Are we looking at the emergence of a trade war between the US and China? One that will tip the world into a double dip recession?
Links between the United States and China are now coming under more pressure with Secretary of State Hillary Clinton lambasting China lambasting China over Internet censorship following Google's clash with China.
"The internet has already been a source of tremendous progress in China, and it is fabulous. There are so many people in China now online. But countries that restrict free access to information or violate the basic rights of internet users risk walling themselves off from the progress of the next century,'' Clinton said. "Now, ultimately, this issue isn't just about information freedom; it is about what kind of world we want and what kind of world we will inhabit. It's about whether we live on a planet with one internet, one global community, and a common body of knowledge that benefits and unites us all, or a fragmented planet in which access to information and opportunity is dependent on where you live and the whims of censors."
China has hit back, accusing the US of being an "information imperialist".
It's worth noting that sites like Facebook and Twitter are already blocked by the the Great Firewall of China as they might be running content that runs counter to the Communist Party's interest.
The question is whether this dispute will deteriorate into anything worse. Financial Times columnist Gideon Rachman warns that the dispute with Google is the canary in the coal mine and that the US and China will clash.
"Welcoming the rise of a giant Asian economy that is also turning into a liberal democracy is one thing. Sponsoring the rise of a Leninist one-party state, that is America's only plausible geopolitical rival, is a different proposition,'' Rachman writes. "Combine this political disillusionment with double-digit unemployment in the US that is widely blamed on Chinese currency manipulation, and you have the formula for an anti-China backlash … A trade war between America and China is hardly to be welcomed. It could tip the world back into recession and inject dangerous new tensions into international politics. If it happens, both sides will share the blame. The US has been almost wilfully naive about the connections between free trade and democracy. The Chinese have been provocative over currency and human rights. If they want to head off a damaging clash with America, changes in policy would be well advised."
Much of the problem comes back to the fact that China has been buying up piles of US debt. China now has close to $2 trillion of reserves and 70% is in dollars. As historian Niall Ferguson tells Vanity Fair, that could change the relationship with the US forever. "Now, politically, it might be quite tempting for the Chinese to phone up and say, 'We really disagree with you about, let's say, Taiwan and Japan and North Korea. You'd better listen to us, because otherwise, People's Bank of China starts selling ten-year treasuries, and then you guys are dead'."
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