HOLMES: Missing the mark on economic talks with China

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By Kim R. Holmes

OPINION/ANALYSIS:

Some Americans seem to think that China's rebuff of President Obama's economic and climate-change strategy at the recent Group of Eight summit was bad news. They were disappointed that Beijing refused to commit to clear ceilings for its carbon emissions and alarmed at its calls for a new international reserve currency to replace the dollar.

The Chinese pursue many economic policies that are detrimental to the U.S. economy. But, sadly, their position on climate change and, ironically, their alarm over the causes of the weak dollar are more in tune with America's true economic interests than President Obama's policies are.

China has special reasons for opposing Kyoto-style climate-change agreements. It understands carbon limits would put its export industry at a disadvantage in relation to the rest of Asia. China's leaders care most about two economic factors: keeping its huge population gainfully employed and maintaining political control over the economy.

International climate-change regulations would put a damper on both, allowing other countries not so constrained to beat out Chinese exports to the U.S. and elsewhere. And international commitments and global oversight bodies would interfere with China's ability to dictate the direction of its economy and maintain absolute control over what it deems to be vital sectors, such as energy.

Americans should have their own reasons for not wanting Washington to sign on to international climate-change regimes, but we could learn something from China's fierce concern about their negative economic impact.

Experts predict that the "cap-and-trade" bill now before Congress, if enacted, would cost Americans nearly $3,000 per year in higher energy prices and destroy 2.5 million jobs by 2035. If additional regulations are imposed domestically or through international agreements, the U.S. could be reduced to the sad predicament of the Europeans, who are struggling to remedy their self-inflicted wounds from draconian climate-change regulations by begging the rest of the world to join them.

We could also learn something from China's worry about the weak dollar.

Behind all the hoopla about creating a new international reserve currency is Beijing's alarm over Mr. Obama's wild deficit spending, the resulting need to sell mountains of Treasury bonds, and the low yields on those bonds owing to the low interest rates set by the Federal Reserve. China holds approximately $1.5 trillion of U.S. dollar assets. The more bonds we sell, the less China's dollar assets are worth. Beijing's nationalistic-sounding cries over the dominance of the dollar are actually caused by concerns about the value of much of the wealth the Chinese have accumulated during their country's global rise.

This concern is not altruistic but in self-interest. After all, if there were a more reliable international currency than the dollar (there isn't), China would jump into it in a heartbeat. But the question is why a foreign government is more alarmed about our debt than our own leaders are. You would think that Mr. Obama and advisers such as Treasury Secretary Timothy F. Geithner, who are better educated in economics than China's communist ministers, would understand that rising debt and a weak dollar are harmful to American workers and the U.S. economy.

Next week, on July 27 and 28, Mr. Geithner and Secretary of State Hillary Rodham Clinton will host the Chinese in a meeting of the U.S.-China Strategic Economic Dialogue, a revamped version of the economic talks started by President George W. Bush. Many items will be on the table, but the Americans and Chinese will likely continue to talk past one another about climate change, debt, exchange rates and trade.

What's needed in their "economic dialogue" is less aspirational discussion about climate change and more real talk about economics. China isn't about to press "self-destruct" on its economy with a climate-change agreement. Instead of wasting time trying to convince them that they should be as heedless of economic consequences as we seem to be and the Europeans are, we should be explaining how real market reforms inside China would have tangible benefits. Market reforms would enable them to better compete in the U.S. and, better yet, help stem the always-looming protectionist backlash in Congress to exclude China from the U.S. economy altogether.

But we should also take a long hard look at ourselves. China's squawking about the U.S. debt is like the proverbial canary in the coal mine. It's telling the unvarnished truth of economic survival - one obfuscated not by the dissembling logic of politicians and summit communiques, but by the cold facts of jobs and economic growth.

You would think that the Obama administration would be at least as concerned about these facts as the Chinese are.

Kim R. Holmes, a former assistant secretary of state, is a vice president at the Heritage Foundation (Heritage.org) and author of "Liberty's Best Hope: American Leadership for the 21st Century."