Saturday, July 2, 2011

Will Germany-China Ties Hurt the U.S.? - The Curious Capitalist -

The chummy pow wow between Chinese Prime Minister Wen Jiabao and German Chancellor Angela Merkel in Germany this week seemed like all peas and gravy. Fourteen economic deals? Great. Twenty-two cooperation agreements? Even better. Any business is good business in a fragile global economy, right? Not so much. Growing ties between Beijing and Berlin don't all bode well for the U.S., not to mention greater Europe.

For their part, Europeans fear China is taking over their continent by buying its way in. China's recent purchases of Spanish and Greek bonds, for instance, have made it the flailing eurozone's lender of last resort. China's interests are clear: a surviving euro fuels demand for Chinese goods and allows China to diversify its massive dollar holdings. All the better for Germany. China's "bond diplomacy" toward Greece is a godsend for Greek-debt-laden German banks that fear a Greek default.

As Europe's ringleader, Germany could express its gratitude by softening its stance towards China on trade, the environment, and human rights. For example, China wants the EU to designate it a "market economy" within the WTO, which would make trade disputes against China more difficult, a demand the EU has so far resisted. Germany is also vying for the EU to drop its long-held arms embargo with China, a move the U.S. has long opposed.

Ultimately, growing trade ties to China could pull Berlin away from the West. As Marcus Walker argues in the Wall Street Journal this week: "When you've carved out a lucrative niche selling precision machinery and luxury cars to fast-growing emerging economies such as China, who needs stodgy old Europe?" There are already small signs of Germany peeling away. Germany sided with China and Russia in abstaining from NATO's Libya intervention, and it has walked away from the ailing eurozone on numerous occasions.

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