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Originally published Saturday, March 27, 2010 at 10:02 PM

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Sound Economy

China remains largest threat to world stability

Amid all the dark clouds of the Great Recession, the biggest threat to world stability isn't hard to spot: China. We just don't want to talk about it.

Special to The Seattle Times

Amid all the dark clouds of the Great Recession, the biggest threat to world stability isn't hard to spot: China. We just don't want to talk about it.

The reasons for the emerging risk go far beyond China's size and the speed at which it is becoming the world's second-largest economy. They are touched on, but hardly encompassed by, the fight between Google and the Chinese government over censorship, which caused Google to shut down its mainland Web site this past week and shift it to Hong Kong.

To put it simply: With an already unsustainable level of trade imbalances, how does America do business with a rising giant determined to play by its own rules?

This is no small matter for the Pacific Northwest. China is the largest merchandise trade partner for Washington and Oregon. Washington ranked No. 2 nationally (behind California) with $9 billion in exports to China last year. Add in imports and $18.6 billion in commerce flowed between the Port of Seattle alone and China. China represents a critical market for such companies as Boeing and Microsoft.

Washington is a special case — so far — a state that appears to be a net winner in U.S.-China trade.

Nationally, the $419 billion current account trade deficit with China manifests itself in millions of lost jobs in manufacturing, textiles, apparels and other industries, and devastated regions.

China also holds $1.4 trillion in U.S. debt and vast reserves of dollars. The potential that China could stop buying Treasurys or dump dollars constrains U.S. foreign policy and worries the financial markets.

Most of this imbalance is not the result of American profligacy. China manipulates trade rules to its advantage, often engaging in naked protectionism at the expense of U.S. exports. It refuses it allow its currency to float, thus keeping its imports cheap.

But even these economic issues don't get at the heart of the matter. Consider a case last week that was largely overshadowed by Google.

Four executives of the British-Australian mining firm Rio Tinto pleaded guilty to accepting bribes and stealing Chinese trade secrets. They could face 10 years in prison. But the trial is closed, so it's unclear from whom the bribes came or what secrets were involved. The employees were originally charged with espionage.

As usual, there's a back story: China was angry with Rio Tinto, one of its largest iron-ore suppliers, for canceling a deal with a state-owned company. Beijing also has been unhappy with the supposedly excessive profits Rio Tinto has made from China. Rio Tinto got the message. Earlier this month it signed a $1.35 billion deal with a Chinese aluminum company and its chief executive has been conciliatory.

Indeed, most Western executives would probably like to look past the authoritarian government and just make profits. They see the world's largest market, an inexpensive work force and a nation of talent that can staff research operations. I suspect some see their American-based companies largely moving to China in a generation, if not sooner.


For the winning companies, intimidation, censorship, cyberattacks and lack of intellectual-property protections are distractions. The leaders of these companies believe they can use and outsmart China, though the long arc of history suggests otherwise.

But is the imbalance over values any more sustainable than those involving trade and debt?

China is a vibrant capitalist economy, but also a police state. It allows one political party, the ruling communists. The legal system is neither transparent nor independent of the party. Freedom of speech, freedom of the press, assembly and religion all are tightly controlled. Dissidents are routinely imprisoned. Independent unions are outlawed.

All this is at odds with societies in the United States and the European Union. Ultimately, as the Google case shows, it may not be possible to disentangle such fundamental clashing values from business.

Of course, the United States and China desperately need each other. China's big holdings of American debt and its dependence on the American shopper are weaknesses as well as strengths. But the size of the imbalances, the lack of fair play in trade and the values gap make the partnership unstable.

Just like their Western executive counterparts, Beijing party bosses may be waiting for all this to pass: For America to continue its financial follies, bleed itself in foreign wars and peacefully accept its decline, as the Communist Party clings to power and finds a way to address the poverty and pollution that are China's internal dangers.

That may be equally naive. China and the United States will be competitors and potentially adversaries not just over Taiwan, but for diminishing supplies of oil and raw materials.

And with real unemployment hovering near 17 percent nationally, these imbalances — cloaked during the bubble — could become potent political and social kindling in America.

You may reach Jon Talton at

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Jon Talton comments on economic trends and turning points, putting them into context with people, place and the environment in the Pacific Northwest



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