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49 Hypothesis two: The United States can use trade barriers to signal displeasure with Chinese policies showing China’s policy as contrary to the global norms.
These hypothesizes aim to reflect why the United States would initiate attempts to use trade as a tool of economic coercion while acknowledging the difficulties in doing so. In order to uphold or deny these hypothesizes this subsection proposes following the passing of Public Law 112-99 and the subsequent WTO dispute resolution procedures.
4.4 Conclusion
Already there is a strong case to be made that the economic relationship between the United States and China is indicative of an interdependent relationship and it cannot be used for coercive purposes. This is true for a number of reasons as shown above, but also because power is split between the different economic areas that create economic coercive leverage. Although it can be said, in absolute terms China has grown in power, and largely as a function of their
burgeoning economy. This understanding which is dominant in analysis of the Chinese-United States great power relationship but only tells part of the story. Instead, another analysis has been started in this chapter and shows that both countries hold vulnerabilities and even where there is strength there is also great risk in its utilization. While, these vulnerabilities make for the
possibility of economic coercion to take place. The theoretical potential for economic coercion is very different from real world success as the case studies in the next two chapters will show.
To understand where these vulnerabilities are, this chapter used a framework of analysis that applies Nye and Keohane’s theory on interdependence with Roach’s understanding of the volatile co-dependent relationship between China and the United States. To understand how the vulnerabilities can be exploited the framework utilized Kishner’s tools of economic statecraft –
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50 Trade, Finance, and Monetary Power. Using these criteria to look at the economic realities of the Chinese-United States interdependent relationship it is proposed that China has leverage in monetary power, whereas, the United States has relative advantage in trade, while in financial power both sides benefit from maintaining the status quo and any attempts at coercive action would likely result in greater losses than relative gains. From these realities four mirroring hypothesizes have been derived:
Hypothesis One: China can use monetary power to stabilize domestic market, meeting a limited but crucial aim of the Chinese government.
Hypothesis Two: The renminbi’s ties with the dollar make long term currency manipulation difficult, limiting monetary power’s utility.
Hypothesis three: The United States cannot use trade as an effective means to influence economic decisions in China.
Hypothesis four: The United States can use trade barriers to signal displeasure with Chinese policies showing China’s policy as contrary to the global norms.
In an effort to confirm or reject these hypothesizes this chapter outlines two case studies:
first, the selling off of U.S. Treasury Securities by the Chinese in 2015 to devalue the Renminbi, and second, the signing of Public Law 112-92 as well as its subsequent arbitration. This case studies provide the opportunity to test the real world economic coercive outcomes against the projection as posited by the theoretical framework establish above.
In the first case of Chinese control over monetary policy and the possible manipulation for geopolitical gain, there have long been claims of currency manipulation at the hand of the United States as well as other; however, it has been generally accepted by mainstream economics
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51 if not politicians and the general public, that after the 2008 financial crises those efforts have largely stopped. In fact monetary policy has shifted toward keeping the Renminbi strong, increase stability of economic growth, and induce uncoupling from overreliance on the Dollar (Worstall, 2016). This remains consistent with their move during the time period in the proposed case study – August 2015 to Early 2016 – in which China changed their exchange rate policy twice in six months. First, allowing it to drop against the dollar by -2.8% and then completing uncoupling by tying it instead to the number of reserve currencies (J. Zhang, 2016). However, this has had an adverse effect on their currency reserves falling 500 Billion dollars at the end of 2015, and 2016 is set to be the greatest year of sell-offs since economic opening up and reform (People’s Bank of China, 2016). Taken together this marks significant shifts in Chinese monetary policy that is better fits the changing Chinese world view as well as the monetary power to make their world view possible. The case study will help shed light on the real capabilities China holds in shaping United States policy and shifting the international order.
The second case, representing the United States potential for trade leverage, will track Public Law 112-99 as well as the following trade dispute mediation undertaken in the World Trade Organization. Furthermore, in following trade as a means of economic coercion the research will focus on steel and tires both of which have a long history of trade disputes, as well as strong popular support, fundamentally important to both countries (Kapur, 2016; T. P.
Stewart, Drake, Want, Bell, & Scott, 2014). Therefore, the antidumping and countervailing duties as they were legislated for Public Law 112-99 depict the many levels at which trade disputes play out. The long history and strong industry lobbying support demonstrate the
domestic societal factors, the necessary trade legislation and the subsequent signing by President Obama take represent the domestic institutional factors, and lastly trade retaliation and following
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52 trade dispute resolution by the World Trade Organization follow international economic and international political factors respectively. This case study will reveal the United States real economic coercive capabilities.
Further research into the two case studies can provide insight into the two remaining research questions beyond the dominant research question (who has economic leverage in the United States economic relationship): when is economic coercive action in the Chinese-United States relationship likely to succeed; as well as, why there are not more instances in which the United States and China try and to exercise their prospective leverage. Perhaps most important for research into great power relations and International Political Economy are the potential impacts this research’s case studies have for the economic relationship between China and the United States as well as for the international community at large. For example, has there been a Chinese uncoupling due to greater Asian regional trade and the Renminbi’s ascension to world currency reserve status, and is the United States losing influence among its economic and strategic allies or in the economic system through the World Trade Organization. These are periphery considerations that will have an impact on the overarching question about whether economic coercion as a tool can play a deciding role in shaping the international world order.
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53
Chapter Four: China’s Monetary Policy After 2014 a Case of Monetary Power
4.1 Introduction
A case study provides the opportunity to delve deeper into the perceived advantage that China wields over the United States in monetary power. In engaging in an analysis of a real world case of Chinese monetary power this research aims to answer the remaining questions:
when is economic coercive action in the Chinese-United States relationship likely to succeed; as well as, why aren’t there more instances in which China tries to make use of their leverage. Over the course of the case studies deeper analysis presents a more complex and complicated picture of the broader and more definitive areas of leverage presented in the analysis of economic realities. This suggests that theoretical advantage, while supported by economic figures, can often be hard to capitalize on in reality.
In the case of China’s monetary power, this research makes use of “the most likely case”
of economic coercive action (Eckstein, 1975). As such, this research aims to take a case of Chinese utilization of economic power that has a high likelihood of success and explore how successful it was in reality as well as what were the circumstances of its failure or success. This falls short of an all-out attempt to disprove the theoretical advantage, as is often the aim of similar studies of “most likely cases”(Gerring, 2007), instead it suffices to show the complexities and difficulties in wielding economic coercive power and the limited returns that come with high risk. Therefore, in following with the hypothesizes of this research, although the earlier chapter exploring the economic realities between the United States and China confirms a theoretical advantage in monetary power for China, the remaining hypothesizes and their respective
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54 confirmation or rejection will show the limitations, however wide or narrow, for the use of their monetary power. The Hypothesis looking to be confirm or rejected are as follows:
Hypothesis One: China can use monetary power to stabilize domestic market, meeting a limited but crucial aim of the Chinese government.
Hypothesis Two: The renminbi’s ties with the dollar make long term currency manipulation difficult, limiting monetary power’s utility.
The case chosen to help confirm or reject these hypothesizes as well as answer the remaining research questions is the selling off of United States Treasury Securities by the
Chinese government in 2015 in an effort to reevaluate the renminbi. This chapter first expounds on the importance of the 2014-2015 time period and the monetary policy changes that took place as a useful case study, then explores the Chinese strategic goals and how they pertain or can be furthered by utilizing economic coercion, and finally follows the events of the monetary policy changes as well as tracks their effects on the United States policy making. In doing so, this research finds that China’s real economic coercion capabilities do not align with their theoretical leverage in monetary policy.