U.S. Gov Backs Google on China: I Can Feel A Trade War, Coming On….

Google’s publicity stunt over censorship in China could be heading towards a trade war following the decision by the United States Government to back Google.

White House spokesman Robert Gibbs said on Thursday that “We support Google’s action in a decision to no longer censure searches that happen using the Google platform.”

“The President has, strong beliefs about the universal rights of men and women throughout the globe. Those don’t — those aren’t carved out for certain countries. That’s why the President answered the way he did in a town hall in Shanghai about the importance of that freedom.”

China has fired its first response to Google’s threats, with Wang Chen, head of the State Council Information Office and deputy head of the Communist party’s propaganda department, saying internet media “must live up to their responsibility of maintaining internet security”.

“We must do our best to intensify self-discipline (censorship) among internet media to guarantee internet security,” he said.

Google’s decision to threaten China alone was previously just that: Google acting alone. But with the backing of the United States Government, the ante just went through the rough, and the Chinese Government may now perceive Google’s move (if it didn’t already) to be part of a move by the U.S. Government to interfere with internal Chinese governance.

China hasn’t taken well in the past to countries that they perceive to be interfering in internal policy and politics.

The problem for the United States is that at this stage in the global economic cycle, the U.S. needs China more than China needs the United States. The current administration’s massive spending program financed by foreign debt is in a large part bankrolled by China, and although China could suffer if the United States were ever to default on its debt, that same risk doesn’t mean that China couldn’t start restricting future flows of debt to the United States.

But even aside from the debt equation, China proved over the depths of the global financial crisis that it doesn’t need to rely on exports to the United States to continue on a growth path; domestic demand continues to surge in China, and inflation in the United States is kept in check by the cheap flow of Chinese goods.

Here’s what may happen short term: instead of loosening restrictions on foreign investment/ companies in China, the Chinese Government may increase them, making it more difficult for U.S. companies in particular to invest, as punishment for the interference in internal matters.

The United States Government retaliates by imposing restrictions on Chinese investment and/ or the imposition of tariffs of Chinese goods in return, and all of a sudden there’s a full blown trade war. Given the still precarious state of the U.S. economy, if you were having a bet, you’d bet on China winning.