China and the State of the Union

China has become such a reliable prop in the State of the Union that I half-expected it to stand up in the balcony for an anxious cameo. Two years ago it was in a list of admirable upstarts “not waiting to revamp its economy,” the President said, ticking off a club that included allies, Germany and India. Last year, he sharpened the sense of a challenge, framing China as the ambitious arriviste—“home to the world’s largest private solar research facility, and the world’s fastest computer. So, yes,” Obama said, “the world has changed.”

But last night the tone had changed:

Tonight, I’m announcing the creation of a Trade Enforcement Unit that will be charged with investigating unfair trade practices in countries like China. There will be more inspections to prevent counterfeit or unsafe goods from crossing our borders.

Enough with the inspiration. We’re inspecting shipping containers now. “It’s not right when another country lets our movies, music and software be pirated. It’s not fair when foreign manufacturers have a leg up on ours only because they’re heavily subsidized,” Obama said. “I will not stand by when our competitors don’t play by the rules.”

That will draw cheers companies that have pushed for anti-dumping and piracy investigations, as well as the U.S. trade officials who have been arguing that China has flunked several key promises it made to enter the World Trade Organization a decade ago. This line also has political value against Mitt Romney, who has sought to establish himself as the harshest voice on China in the race.

Does this signal an explosive season ahead for China and the U.S.? The year of the black water dragon is upon us over here—the firecrackers in the alley outside are going day and night this week—and the Chinese fortune tellers are foretelling an “especially inauspicious” year for the world economy. China does not seem to have the appetite for a trade standoff with the U.S. at the moment. On the contrary, it is turning inward at the moment; it just broke a thirty-year tradition by not sending any high-level officials to Davos, and it is focussed on domestic politics as it prepares for its own political handover to a new Politburo this fall.

After the speech, I called Arthur Kroeber, an American who is managing director of GK Dragonomics, a Beijing-based economic research firm, for his take. He had some other numerology in mind: “China is a big issue in U.S. politics in odd-numbered years, because there is no election. In 2005, 2007, 2009, 2011, we had the peak of the currency debates. But in every case, the closer you got to an actual election, China evaporated as an issue.”

In the opening weeks of 2012, Americans have, perhaps, a more deeply visceral reaction to the China-jobs issues than in previous cycles, but Kroeber has a prediction: “Obama made a few gestures on stronger trade enforcement, which signals to your base that you’re on the right side, and then you move on and forget about it once the real campaign is started. And I’ll bet you anything you want that once the Republicans actually have a nominee, it will be a remote issue.”

Listening to the speech from afar, Kroeber was most struck by how familiar the issues sounded to what the Chinese are discussing every day: the demand for economic fairness, the urgent need for innovation, and the appeals to national pride. It is a curious fact that the very moment the United States is acclimating to its first major challenger since the Cold War, that challenger is bracing for its own political transition (not remotely democratic, mind you), and trying to refashion an economy to reward more of its citizens.

“Both of these large countries are struggling with different but fundamentally similar types of enormous income-equality problems and economic transitions,” Kroeber said. “In China, it’s about how to move away from the low-end export-driven economy, and in the U.S., it’s the post-industrial question: How do we drive job growth now that we can’t employ thousands of people in steel plants? If you’re a glass-half-full person, you would view those similarities as a positive thing. Fundamentally your problems are pretty similar.”

Photograph by Jim Watson/AFP/Getty Images.