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By Root 855 0

Iran in its confrontation with the United States over nuclear weapons development. China was an indispensible economic lifeline to the hermetically sealed regime of North Korea, with which it shared a common border, and so was also in a position to help the United States achieve its strategic goals on the Korean peninsula. Large U.S. corporations eyed the Chinese market enviously and were looking for direct market access through expansion, acquisitions or joint ventures with Chinese partners, all of which required Chinese government approvals. China had suffered a loss of face in 2005 when the China National Offshore Oil Corporation withdrew its takeover bid for U.S.-based Unocal Oil after the U.S. House of Representatives voted 398–15 to call on President Bush to review the bid on national security grounds. Such rejections could easily result in tit-for-tat denial of U.S. acquisitions in China. In short, America had as much to lose as to gain from any confrontation with China, and a continuing high-level expert dialogue seemed like a more fruitful approach.

President Bush addressed the need to keep U.S.-Chinese currency tensions under control by launching the China-U.S. Strategic Economic Dialogue in 2006. These meetings were continued by the Obama administration in expanded form and renamed the Strategic and Economic Dialogue (S&ED) to reflect the inclusion of the U.S. secretary of state and a Chinese state councilor with responsibility for foreign policy. The inclusion of foreign policy officials along with economic officials was a clear recognition of the interconnectedness of the geopolitical and financial aspects of national policy in the twenty-first century.

The Strategic and Economic Dialogue was one of several bilateral and multilateral forums designed in part to deal with the advent of a new currency war. It has helped to avoid an escalation in tensions over the currency manipulation charges, but has done nothing to make the issue go away. A series of bilateral summits between President Hu of China and President Obama of the United States were also convened, but neither the S&ED nor the bilateral summits have produced major progress.

The United States has now chosen the G20 as the main arena to push China in the direction of revaluation, both because of the possibility of attracting allies to join the effort and because the Chinese are more deferential to global opinion than to U.S. opinion alone. Recent significant progress on yuan revaluation has tended to occur not in conjunction with S&ED meetings but rather in advance of G20 meetings. For example, a small but still noteworthy revaluation of the yuan from 6.83 on June 15, 2010, to 6.79 on June 25, 2010, occurred immediately in advance of the G20 leaders’ summit in Toronto. Another rally in the yuan from 6.69 on November 1, 2010, to 6.62 on November 11, 2010, coincided with the G20 leaders’ summit in Seoul. This demonstrates that the Chinese are attentive to the G20 in ways that they may not be when it comes to other forums.

By the spring of 2011 the U.S.-China Pacific theater in the currency war was quiet. However, the core issues were still unresolved. Employment stress in both China and the United States meant that tensions could erupt at any time. A leadership change in China in 2012 and a presidential election in the United States the same year raised the specter of domestic political forces being a catalyst for further international confrontation.

The Atlantic Theater

The Atlantic theater, the relationship between the dollar and the euro, is better understood as one of codependence rather than confrontation. This is because of the much larger scale and degree of interconnectedness between U.S. and European capital markets and banking systems compared to any other pair of financial relationships in the world. This interdependence was never on more vivid display than in the immediate aftermath of the bankruptcy of the Lehman Brothers investment bank in September 2008. Although the bankruptcy was filed in U.S. federal courts after a failed bailout