Title: The U.S.-China Economic Relationship: Separating Facts from Myths | Council on Foreign Relations
Headings: The U.S.-China Economic Relationship: Separating Facts from Myths
The U.S.-China Economic Relationship: Separating Facts from Myths
Myth No. 1: Washington has limited leverage because China is the main "banker" for the United States
Myth No. 2: The United States is heavily dependent on cheap Chinese goods
Myth No. 3: External pressure on China for policy changes is counterproductive.
Myth No. 4: Instability is bad for China

Content: Although China has been able to achieve its 8 percent GDP growth target in 2009 owing to the stimulus to domestic demand provided by government policy actions, the country will struggle to meet this objective in 2010 and succeeding years if demand for its exports in the United States does not pick up. Myth No. 3: External pressure on China for policy changes is counterproductive. The Chinese authorities stress that in the face of external pressure, they tend to strongly resist economic policy changes. The Chinese have in particular used this argument to try to fend off pressures for appreciation of the exchange rate. While no country wants to appear to be weak and susceptible to external pressure, the truth is that, if there is no pressure, there is less incentive to change policy. This is especially true in China, where the authorities are wedded to the status quo because of past success and inclined to make only gradual changes to economic policies. Recent developments in China’s exchange rate illustrate this point. In the absence of external pressure since August 2008, China has reverted to fixing its exchange rate relative to the U.S. dollar.