A number of disputes exist between the USA and China on economic issues: the level of China’s currency, China’s adhering to international patent protection rules, etc. concern the USA; China would like the USA to get its debt issues under control among other irritants… There is little evidence in the media that each side fully understands where the other side is coming from.
An impartial mediator could be very effective in bringing both points of view to the table; he /she would likely examine the file keeping the points raised in the following article in mind:
With both southern Europe and the USA laboring under slow economic growth and growing budget deficits, what policies are open to these countries? From news reports, you would think that the path is either austerity (to get deficits under control) or growth (to get the economy growing faster with all its attractions: lower unemployment and higher tax revenues…).The reality is that both policies could be followed together and an independent mediator could bring both sides together by analyzing how various countries attacked similar challenges in the past.
Let us act as a mediator for a moment and, somewhat superficially I will admit, analyze what Canada did in the early 1990’s as it faced run-away budget deficits and slow economic growth. As I suggest below, if a mediator asked an independent economist to run an econometric model on what happened in Canada’s remarkable reversal of its fortunes, he would find that government austerity (cuts in expenditures and increase in taxes) were only a relatively small part of the solution. The main trigger for the turnaround was the economic growth in the Canadian economy ,aided by lower interest rates and a lower Canadian $. Austerity, yes, but not to get in the way of growth…
You will see some parallels in Canada’s economic situation in the 1990’s and southern Europe/USA today… In the early 1990’s, the Wall street Journal ran an article in which it called Canada’s economy as that of a “ Banana Republic’. At that time, or more precisely in 1993, Canada had a federal fiscal deficit of $39 billion (Cdn.) which represented 6% of its Gross Domestic Product at that time.
As a comparison of interest to US readers, the projected deficit for the USA fiscal deficit for 2011 is in excess of $1 trillion, representing close to 10% of GDP.
What solace or pain does the Canadian experience suggest is ahead for the US economy?
The good news is that the Canadian deficits of the early 1990’s turned into surpluses by 1997 ($3 billion) and quite significant surpluses by 2001 ($20 billion). The bad news is that these deficits were only slain by a combination of economic growth, tax increases and expenditure cuts. As well, interest rates (which increase the costs of accumulated debt) were on their way down.
The upshot is that a delicate balance of encouraging economic growth, higher taxes on those sectors able to absorb them and expenditure cuts in areas which will not impede growth are likely required to get the US deficits going in the right direction. Southern Europe and the USA are not Banana Republics, but its leaders must show the country that they have its best long term interests at heart and then move aggressively forward. Get over the politicking …get trained mediators on the problems and a balanced approach to resolving the economic issues will be in hand…