After almost two years of playing "rope-a-dope" with China (and just ahead of the US midterm elections), the Obama administration has come out swinging, wildly. International business people are going to have to learn to manage in a much less stable environment – but that might not be bad for everyone. Those of you who missed the brass ring on the way up may be getting another shot on the way down.
It isn’t all that hard to sum up the current state of US-China relations.
• US is right, but for all the wrong reasons.
China is pragmatic – and like most pragmatists, it pursued certain short-term gains while putting itself at risk of significant losses in the long term. China maintained a mercantile, beggar-thy-neighbor approach to international trade well beyond the point where its economy needed or even benefited from such a one-sided policy. But to give credit where credit is due, China’s über-pragmatism paid off extremely well – and its citizenry has benefited tremendously.
The US had been idealistic, and like most ideologues, it made short-term sacrifices while pursuing potential long-term gains. The US played by one set of rules while knowingly allowing China to bend or even break those rules because Washington policy makers viewed the long-term potential of a market-oriented China as worth the cost. And to give credit where credit is due, both the US and China benefited tremendously. Not only has the US enjoyed access to cheap Chinese manufacturing and production, but the relative lack of genuine hostility from the Far East allowed Washington to focus its limited attention and considerable strength on other areas of the globe.
So it’s come to this.
Now the time for the Great Reckoning has come, and we will ALL be paying for the weakness and excesses of our recent past.
The Obama administration is looking over its shoulder and seeing the Tea Party people gaining. These are extremists, and like most fanatics they will ultimately destroy themselves – probably sooner than later. If, however, you are effete, wounded and panicky (i.e. the US Treasury), holding your ground until the storm passes just is not in your DNA. That’s why Geithner is giving in to base protectionism (i.e. Senator Chuck Schumer) at precisely the worst moment.
Had Geithner made a heroic stand when things were at their lowest, he might have carried the dangerous air of someone with nothing to lose. Had he waited for a substantial recovery, he might have looked strong. Now, however, he just looks like the timid skinny kid shoved into the fight circle by a jeering gang that knows he doesn’t stand a chance.
Over in Beijing, the Party boys are realizing that, however poorly the US might do in a trade war, the Chinese side has much more to lose – and a tougher job of winning convincingly. Wen Jiabao and the crew had so much fun working out on Team Obama that they were late figuring out just how unattractive and limited their options truly were. CCP paranoia is not completely groundless – Gordon Chang’s vision of Middle-Kingdom apocalypse was never completely dismissed in Beijing. It is true that Chinese society can live through anything, but the Party’s legitimacy is tightly linked to a rising GDP. China’s elite understand that if the peasant masses get hungry, angry and hopeless it will not help to tell them that the running dogs in America are even worse off. The West booms and busts, but China 2.0 hasn’t moved in any direction but up. A puffed-up Obama administration being prodded along by Tea Partiers is bad for China Inc., but a Palin/Gingrich administration would be disastrous.
Obama’s firm, public warnings and China’s small, measured currency adjustments will not extinguish the flames of trade war – they just fan them back into the cracks and corners. International compromise, while sensible to many, is domestic suicide. Both systems are maneuvering for a political readjustment and power is rarely reached via the high road. The long-term unemployed in the US and the territorial integrity of the PRC are at stake, and the one thing both Americans and Chinese agree on is that "it’s the other guy’s fault."
So what about you?
So where does that put the innocent, agnostic dealmaker who just wants to be left alone to make a small fortune? Ignoring and downplaying growing US-China trade tension is starting to look downright ridiculous. Instead, consider going the other way and positioning your deal as one of the remaining lifeboats on the Titanic. “This may not be the deal you want, but it just may the best deal you are going to see for a long, long time.”
Some other ideas for international dealmakers in tough times:
• An interesting trend will be facilitating Chinese Western-inbound investment. Americans always scorned match-made Chinese JV partners – but now the shotgun may be in the other guy’s back. Anyone with good local connections IN AMERICA may find that you are speaking in a language the Chinese suddenly understand. (Yes – you can be the "house waiguoren.")
• Go against the crowd. One of the few good things about trade friction is that it makes "just showing up" a qualification again. The first decade of the 21st century was all about the China Miracle headline and the Shanghai skyscraper Newsweek cover. “Look Marge – those Chinese know how to drink Coca-Cola too, just like us!” Well, if Palin starts testing the Presidential waters, you will hear a different kind of China story. Glenn Beck’s flowcharts will prove that every Chinese is a millionaire who wants to eat your child – and Xinhua surveys reveal that KFC additives intentionally lower gaokao scores. Suddenly the guy who is ready, willing and able to go cross-cultural will be able to command a premium again.