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UPDATED: April 4, 2007 NO.15 APR. 12, 2007
An Active Role in the World Economy?
Regional integration, in addition to various anti-globalization movements, has therefore violated the fundamental rules of globalization and shaken it to its core
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The United States is largely to blame for the imbalance the world finds itself in. When the Cold War came to an end in the early 1990s, a divided world market had been restored to a unified marketplace. An increasing number of nations resumed to play their roles in the division of manufacturing and labor, as well as the distribution of products. The increasing membership of nations to the World Trade Organization has helped expand global trade volumes, but over 70 percent of all trade is paid in U.S. dollars. As international trade proliferates, the global market requires more dollars in circulation under the dollar-pegged system, and in addition to the liberal approach taken by world financial markets, which has caused a surge in floating capital and hot money, this greenback is used widely in all international payments. Due to the consequent oversupply, the dollar depreciation is inevitable. The U.S. Government has transferred the inflation pressure by going to war and through the issuance of treasure bonds so as to rein in the bubbling economy. The more international trade depends on U.S. currency, the more seignorage (net revenue gained by money issuing authority) it gains. Currently, the United States has to borrow $3 billion each day from other countries worldwide to sustain its economy, which has, in turn, plagued the world economy.

The large-scale industrial transfer of manufacturing and service sectors to China has changed the previous rule of internal flows within industrialized nations to a large extent. Americans therefore feel threatened. Nevertheless, China, along with other major economies, relies heavily on exports to the United States for further development. In this process, the country has accumulated a staggering sum of dollar-denominated assets. In an attempt to reduce losses caused by a weak U.S. currency, it has to constantly buy in U.S. treasury bonds and other assets to stabilize the exchange rate. The low interest rate and tame inflation in the United States, which is featuring mammoth budgeting deficit, trade deficit and financial deficit, is seemingly bolstered by China's status as the world factory.

Looking at China's rising, there are two explanations: rejuvenation of the Chinese civilization, or a product of globalization.

China's rising represents the emergence of Asia and the developing world. It follows a path that is quite different from any pattern in history.

In fact, one-way globalization, or Western-led globalization, will actually hinder world globalization, which could possibly be replaced by regionalism. If it continues to progress, the United States will be reduced to a regional power, with less of a global influence. Indeed, without China's rising and assistance, the United States could hardly maintain its status as a world superpower. The development of China not only helps to support the current world system, but also has become a major driving force for the future of globalization.

The real threat of globalization is not China's rising, but its stagnancy. According to U.S. Treasury Secretary Henry Paulson, the biggest risk the United States faces is not China overtaking the United States, but China not moving ahead with the reforms necessary to sustain its growth and to address the very serious internal problems affecting the nation.

Analyzing today's Sino-U.S. relationship raises our awareness of how strategic international relations will be constructed. As the wing that balances the world pattern, the sound coordination between China and the United States will boost the world economy.

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