Hilary Clinton, Tim Geithner and their Chinese counterparts are busy in D.C. at the first ever China-US Economic and Strategic Dialogue, a high level pow-wow in which the world’s 800 pound gorillas will try and smooth over issues like China’s supposed currency manipulation, trade conflict, disagreements over climate change and worries about the future of the dollar. As president Obama put it yesterday when opening the session: “We can’t predict with certainty what the future will bring, but we can be certain about the issues that will define our times. And we also know this: The relationship between the United States and China will shape the 21st century, which makes it as important as any bilateral relationship in the world. That really must underpin our partnership. That is the responsibility that together we bear.”

The relationship between China and the US is often portrayed as an edgy powder keg of misaligned interests that will inevitably explode at some point when China tries to buy the next big energy company or the U.S. institutes some ill-thought out trade protectionism. I think this is wrong. I actually believe that China and the U.S. are going to become much closer in the years ahead, and that many of the supposed conflicts will never come to pass. Cases in point:

1. The Chinese won’t sell off T-bills. I get so annoyed when TV pundits posit this idea that China is going to someday suddenly dump the $1 trillion in T-bills that it is holding and crash the U.S. economy. Guys, listen up – if they ever did this, their own economy would be the first to tank. What’s more, even if they started moving out of T-bills and towards, say, euros (which they aren’t doing right now), it would take decades for the two currencies to reach parity, during which time all the economies in question would adjust to the new reality. The dollar is going to be less important as a global currency in the LONG run. But the Chinese are in a co-dependant economic relationship with us – if we go down, so do they.
2. The Chinese won’t start a major war over energy. Yes, their demand for natural resources like oil, minerals, water and farmland is increasing rapidly (which has been a very good thing for commodities prices). And yes, some of their recent attempts to buy Western commodities companies (like Rio Tinto, or Unocal a few years back) have been contentious. But let’s get real – the Chinese now have modern, multinational companies that are simply trying to do business by the rules that we set up – they want to acquire companies to meet their growth needs just like anyone else. It’s quite possible that Chinese energy demands will help fuel continuing civil war in places like Africa, where various factions fight for control of natural resources. But those would have happened anyway – commodities nations are simply more prone to conflict no matter who the buyers are. Ultimately, China, the US and other major resources consumers will realize it’s in their best interests to cut joint deals rather than go to war over resources.
3. There won’t be a trade war between the U.S. and China. We heard a lot about “Buy America” a few months ago, but then it sort of went away. Then, a month ago, the Chinese instituted a “Buy China” clause. At first, this ruffled a lot of feathers, but its impact will be negligible. The Chinese might be able to offer subsidies to consumers to buy their own cheap electronics and white goods, but they still need to import all the complex machinery and natural resources to run their factories, and the middle classes would much rather consume upscale retail products made in the US and Europe than buy no-name home brands (at least right now). What’s more, the Chinese know that they’ll suffer most in any trade war – the US and Europe are their biggest trade partners.

While I don’t expect any major economic news to come out of the summit – just more of the same noises we’ve been hearing (say no to protectionism, manage the fall of the dollar and the rise of the yuan, etc), I do think it will be interesting to see how the Chinese-US political relationship develops going forward. Historically, Japan has been the major ally in the Asia-Pacific region. The Obama administration has made it clear that they’d like China to play that role in the future. What kind of a best friend will they be? Watch this space.

The government is ramping up the pressure on employers to prove the legal status of their workforce. Is this good or bad for the economy?

Charles Foster
BAD. This takes an overly heavy stick to business. It doesn't remove any undocumented workers from the U.S. and drives them further into the cash economy, where they're not paying taxes or paying for health benefits. This makes it more likely that as uninsured people, they'll increase the burden on an already overworked health-care system.

Mark Krikorian
GOOD. The business community says it's never a good time to enforce immigration laws, but this is truly the best time to do it. With 10 percent unemployment, there are a lot of Americans who need jobs, so businesses will have an easier time replacing their illegal labor force. This would be excellent for American workers, and the U.S. economy.

Our Verdict
It's unlikely that employment gains would outweigh the big costs imposed on already strapped businesses. To minimize them, employers should only have to reverify the status of new hires, not their whole workforce.

Foster is chair of Americans for Immigration Reform. Krikorian is Executive Director of the Center for Immigration Studies.