The U.S. 2012 election will also pave way to the most complicated international power transition in the past 140 years as the rising China may replace the United States as the leading growth engine of the world economy by 2020.
US presidential elections of 2012 will take place in the most challenging environment, which will not be immune to catastrophic crises.
In the coming months, the US economy will be close to or in recession territory. Due to the Eurozone crisis, risks are heavily tilted to the downside. Meanwhile, large emerging economies, spearheaded by China and other BRIC nations as well as the surging Asia, are driving global growth.
To make things even more complicated, the US presidential election will coincide with China’s 18th Party Congress in 2012, when current Vice President Xi Jinping will succeed President Hu Jintao, and Vice Premier Li Keqiang is expected to replace Premier Wen Jiabao.
During President Obama’s first term, the broadened U.S.–China Strategic and Economic Dialogue (S&ED) has been the administration’s primary venue for a high-level dialogue to discuss a wide range of bilateral, regional and global political, strategic, security, and economic issues between both countries.
In the long term, the 2012 election is likely to support bilateral efforts toward global rebalancing and lower bilateral trade deficit. In the short- and medium-term, the election may destabilize the precarious relationship. However, the election will also pave way to the most complicated international power transition in the past 140 years.
In the early 1870s, the United States, the largest emerging economy of its era, took over the UK, as measured by GDP. During this historical hand-off of power, the Victorian Britain had to come to terms with the relative decline of the Empire and its free-trade doctrine, even as it sought to manage America’s relative rise and its trade protectionism.
If the next president will govern two terms, he/she will likely also have to lead this unique relationship during a period, when China will take over the U.S. economy, in terms of total GDP, whereas the catch-up in terms of average prosperity will take decades longer.
What is needed is historical caution and policy skills; but what recent campaigns reflect is everything else.
In the 2008 election campaign, even leading candidates occasionally portrayed China as America’s key economic and strategic rival, even though it is Chinese growth that has sustained the world economy since the mid-2000s.
In the 2010 mid-term election, the situation deteriorated further; now China emerged as a scapegoat in campaign ads, as reported by the New York Times.
In October, the Senate began to weigh “whether to punish China for undervaluing its currency and taking away American jobs.” And in the campaign trail, from Republican Mitt Romney to President Obama, there is no doubt any longer about what is ahead: the idea is to talk loudly, swing a big stick and seize China as a scapegoat.
The problem is that no big stick will bring U.S. jobs back and, instead, this bipartisan quest for the Great Scapegoat is likely to risk a global trade war.
The Currency Bomb of 2012
In the 2012 election, the issue of China is likely to come up through the issue of currency, as a litmus test of sorts.
A few weeks ago, the Senate Democrats’ currency bill was stopped in the Republican House. Next year may witness a new bill in the House, which will be then send to the Senate, which is likely to pass it. The currency time bomb will find its way to the White House, right before the election.
On the one hand, the President cannot afford to be seen as neglecting the U.S. workers. On the other hand, if the currency bill is adopted, it could risk substantial trade tension with China, trigger a trade war and result in counter-measures and protectionism worldwide.
After all, there is a predecessor: the Smoot-Hawley Tariff Act of 1930, which turned a severe U.S. recession into a near-worldwide Great Depression.
Of course, this is just one potential scenario, but it does highlight the risks and opportunities in the 2012 election and the importance and fragility of the U.S.-Chinese bilateral relations.
The greatest American presidents have not just responded to change; they have sought to shape the future. In the next election, the choice is between leadership over the future – and fear over the past.
Abbreviated and modified from Dan Steinbock, “Once-In-A-Century Election: The US 2012 Election and China”, China & US Focus, Nov 2011.