Chimerica always seemed like an oversimplification of a complex and dialectic relationship between the US and China. However, it did express an underlying truth, that China’s rise over the last 40 years has been predicated on Deng Xiaoping’s political and economic reforms and, importantly, the world of free-trade (a reduction in tariff barriers to trade) promoted by the United States.  

America seems to hold two seemingly contradictory views about China. Many economists and hedge funds have emphasized the heavy debt burden and excess capacity plaguing numerous industries. Kudlow, the top economic adviser of Trump’s, has scoffed at the Chinese economy, noting that it is weakening while the US is enjoying robust growth. Kudlow and others also point to 15.5%  slide in Chinese shares compared with a nearly 7% rise in the S&P 500 this year as more evidence of China’s underperformance.  

The other camp makes it sound like China is about to eat America’s lunch. The yuan is being internationalized and will eclipse the dollar. China’s unfair trade practices have stolen well-paid American manufacturing jobs. It is stealing American technology. Its “Made in China 2025” is nothing short of trying to dethrone the US from the economic heights. It One Belt One Road Initiative seeks to create a Sino-centric world based on debt, trade and investment ties and wants to displace the US.  

Some in this camp also emphasize other potential harm China can inflict in the US. There is seemingly ceaseless speculation that China would sell its Treasury holdings, which are over a trillion dollars. Others speculate that China will allow its currency to depreciate to offset the US tariffs.  

Ironically both camps tend to support an aggressive confrontation of China. US and European policymakers and press complain that China violates global norms and rules. A recent article in Foreign Policy was explicit. “Many Americans agree that solving the distorted U.S.-China economic relationship is critical. But the answer isn’t to be found in trade alone. The root of this problem is not the deficit, but China’s deeply held belief that it is not beholden to the same rules as other nations.”.