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4.5 Rivaling Explanations and conclusions
Scholars may point to other factors at play during the time period of this case study in an effort to explain the actions taken. In the realm of economics and certainly in International relations it is difficult to account for all of the many factors at play in government official’s decision making and the fluctuating values of a currency like the renminbi. As part of a well-rounded analysis of the case study these differing explanations need to be accounted for. Mainly these departures center around the Chinese motivations this is because the policy changes that affected the renminbi’s evaluation were public made and their effects documented in the currency’s worth; however, why Chinese officials felt it necessary to make these changes is up for debate. This analysis of the 2014-2015 policy changes that culminated in the rise of renminbi to special drawing rights status, argues that the primary motivation was stability at home.
However, there are other explanations for these changes. In an effort to conciliate the numerous factions that can arise from the many sides of this issue and complete a more holistic view of the real potential of China’s monetary power this analysis will focus on three other rivaling
explanations. First, that China sought greater autonomy in the renminbi’s movements. Second, China’s sought even greater yet influence over the United States or in the world. Third, China’s revaluation was part of a move to undermine institutions built and led by the United States.
The view that China’s actions could have been aimed at greater autonomy of the renminbi and their economy at large is a good place to start because such a view does not necessarily detract from the narrative above that paints China’s actions as an effort to maintain market stability. In this instance the two ideas are not mutually exclusive. Greater autonomy is a part of China’s goals of more sustainable economic growth and renminbi stability. By the renminbi being included in the reserve currencies that hold special drawing rights they can begin
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Autonomy aids Chinese economic stability by relieving uncertainty that comes from having to invest in foreign assets. This is what special drawing rights provides; however, it comes at the cost of currency market liberation as outline above which allows greater financial access to the outside world (Bradsher, 2015). Ascension did come with certain autonomy tradeoffs and China’s willingness to compromise on issues of financial market autonomy is an indication that, although autonomy as a vehicle can be useful, stability is the real concern.
Next, the view that China’s motivations were born from a thirst for greater world influence, while shouldn’t be ruled out entirely, is dangerous because it applies long-term calculations to a short term case. The brokers of this idea are bent toward a fear of China’s rise and it can skew the perception of any case study. In the policy actions and the selling off of United States treasuries there are no facts that point to a view that it was in an effort to grab power from the United States; instead, the economic turmoil flamed by the fears of slowing demand for Chinese exports, shows greater concern for stability. Transcendental results of China rising to reserve status, such as greater voting right in the World Trade Organization, are happenstantial in this case. The steps towards that conclusion point more towards attempts to stabilize the economy than to accumulate voting privileges. This is an example of trying to force an argument to fit a theory rather than letting the case speak for itself. Whereas, China’s long-term preferences to gain power and influence over the United States and on the world stage cannot be ruled out, they are far from supported by this case study and their actions to prevent a renminbi hard revaluation and to stabilize their economy on a more sustainable growth pater.
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undermine United States world order falls wide of the mark because by seeking special drawing rights they are committing to a greater stake in the United States world trading system. As noted above, this is a major reason why the United States was willing to endorse China’s claim to a spot in the basket of reserve currencies. Furthermore, the fact that China made considerable concessions to financial openness and currency market liberation points shows that China increasingly conforming to the rules of international trade which undermines to preformed assumptions that China sought to undermine existing trade and currency market norms. Instead, China’s hope to stabilize the renminbi and achieve more sustainable economic growth by
achieving special drawing rights faced no contradictions or concessions and should be regarded as the primary motivation.
The story of China’s attempt to utilize its vast foreign currency reserves and their considerable advantage in monetary power to achieve parity with the United States by gaining Special Drawing Rights, sheds light on the true capabilities and nature of monetary power as a form of economic coercion in the Chinese-United States relationship. Therefore, the information should be sufficient to definitively confirm or reject the hypotheses:
Hypothesis One: China can use monetary power in bargaining and to stabilize domestic market, meeting a limited but crucial aim of the Chinese government.
Hypothesis Two: The renminbi’s ties with the dollar, and the finite, although vast, foreign reserves make long term currency manipulation difficult, limiting monetary power’s utility.
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75 Cohen assumed that China’s vast currency reserves did provide them a great amount of autonomy in how and when they adjusted their currency to bring more market forces to bare (B.
Cohen, 2015). No currency can forever delay the confrontation with the impossible trinity, but China has thus far been able to successfully navigate the financial and currency liberalization in a way that put their near-future economic stability on firm ground. They also secured themselves a high enough bargaining position to ascend to reserve currency status. Their limited goals of uncoupling with the United States dollar securing further autonomy and freedom long-term show that theoretical monetary power can indeed be transformed into real leverage; however, it is hard to imagine that a more ambitious utilization of monetary power for greater gain would have similar success.
These limitations on monetary power are largely put in place by the dollar’s own strength in the global economy. The large foreign reserve holdings not only showed limited capacity to quell fears of economic slowdown, but the selling off of U.S. Treasuries had no effect on the United States economic outlook. Therefore, China’s ties to the dollar remain a stubborn problem that has limited upside. Perhaps a bigger problem that the original hypothesis didn’t account for, but the case study reveals, is the role that the IMF and the world order which still relies on the dollar still works to the United States favor. Short of creating real economic panic, which was outside of Chinese interest and possibly even capacity to do, there was no way to get a good enough bargaining position to gain Special Drawing Rights without making some concessions and currency market reforms. Moreover, even in succeeding, they still had little impact on the United States policy makers who largely supported ascension to reserve status, not because they were afraid of Chinese economic coercive action, but because it was also in their best interests to
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Therefore, China’s theoretical leverage in monetary policy largely fell mute in reality.
Although China did achieve in long sought after goal of special drawing rights, it came with large concessions in financial liberation and currency reforms. Furthermore, the case study showed the limited ability of United States Treasury sales to influence the United States decision making or even to effectively stabilize their economy. Also, China’s motivations for economic coercion haven’t reached a place wherein a dumping of United States Treasuries can be
considered given the grave consequences that would have for the Chinese domestic economy.
Instead, the Chinese policy makers focus remains on domestic political and economic stability.
The next chapter likewise aims to reconcile the United States’ theoretical and real economic coercive potential; however, it follows a case study surrounding the passing of Public Law 112-99 specifically as it pertained to United States importation of Chinese steel as well as the subsequent WTO mediation on the resulting trade disputes. Like in this chapter in the case of China’s use of monetary power, an irreconcilable gap is revealed between the United States’
theoretical advantage and their attempt at capitalizing on that leverage in utilizing trade as a means to influence Chinese policy.
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Chapter Five: United States Steel Protectionism after 2010 Case Study in Economic Coercion Potential
5.1 Introduction
Questions still remain in comparing the real possibility of the United States utilizing trade as an effective means of economic coercion as opposed to the theoretical leverage some scholars claim it has. These questions are: when is the United States utilization of sanctions or tariffs likely to succeed; as well as, why aren’t there more instances in which the United States tries to make use of their leverage? Answering these questions is the main purpose of deeper analysis into the case study involving United States Steel protectionism since 2010, the time period immediately before the passing of Public Law 122-99 and the resulting World Trade Organization Mediation that followed.
This case study selected contains many elements that policy makers and researchers have claimed to be the source and motivations behind the United States theoretical advantage in trade as a tool of economic coercion. Particularly Spaulding in writing about German trade policy and the preconditions for applying international trade leverage outlines the elements necessary for successful use of trade as a tool for economic coercion (Spaulding, 1991). Following from Spaulding’s earlier work and into today’s discourse regarding the United States, the three main assumptions that are prevalent in the discourse about United States trade policy as tool for influencing Chinese policy making are: First, that the China’s high reliance on the United States for exports; second, that the United States gains an advantage from their many strategic and economic allies both in Asia and elsewhere when assigning tariffs; third, the United States
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In an attempt to address these rivalling assumptions about the United States use of trade sanction and answer the remaining research questions that still remain regarding the United States theoretical versus practical leverage in trade, two hypotheses have been devised:
Hypothesis one: The United States cannot use trade as an effective means to influence economic decisions in China.
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.
By using the time period surrounding the passing of Public Law 112-99 as a case study, this research aims to verify both hypotheses showing that the theoretical use of trade to influence Chinese policy to be overblown, and confirming that the best the United States can hope to achieve is to signal displeasure to China and cast them as acting as a spoiler of the liberal economic order. This chapter will first justify and show the importance of the time period from 2010 to 2015 and the passing of Public Law 112-99 as an ideal case study. Next an outline of the events and economic specifics will be provided as well as analysis of the intent the actions taken by both China and the United States. From this conclusion can be drawn about the level to which the United States was successful in their attempt to use trade as a tool of economic
coercion allowing for rejection or verification of the above hypotheses. Lastly, alternative explanations for the United States actions and/or failure in this case will be explored and rejected.
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