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Coming out of the crisis

Who will emerge a winner from the economic downturn?

The short term fate of the United States and China is clearly intertwined. China’s export-oriented economy needs Americans to resume consumption of imported goods. In order for that to happen, the U.S. needs China to continue to underwrite American debt.

“We are going to issue an ocean of red ink,” said Tim Adams, a former top treasury official, pointing to U.S. stimulus spending and other investments. But “they need us” as well. “We are a principal driver of global growth. They need us to do well to survive.”

This mutual dependence should keep the two countries, despite their differences, working in tandem. Look a little further out on the economic horizon, and it seems clear that the U.S. and China will need to face further challenges together, as each country tries to gradually do more of what the other is doing now. To address the imbalances that helped lead the world to the current economic bust, Americans need to save and invest, and the Chinese need to boost domestic consumption.

And in the long term, America and its Pacific allies will need to cope with China’s slow but steady emergence as a military power and regional economic giant. As other nations watch enviously, the Chinese are using their ample cash reserves to secure oil and other commodities, and developing a blue water navy to protect their sea lanes.

“We have returned to a period of 'Great Power' rivalry,” said Robert Kagan, an analyst at the Carnegie Endowment for International Peace. “And among these Great Powers, certainly, is China.

“Every nation that has acquired economic wealth has wanted to translate that into usable geopolitical power,” Kagan said. “China seeks, not because they are evil, but because they are normal … to supplant America.

“We should not be surprised” to see China attempt to “rebalance the international system in China’s favor and inevitably to America’s detriment,” Kagan said. “That is just a reality that is unavoidable.”

China’s leaders are increasingly bold in expressing their displeasure with the way the current economic system favors the United States. In recent weeks they have chastised the U.S. for its role in creating the worldwide downturn, cautioned America about reckless borrowing and suggested that the global economy might be better served if based upon a currency other than the dollar.