Zachary Karabell - The US and China Relationship

Tuesday, January 19th Zachary Karabell spoke at the Foothills World Affairs Council at Mt Vernon Country Club. The author of "Superfusion: How China And America Became One Economy And Why The World's Prosperity Depends On It" was incredibly knowledgeable on the US/China relationship and his humor made the presentation all the more enjoyable.

Overview of his speech -
When we look back we will see that the defining event of the 21st century was not terrorism, the Middle East and the conflict of religions. We will see that it was China joining the World Trade Organization in 2001. Karabell likened the rise of China to that of the Renaissance. People going through that time didn't say, "cool, we're in the Renaissance" rather it was a dramatic change that was only obvious in retrospect.

He questions the accusations of instability for the US (think recent financial crisis) due to the US relationship with China and counters that our dependence on one another (albeit reluctant on both sides) is rather currently a source of stability. His example was the fluidity of money between the two countries - a super simplified example (his had many more layers and details but it showed the money flowing back and forth): JP Morgan Stanley investing $10 billion in China, China buying $10 billion US Treasury Bonds, US Govt loaning Morgan Stanley $10 billion in bailout.

The story of China's 20 years of evolution is also a US story. After Tianamen Square, the Chinese elites knew they had to make a change to avoid a future similar to the fall of the USSR. They were not willing to make a political change but they did undertake "hypercharged" economic reform by opening their doors to investments of time and money from the West.  The US was dominant on the world stage economically so they were the natural partner. And, China was a dynamic source of growth for US companies (eg. Avon, Walmart, KFC, Fed Ex) - so it was a natural fit.

What does the future hold for this relationship?
Our commonality is capitalism. China will be looking for places to invest. Both countries will be looking for ways to preserve the environment and resources. But, there will be a shift in power and it will be challenging for the US. "How China and the United States manage their relationship will determine whether the coming decades witness increased global prosperity or greater instability." Both countries are struggling for their sovereignty but "the fusion has advanced too far for either to extricate itself without severe harm." The US has to let go of some power and China needs to accept the responsibility of becoming a major world player.

Karabell sees the likelihood of two scenarios depending on the US reaction to China's rise:

1. European Union-like relationship - joint/similar banking/currency systems
2. US/Great Britain-like relationship in 1946 - one country holding sway and economic control over the other

What do we need to do to avoid the second? Keep innovating and inventing. Stop worrying about what the Chinese are copying. If they are always playing catch-up they will not take the lead. Stop complaining about unfair advantages and so forth. Instead take the initiative. Don't fear Chinese investment in the US.



Quotes above are from: http://www.rivertwice.com/superfusion.htm

He will be speaking at the Institute of International Education on January 20th which will be shown on C-SPAN. A link to his presentation will be provided when published.

His research company: http://www.rivertwice.com/

From Wikipedia: Karabell is President of River Twice Research, where he analyzes economic and political trends. He is also a Senior Advisor for Business for Social Responsibility. Previously, he was Executive Vice President, Head of Marketing and Chief Economist at Fred Alger Management, a New York-based investment firm, and President of Fred Alger and Company, as well as Portfolio Manager of the China-US Growth Fund, which won both a Lipper Award for top performance and a 5-star designation from Morningstar. He was also Executive Vice President of Alger's Spectra Funds, a no-load family of mutual funds that launched the $30 million Spectra Green Fund, which was based on the idea that profit and sustainability are linked. At Alger, he oversaw the creation, launch and marketing of several funds, led corporate strategy for acquisitions, and represented the firm at public forums and in the media.


Educated at Columbia, Oxford, and Harvard, where he received his Ph.D., he is the author of several books, including the recently published Superfusion: How China and America Became One Economy and Why the World's Prosperity Depends on It (Simon & Schuster, 2009) and previous books such as A Visionary Nation: Four Centuries of American Dreams and What Lies Ahead, The Last Campaign: How Harry Truman Won the 1948 Election (which won the Chicago Tribune Heartland Prize for best non-fiction book of the year), and Peace Be Upon You: The Story of Muslim, Christian and Jewish Coexistence (Knopf, 2007), which examined the forgotten legacy of peace among the three faiths.

In 2003, the World Economic Forum designated Zachary a "Global Leader for Tomorrow." He sits on the board of the World Policy Institute and the New America Foundation, and is a member of the Council on Foreign Relations. He is a regular commentator on national news programs, such as CNBC, CNN, and a contributor to such publications as The Wall Street Journal, The Los Angeles Times, The New York Times, Newsweek and Foreign Affairs.