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China is the biggest foreign buyer of U.S. debt, and the U.S. is the single biggest buyer of China's exports.
Together, these two economic giants form the most important coupling in the global economy, but that relationship is now being threatened by mutual distrust, says Kenneth Lieberthal, director of the John L. Thornton China Center at the Brookings Institution.
"There's a great deal of unease about long-term intentions," Lieberthal told The Daily Ticker. Despite growing interdependence, there's an underlying feeling that over the long run each country sees itself doing well at the expense of the other. "It's a very corrosive long-term view," he says.
China assumes the U.S. wants to constrain China's growing economic and political power, while the U.S. worries that China wants to displace it as the leading global economy, according to a new Brookings report, "Addressing US-China Strategic Distrust," which Lieberthal wrote with Professor Wang Jisi from Peking University.
How the two countries resolve that distrust will determine whether the nations have a "great power relationship or become each others' biggest problem," 10 to 15 years down the road, says Lieberthal. China also faces big domestic challenges, including an aging population and an economy dependent on rapid export growth, which showed its weakness during the global financial crisis.
Lieberthal says China knows it needs to contain exports as a continuing driver of the economy and to instead ramp up domestic consumption. "The real question is whether they will have the political capacity to make the changes necessary to put that new model into place," he says.
The market will get the latest read on China's economy Friday when it reports first quarter GDP. Earlier this week, China reported a $5.35 billion trade surplus, surprising estimates for a $1.3 billion deficit.
VIDEO in link:
China and the U.S.: World?s Most Important Economic Relationship at Risk | Daily Ticker - Yahoo! Finance
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