I first heard economic historian, Niall Ferguson on a Harvard Business School podcast back in July. One of the topics of the interview with Ferguson was “Chimerica,” a term he uses to describe the co-dependent relationship between the U.S. and China.  Ferguson posted another short article on his blog at the end of August titled, “Chimerica is Headed for Divorce,” and it was so interesting that I thought I would discuss it in this post.

The term “Chimerica,” Ferguson explains, comes from the economies of the two countries being so “intertwined” that they essentially became “one economy.”  Thus the ‘marriage’ analogy. With China’s international reserves totaling $2.1 trillion, 70% of these are in dollar-denominated securities.  But the Chinese aren’t going to stop buying dollars, Ferguson says. If they do, their currency will inevitably appreciate against the dollar and further hurt exports.

But what would be the result of the “divorce” that Ferguson refers to between the two countries?  Ferguson hints that a “cold war” may be on the horizon and a “strategic rivalry” between the two economic superpowers.  All of this is probably obvious to most of you, however, Ferguson did highlight some pretty eye-opening facts in the article.  Take a look at the article and please, post your comments. I’d be curious to see what your thoughts are about the fate of “Chimerica.”

Posted by Corey Curwick on October 6, 2009