The Cuban embargo, which has been in place since 1960, has clearly not forced Cuba’s hand. Could cultural exchanges and social pressure be more effective in promoting change in Cuba than the threat of hard power? It’s an interesting possibility.

Measuring Success at the Winter Olympics

Stephen Cobert's SI Cover

Stephen Cobert's SI Cover

With the 2010 Winter Olympics scheduled to open in Vancouver this week, the Games are in the news. In Canada, which hosts the Olympics this year, embattled Prime Minister Stephen Harper is hoping for an “Olympics bounce” to boost his sagging popularity. The broadcasting network NBC, which paid $820 million for the rights to cover the Games, is hoping to limit its losses to $200 million. And Stephen Colbert has been making waves with his sponsorship of the U.S. speed skating team, landing himself on the cover of Sports Illustrated in the process.

With the athletes descending on Vancouver in search of gold medals, national pride is often at stake. But the question of how to compare the relative performance of countries remains. Should we use total medal count? Or should only gold medals count? Should we factor in the population of the country? What about the size of its economy? Playing with the data produces fundamentally different results—an important lesson for students of global politics!

So without further a due, here are the top Winter Olympic performers (sort of):

Top Winter Olympic Performers by Total Medal Count

  1. Russia/USSR (761 medals)
  2. United States (544)
  3. Germany (533)
  4. Canada (496)
  5. Norway (428)
  6. Sweden (393)
  7. Finland (389)
  8. Switzerland (289)
  9. Austria (249)
  10. Czech Republic and Slovakia (226)

But what if we just look at gold medals? After all, that represents the pinnacle of Olympic performance.

Top Winter Olympic Performers by Gold Medal Count

  1. Russia/USSR  (388 gold medals)
  2. Canada (203)
  3. United States (156)
  4. Germany (136)
  5. Norway (134)
  6. Sweden (119)
  7. Switzerland (82)
  8. Finland (73)
  9. Austria (71)
  10. Italy (67)

So far, no real changes. Russia remains on top, the US and Canada switch places, Italy nudges the Czech Republic and Slovakia out of the top 10. But the bulk of the countries in the top ten remain the same.

But why should large and small countries be counted in the same way. Shouldn’t we expect a country with a large population (like the United Sates) to outperform smaller countries (like New Zealand), given that the United States has so much larger a pool of talent to draw upon to field its Olympic team? To get a sense of this, consider population per medal. How many people does it take to earn a medal?

Top Winter Olympic Performers by Population per Medal (2008)

  1. Liechtenstein (3,955 people per medal)
  2. Norway (11,350)
  3. Finland (13,767)
  4. Sweden (23,757)
  5. Canada (68,540)
  6. Austria (33,626)
  7. Switzerland (26,918)
  8. Czech Republic and Slovakia (70,506)
  9. Russia/USSR (186,501)
  10. The Netherlands (199,870)

Using this measure, we start to see some real changes. Russia falls from first to ninth, while the United States drops from second to 21st.  Liechtenstein (a country with a total population of about 35,000 people), rockets from 22nd place to first.

But we could also consider the countries’ relative wealth. Shouldn’t relatively wealthier countries, which can afford to subsidize their athlete’s training programs through corporate sponsorships or the construction of advanced training facilities, perform at a higher level? One way to think about this is the size of the economy relative to the number of medals. In other words, how much GDP does it take a country to get a medal? In other words, which countries are most efficient in their pursuit of Olympic medals?

Top Winter Olympic Performers by Total Medals Per $ of GDP (2008 Nominal)

  1. Liechtenstein ($554.78 GDP per medal)
  2. Finland ($698.89)
  3. Norway ($1,055.68
  4. Sweden ($1,218.73)
  5. Czech Republic and Slovakia ($1,379.46)
  6. Austria ($1,665.98)
  7. Switzerland ($1,731.00)
  8. Russia/USSR ($2,203.14)
  9. Canada ($3,023.29)
  10. Estonia ($3,872.00)

Here we see some interesting shifts as well. Liechtenstein again moves up dramatically, while the United States, with the world’s largest economy, falls to 25th, earning one medal for every $26.5 million of GDP. Now that’s some fun with data!

Solving the Somali Pirate Problem

(Courtesy French Defense Ministry)

Danuel Sekulich’s Modern Day Pirates blog had an interesting proposal for dealing with the piracy challenge in Somalia. It’s pretty simple, actually. Sekulich proposes establishing a moratorium on foreign fishing within Somalia’s exclusive economic zone. According to Sekulich, this “would allow Somali fishermen who claim to have turned to piracy because of the foreign fishers to be allowed to work in safety. And it would undermine any of the claims being put forth that Somali pirate gangs are somehow ‘defending’ their own people.”

Sekulich’s proposal is useful because it addresses the underlying reasons for piracy. Many Somalis turn to piracy out of poverty. They are former fisher people who, as a result of the dumpling of waste and overfishing off the Somali coast, have turned to piracy as a way to earn a living. United Nations backed naval patrols may increase the cost of piracy, but it will not end the practice. Only providing an alternative to piracy will. It’s a parallel situation to the challenge of the opium trade in Afghanistan. And it’s a great example of the interaction of environmental degradation and national security.