Tyler Cowen's article in today's New York Times is worth reading. Cowen refers to the symbiotic relationship between the U.S. and the U.S., as noted also in Niall Ferguson's term, "Chimerica." At the heart of the problem is the exchange rate policy of China--pegging the dollar-yuan rate so that Chinese exports remain cheap in the U.S. China maintains the exchange rate by borrowing heavily in the U.S., which helps keep interest rates low in the U.S.
Since the financial crisis and the full-fledged recession began, I fear that the U.S.-Chinese relationship has not been getting enough attention. Part of the reason may be simple--what can the U.S. do about the relationship unilateraly? The U.S. cannot China to revalue its currency. But the bail-outs of Wall Street, the continued propping up of housing markets by the U.S. government, and the call for a "jobs bill" by many Democrats, along with the push for health-care reform, drops the China-U.S. relationship down on the Administration's to-do list. I hope Cowen's article can help raise concern over the China-U.S. relationship higher on the to-do list.