Yesterday your humble blogger gave a talk about the state of the 2012 presidential race to a group of really rich people international institutional investors.  At the end of the talk, the convener asked for a show of hands about who they thought would (not should) win the race, and an overwhelming majority said Obama.  In talking to the organizers, I learned that this was the sentiment of other groups of overseas bankers that had met earlier in the month.  Indeed, there was apparent surprise at the suggestion that Mitt Romney could actually win. 

Why did this sentiment exist?  I don't think it had much to do with ideology -- we're talking about the global one percenters here.  Based on my conversations, I think it was based on a few stylized facts: 

1)  The U.S. economy is outperforming almost every other developed economy in the world;

2)  They assume that in times of uncertainty, Americans will prefer the devil they know rather than the devil they don't;

3)  President Obama's foreign policies seem pretty competent;

4)  Mitt Romney's policy proposals either seemed really super-vague (this will be an American Century) or, when specific (designating China as a currency manipulator) made him seem like an out-of-date clown. 

So, consider the following a Global Public Service Announcement from the hard-working staff at this blog: 

Dear Rest of the World,

Hey there.  I understand that the overwhelming lot of you believe Barack Obama will be elected to a second term.  I can sorta see that, as that is the current prediction from recent polls, some of our prognosticators and prediction markets. If you look closely, however, none of these predictions are very strong. Or, to put it as plainly as possible:  there is still about a 50/50 chance that Mitt Romney will be sworn in as president in January 2013. 

I can hear your derisive snorts from across the oceans. Ridiculous! Surely Americans would reject such ludicrous ideas as a trade war with China. Surely Americans understand that their economy has done pretty well in comparison to the rest of the world. Surely Americans can see that many long-term trends are pretty positive. 

Valid questions. To which I must respond: The overwhelming majority of Americans do not give a flying f**k about the rest of the world. 

Really, they dont. Take a look at these poll numbers about priorities for the 2012 presidential campaign, and try to find anything to do with international relations. There ain't much. It's almost all about the domestic economy. 

See, most Americans don't compare the U.S. to other major economies -- they compare the U.S. now to, say, the U.S. of 2005. And things don't look so hot based on that comparison. As for the notion of a trade war with China, go read how Americans feel about absolute vs. relative gains with China -- they'll superficially welcome a trade war, when they bother to even think about it. Which they don't.

As for foreign policy or counterterrorism, yes, you could argue that the Obama administration has been pretty competent. But, again:  Americans. Don't. Care.  If anything, the foreign policy competency removes the issue from the campaign, and just concentrates the minds of everyone on the state of the domestic economy. 

The fundamental fact of this election is that the American economy is pretty sluggish, voters blame the incumbent when that happens, and the incumbent happens to be Barack Obama.  Indeed, it is only because Obama is seen as pretty likable  -- and that voters do still tend to blame George W. Bush for the current situation -- that this race is even remotely close. 

I'm not saying Mitt Romney is gonna win. If the economy picks up over the summer, Obama should win pretty handily. However, you, the smart money, should think about it this way: what are the chances that between now and November, none of the following will happen: another Euro-implosion, a rapid deflating of the China bubble, or a war in the Middle East? If you're confident that these events are not in the cards, bet on Obama.  If any of them happen, all bets are off. 

Will it matter to you? Think of it this way: compare and contrast who Mitt Romney would pick as the next Fed chairman versus Barack Obama. And plan accordingly. 

Enjoy the summer!  All the best,

Daniel W. Drezner

Am I missing anything? 

There's a lot that's happened over the past week with respect to Chen Guangcheng's status, and your humble blogger could write a 5,000 word essay on it if someone wanted to pay me gobs and gobs of cash because I'm remodeling my home I had the time.  I don't however, so I have one big thought on the matter.

Before I begin, given the rapid real-time developments in the Chen case, I'm operating on the assumption that China's last Foreign Ministry statement suggests the denouement:  Chen and his family will be able to go to the United States to study, and he then may or may not be allowed back into the country.   

My Big Thought:  contrary to just about every headline I've seen in the past three days, I think Chen's case demonstrates the surprising resilience of the Sino-American relationship.  Recall what I wrote earlier in the week: 

The fact that both Beijing and Washington have kept their mouths shut on Chen is a pretty surprising but positive sign about the overall stability/resilience of Sino-American relations. Bear in mind that according to the latest reports, much of the leadership in Beijing takesan increasingly conspiratorial view of the United States. As for the mood in Washington, well, let's just call it unfriendly towards China. Both sides are in the middle of big leadership decisions, making the incentive to cater to nationalist domestic interests even stronger than normal. With the rest of the Pacific Rim trying to latch themselves onto the U.S. security umbrella, this could have been the perfect match to set off a G-2 powderkeg.

Despite all of these incentives for escalating the dispute, however, it hasn't happened. Kurt Campbell was dispatched to Beijing, talks are ongoing, and neither side appears to be interested in ramping up domestic audience costs. That escalation hasn't happened despite massive political incentives on both sides to let it happen suggests that, contrary to press fears about Chen blowing up the bilateral relationship, there are powerful pressures in Washington and Beijing to find a solution that saves as much face as humanly possible for both sides.

Now, in the three days since I wrote that post, Chen has been released, calling every Chinese dissident, U.S. congressman and international reporter with a phone/recording device/Twitter account and is loudly and frantically describing the intimidation he and his family have experienced.  The man has asked to be flown out on Hillary Clinton's plane as she departs from the Strategic and Economic Dialogue.  In other words, everything that has transpired in the past three days has given a black eye to both the Chinese and American governments' handling of this case. 

Despite the near-overwhelming incentive to ramp up bilateral tensions, however, it really hasn't happened.  China's Foreign Mnistry has issued a couple of garden-variety press statements demanding a U.S. apology that won't be forthcoming.  There have been no leaks or anonymous criticisms of the United States otherwise, despite the fact that this entire case is a burr in China's saddle at veery awkward moment.  None of the U.S. State Department statements or press leaks have been terribly critical of the Chinese side either.  Indeed, as the Washington Post observes:

Neither Clinton nor her Chinese counterparts mentioned Chen in their formal remarks at the end of their two-day meeting, saying instead that U.S.-Sino differences on human rights issues must not disrupt the broader relationship between the two world powers.

State Councilor Dai Bingguo, China’s top foreign policy expert, said his country and the United States still have “fundamental differences” on human rights issues. “Human rights should not be a disturbance in state-to-state relations,” Dai said. “It should not be used to interfere in another country’s internal affairs.”

Clinton promised to “continue engaging with the Chinese government at the highest levels” on the “human rights and aspirations” of all people.

This is pretty extraordinary.  Even more extraordinary is the possiblity that despite Chen's outspokenness, he actually could be able to leave the country with his family. 

Now, as the Post shrewdly observes, "China’s Foreign Ministry said the self-taught lawyer would have to apply 'through normal channels ... like any other Chinese citizen' — which would mean returning home to the village where he has been confined and beaten, in order to obtain a passport."  Still, if the rhetoric between the U.S. and China on this boils down to Clinton asking the Chinese government to "expeditiously process" Chen's visa application, then this is a really big dog that didn't bark.   

For other big thoughts on the matter, read these posts by Sam Crane, as well as this assessment by Walter Russell Mead.

What do you think?

To date, your humble blogger has never meet a free-trade agreement (FTA) he didn't like.  Sure, in a perfect world I'd like to see the multilateral trade rounds have priority.  The perfect is often the enemy of the good, however, and FTAs often carry with them significant non-economic benefits.  Signatories to U.S. FTA's, for example, often see an improvement in their human rights record. 

I have to admit, however, that the FTA Economic Cooperation Framework Agreement being talked about in this NYT article by Jonathan Adams gives me some serious pause: 

As negotiations move ahead on a Taiwan-China trade deal that could lower tariffs on handmade shoes and hundreds of other products from the mainland, fears are mounting that the island’s traditional industries — like shoemaking — may suffer, even as high-tech, financial services and other sectors gain from freer access to the giant market across the strait.

The government, however, contends that the benefits would far outweigh the costs, and Taiwan’s president, Ma-Ying-jeou, hopes to use the agreement to fully normalize economic relations with Beijing while expanding the island’s access to other markets.

“We can handle diplomatic isolation,” Mr. Ma said last month, “but economic isolation is fatal.”

The Economic Cooperation Framework Agreement, the Ma administration says, would be a prelude to similar deals with Malaysia, Singapore and, eventually, Japan or the United States. “Once E.C.F.A. is signed, we want to sign other free trade agreements and try to use mainland China to link with international markets,” a trade official involved in the negotiations, Hsu Chun-fang, said....

The economies of Taiwan and China are already connected. Taiwan has invested $150 billion in China since the early 1990s, according to a Taiwan government estimate. About 40 percent of Taiwan’s exports already go to China, where they face average tariffs of 9 percent. Half of those exports are semifinished goods that are shipped to factories for assembly and other value-added services and then re-exported, according to Mr. Ma.

I get the economic logic behind this E.C.F.A. -- it would unambiguously benefit Taiwan's economy to have something like duty-free access to the mainland. 

The security ramifications are troubling, however.  While China's economic leverage over the United States is limited, this kind of agreement would ratchet up the asymmetric dependence of Taiwan on the Chinese economy.   Maybe Taiwan has already crossed the point of no return with regard to interdependence with the mainland -- but this agreement would surely guarantee  crossing that threshhold. 

What would China do with this leverage?  I don't know, I really don't.  If Beijing plays the long game, they would allow for the build-up of political interest groups in Taiwan with a powerful incentive to appease the People's Republic in order to keep the economic relationship unruffled.  The thing is, China has often been clumsy in its initial attempts to translate economic power into political influence, and I could easily see such a misstep occurring a few years from now. 

Perhaps I'm being paranoid about this.  The one thing I'm certain about, however, is that the most likely flashpoint for a great power confrontation between the United States and China is anything involving Taiwan.  So I get veeeeeeerrrrrrry nervous about anything that upsets that particular apple cart. 

So, you might have heard that Google is having a spot of trouble in China -- and is threatening to pull out of the Middle Kingdom altogether. 

Both FP's Evgeny Morozov and Jack Shafer suggest that Google isn't just doing this out of the goodness of their heart -- they have to be doing it because their market share is eroding to Baidu and this is the way to deflect with dignity.  Today's stock market suggests that they might have a point. 

The thing is, a 33% share (and possibly rising) in that market is not a trivial amount of dollars.  An estimated $600 million in cabbage is not easy to walk away from.  A true cynic would have predicted that Google would have kept its mouth shut, taken its lumps, and still tried to outcompete Baidu.  Google didn't.

The New York Times's Keith Bradsher and David Barboza make a more intriguing argument -- the Chinese government is making life increasingly miserable for Western multinationals:

Google is far from alone among Western companies in its growing unhappiness with Chinese government policies, although it is highly unusual in threatening to pull out of the country entirely in protest.

Western companies contend that they face a lengthening list of obstacles to doing business in China, from “buy Chinese” government procurement policies and growing restrictions on foreign investments to widespread counterfeiting.

These barriers generally fall into two broad categories. Some relate to China’s desire to maintain control over internal dissent. Others involve its efforts to become internationally competitive in as many industries as possible.

Then there's this from the Wall Street Journal's Ian Johnson and Jason Dean:

The Google syndrome caps growing complaints by foreign businesses over a deteriorating business environment. Both the European Chamber and the U.S. Chamber of Commerce in China have issued reports sharply critical of China's business environment. During the 1980s and '90s, foreign businesses were assiduously courted by China's leaders and responded by bringing to China technology, training and international best practices.

In recent years, however, foreign businesses have complained that the official line has shifted. Younger bureaucrats are more nationalistic and skeptical of the value of letting in foreign companies, [head of the European Chamber of Commerce in China Jörg ] Wuttke says. Last year, for example, foreign executives said bidding practices for wind energy were rigged to exclude foreign companies.

"There's a general attitude in the foreign business community that it's getting tougher to do business here," said James McGregor, a senior counselor at APCO Worldwide and author of a book on doing business in China. "This could be a bellwether."

Not all Western multinationals feel this way.  Still, this raises a question I find most interesting -- how much of what China is doing is intentional and how much of it is a PR cluster f**k? 

I can see it going either way.  China is definitely more powerful than it used to be, and maybe they've been drinking the Robert Fogel kool-aid.   Greater power usually leads to greater nationalist pride, so I can kinda sorta see this being a conscious strategy by Beijing to throw its weight around.

The thing is, it's a remarkably clumsy effort.  Consider James Fallows on this point:

In a strange and striking way there is an inversion of recent Chinese and U.S. roles. In the switch from George W. Bush to Barack Obama, the U.S. went from a president much of the world saw as deliberately antagonizing them to a president whose Nobel Prize reflected (perhaps desperate) gratitude at his efforts at conciliation. China, by contrast, seems to be entering its Bush-Cheney era.

China could be throwing its weight around -- or it's bureaucrats could be much less cohesive than outside observers believe. 

Developing....

UPDATE:  John Gapper and David Pilling are worth reading on these points as well.