The Obama administration has raised the stakes in its increasingly tense stand-off with Beijing on trade and currency issues. It has set up a new agency to investigate China’s trade practices and, along with Japan and the European Union, recently initiated a process through the World Trade Organisation to challenge the restrictions that China places on exports of rare earth minerals.
Despite the improving employment picture in the US, the economic and political arguments for taking a tougher line against China in an election year are overriding longer-term strategic considerations. With China in the throes of its own leadership transition, the situation is ripe for an escalating trade conflict that could damage the global trade system and wreck the fragile world economic recovery.
There is a simple solution for Beijing to disarm its critics, make progress on its own domestic reforms and show the kind of leadership that would help cement its role as a global economic power.