By Christine Romans, CNN
(CNN) – The Chinese are mad at the Americans, mild-manned economists are bashing each other, and the heat rises on the China-U.S. relationship.
That heat has risen every day, all week since Chinese Premier Wen Jiabao’s uncharacteristic tongue-lashing of the United States in his annual press availability last weekend.
He blasted the U.S., its president, and its policies and warned in very clear language that we don’t want to make China our enemy. It wouldn’t be good for either country.
He’s right about the last point, but what is less clear is the path out of this mess.
The Chinese are angry that the U.S. is selling arms to Taiwan, that the president met with the Dalai Lama and that U.S. officials have urged China to let its currency rise. An artificially low yuan makes anything “Made in China” cheaper than U.S.-made goods.
Two years into a crushing recession, the political winds are blowing in the direction of anything that will help American jobs. A bill this week introduced in the Senate would slap Chinese products with tariffs as retaliation for China keeping its currency artificially low.
Former Secretary of State Colin Powell told PBS anchor and Bloomberg contributor Judy Woodruff that the U.S.-China relationship began strongly under this president and has deteriorated ever since. Usually, the conflict over Taiwan and the Dalai Lama is an exercise in diplomacy: the Chinese scream, we say we have our principles, and then everyone gets over it.
This time is different. Action against China in Congress is more likely than anytime in the last four years, the Google dispute adds a new wrinkle, and, as Powell described it, the Chinese are “more stiff” in their talks and diplomacy with the U.S. than they have been in recent years.
After this difficult and uncomfortable week for the world’s most important financial marriage, Reuters is reporting that the Chinese are now trying to cool down the rhetoric and are sending a special trade envoy to Washington later this month.
Enter the dueling economists.
Nobel Laureate Paul Krugman wrote this week in the New York Times that it is time for Congress to act on China. He advocates a 25 percent surcharge on Chinese imports. He criticized the U.S. government for not taking any action and said it has spent the last six years “pretending not to see the obvious.”
Krugman on China – New York Times, March 14
"Chinese currency policy is adding materially to the world’s economic problems at a time when those problems are already very severe. It’s time to take a stand."
A stance that infuriated Morgan Stanley economist Stephen Roach. When asked by Bloomberg Television if that demand was like taking a baseball bat to Chinese policy, Morgan Stanley’s Stephen Roach replied “we should take out the baseball bat on Paul Krugman.” He says America is lashing out on China instead of taking care of its own problems, like saving more money.
China Policy: Roach versus Krugman – Bloomberg, March 19
“We should take out the baseball bat on Paul Krugman.”
That, in effect, is where we are in China economic diplomacy. Not very diplomatic. And the spat between these two perfectly reflects the two views on China.
What’s at stake for you and me if this relationship sours? A rankled China even more emboldened to do deals with American enemies like Iran and Sudan, for one. And an article in Foreign Policy magazine makes a strong case for what happens in the U.S. if the Senate gets its way - higher prices for your iPod, your iPhone, every toy, game and piece of apparel you buy, and even potentially, your food.
Hands Off the Yuan – Foreign Policy, March 16
"If the prices of Chinese components (like fabric) and simple goods (like buttons) rise, the prices of finished products made primarily in the United States rise in turn. All that does is increase costs for American consumers."
Sen. Chuck Schumer (D-NY) said if he has to pay more for an iPhone, so be it. It is about returning American jobs.
After a tough week, this story is just getting started.