With China At Our Heels

Introduction

As the global position of the United States as the dominant power in the world order deteriorates, China is quickly closing the gap with fierce economic competition. Despite China is the closest economic and military competitor the United States is presently concerned with, China’s recent fortunes do not necessarily have to galvanize a wresting hegemonic transition between world powers.

This is because although China’s successes could herald a reorientation of the world order from a Western-centered one to an Asian-centered one, it is important to consider that China does not just compete against the United States alone, it also faces a Western-centered system that is characterized by transparency, integration, and rules and regulations with powerful political implications.

Since the conclusion of World War II the United States led in the creation of universal institutions that brought democracies and market societies together under the unifying banner of cooperation and mutual gains for all participants. This is how the current system encourages participation and discourages attempts to alter it. The existing order is distinctive in that it has been more liberal than imperial and so unusually accessible to third parties that it has received significant recognition of legitimacy. Its rules and institutions are derived from the evolving global forces of democracy and capitalism and is a self-rewarding and – consequentially – a self-enforcing system. It is expansive with a broadening swath of participants, prospective participants, and current stakeholders, which make it difficult to overturn and easy to join. China has already discovered the massive economic returns that are possible by operating within this open-market system ostensibly because it is through this order that all its progress to date was made possible.

The United State’s power and influence over the Western order allows it to design and reconstruct the environment in which China will be making politically and economically strategic choices. Therefore the strategy the United States should employ would give China greater incentives to integrate into the Western-centered system, recognize its legitimacy, and offer its support to that system. The present conditions of the order are already very attractive because the post-WWII Western order has an unusually high level of solidarity circumscribing a widely endorsed system of multilateral institutions that regulate a plethora of global and regional issues, economic issues, and political and security-related issues. The United States and its Western allies have conjunctively established an unmatched foundational basis for cooperation, interaction, interdependence never witnessed before, and cooperative authority over the global system.

Meanwhile, actions we can take at home are just as important as important as actions we take abroad. We can and should enact domestic policy that will buttress our position in the world order by having sound economic and fiscal policies concerning taxing and spending, and increased investment in technological research and development, and education. Cutting excessive and unnecessary spending is the first and most crucial step, raising tax revenue is the second step, and printing more money to devaluate the dollar is the third step. Together these policies should result in economic stability, more efficiency in government, and increases in domestic manufacturing. The subsequent increase in the level of exports from the devaluated dollar and rise in domestic investment should begin to close our trade deficit gap. From this position we can challenge China on the technological and educational fronts to make ourselves a more potent challenger and cling to our agency within the current world order, and limit our losses from failed policies.

Although transitions in power have traditionally been, and conventionally are, between two countries – a rising power and a declining hegemon – the current system is an anomaly in this respect. The larger collection of capitalist democratic states and the resulting accumulation and organization of geopolitical power shifts the balance in the Western order’s favor. These incentives generate a motivation for China to integrate into the liberal international order, and are reinforced by the nature of the international economic environment. The new interdependence between countries of the modern world is partially driven by technological advancements in production.

 

 

The problems negatively affecting productivity and growth in the United States economy

China is expected to surpass the United States’ economic capabilities by 2020, and some believe they will transpose their economic might to military strength to become the new global hegemon, freely exerting its will over the rest of the world. However it would have to do so within a network of international institutions far more developed than ever before in human history. Additionally it is doing so while currently making active use of these institutions to promote its own development and status as a global power in the international arena. China is increasingly working within the Western constraints, rather than against the Western order as an externality: they are a permanent member of the United Nation’s Security Council, and they utilize the World Trade Organization to maximize the reach of their exports and minimizing their cost.

China has a mammoth and burgeoning trade surplus and the United States is struggling with an enormous and expanding trade deficit. This is to say that for China the number of exports dramatically exceeds the number of imports consume, and for the United States imports we consume dramatically exceeds the number of exports. Simply put, the United States consumes far more goods than it produces and China produces far more goods than it consumes. The goods China does import are mainly input-commodities for production such as raw materials and fuels while exporting primarily manufactured goods such as motor vehicles, electronics, and other high-tech products. This specialization of production affords China the ability to corner markets and dominate production of certain goods, from which only they will benefit because those high-quality goods can only be produced by them.

A nation’s balance of payments is equal to the difference between private savings and national investment. A nation with a savings rate that’s greater than its investment rate will most likely have a trade/payments surplus, and a nation with a savings rate that’s lower than its investment rate is likely to have a trade/payments deficit. Although such a deficit is not necessarily a bad thing on its own, it can only be validated through significant gains from national investment which can then be used to increase private savings. China’s national savings rate has been very high over the past two decades, whereas the American savings rate was comparably lower over the same period.

Meanwhile our current tax code is a relic of Reagan-era tax cuts on wealthy individuals and corporations complementing a system of large government and high government spending. This creates conditions of stagflation and is not optimal and hardly beneficial at all. The tax cuts are defended on the grounds that the money will be reinvested into the US economy, creating more jobs and subsequent government revenues and the US will see growth. However in a global system such as ours there is no incentive for profits to be reinvested within our own borders when it’s far more profitable to invest that money in Asian markets such as China’s or India’s. Therefore we are hemorrhaging money to the very countries who are challenging our strength, which is not a particularly wise strategy.

Although it is improper to blame China entirely for America’s trade deficit, they still use unconventional methods to succeed which sometimes go beyond any ethical threshold. China doesn’t play by the same rules as everybody else in the international economy. Chinese policy has been designed to generate a trade/payments surplus and to make China the world’s dominant industrial and technological power, through the sacrifice of immediate improvements to conditions in the lives of Chinese citizens. China has unfairly kept its economy closed to non-Chinese goods, protected its domestic market, and employed other devices such as export subsidies and dumping to achieve a trade surplus, artificially low interest rates. China also employs a strategy of digital espionage and piracy of United States intellectual property rights that costs United States companies literally trillions of dollars a year. Chinese companies – often under government instruction – will steal production plans and market strategies and use them to their advantage, yielding huge costs to American.

The debate about dealing with the national debt has been characterized by two sides: the Democrats wish to raise taxes and cut government spending, and the Republicans wish to cut more government spending and additionally cut taxes. However the common misconception in this debate is that we all must choose between paying lower taxes and receiving more in government services. By cutting wasteful spending and closing corporate tax loopholes we could make the government’s use of tax dollars more efficient. But largest government spending issues are in the big middle-class items such as Medicare, social security, and the mortgage- interest deduction. Federal taxes are currently at 15% of GDP, which is historically low, and government spending at 24% of GDP, there is no realistic way to close the gap without increasing tax revenues by either raising rates or eliminating deductions and loopholes.

 

Solutions to the identified problems consistent with maintaining a powerful international position

China’s usurpation to the position of hegemony is not entirely inevitable, however at this point it can be deemed reasonably likely. It can also be deemed reasonably likely that should China reach this position it will want to reorganize the global operating system to its favor, eliminating things such as liberalism and democracy from the system altogether. But the Western order has the potential to turn the coming power shift into a peaceful change on terms favorable to the United States but that will only happen if the United States sets about strengthening the existing order through heavy investment and attention given to international institutions making them more effective and persistent.

Our first step should be a method of prevention to contain the threat. Raise taxes on America’s highest tax bracket and corporations and close corporate loopholes to increase government revenue. Cut unnecessary spending, specifically in the areas of foreign aid, Medicare programs, and provide United States citizens the option of not participating in the social security as they are unconstitutional programs.

Of Obama’s predecessor George W. Bush’s administration, many officials were hostile to the liberal multilateral rule-based system that the United States has built and since dominated. This would not be a rational position to take in my opinion. China will keep accruing power for itself and the United States’ most powerful strategic defense against that is the ability to decide what sort of international order will be in place to receive it. China will surpass the United States as the largest state in the global system sometime around 2020. And because of its burgeoning population China only needs to have a level of productivity one-fifth that of the United States to become the largest economy in the world by this time. But despite this dramatic increase the Chinese economy will still be much smaller than the combined economies of the OECD for the foreseeable future. This is the same with military strength because China will not be able to compete with the total OECD military expenditures anytime soon.

Therefore, if China intends to challenge the current order then it has a much more comprehensively challenging obstacle than economically and militarily surpassing the capabilities of the United States. The concerted efforts of the remaining stakeholders in the Western world order will exceed those manageable by China alone. The “unipolar moment” will inevitably pass and when it does U.S. grand strategy should be crafted around the question of what kind of international order would be most beneficial to the United States when it is less powerful? If the United States can’t prevent the rise of China or limit its own catastrophic losses, but it can ensure that China’s subsequent accumulation of power is only exercised within the regulations of institutions that the United States and its partners in the Western world order have established, rules and regulations concerning war and trade can protect the interests of all states in the future.

 

Conclusion:

First, we should invest heavily in the institutions that support the Western-centered world order which we so greatly depend on in a platform on which we are rapidly losing ground to China, making them more efficient, more effective, and ensuring they will protect us from Chinese domination if and when they reach the position of hegemony.

Second, we should invest heavily in research and development in the areas of technology and education, so we can boost our global standing in math and science and specialize in market production. Providing the next generation of Americans with improved education specifically in the areas of math and science will assist in the successful future of competitive American capitalism.

Third, we should raise tax revenue by increasing the tax rate on the wealthiest Americans and corporations and closing tax loopholes, and cutting unnecessary government spending. This should increase government’s efficiency and legitimacy and provide sufficient funds for the previously mentioned investments and prevent suffocation of small and developing businesses by their successful domineering multinational counterparts. We should be moving away from corporatism and back to the roots of the successful capitalist system which was based in the principle of freedom.

One comment

  • Good thoughts on China. Well put together. Good reading. Thought provoking. And I happen to agree with almost everything. Except:

    I’d suggest that it would be stronger without the quick, revolutionary (if not reactionary) asides:
    For one, your great uncle wrote the social security legislation, and he deserves better than an accusation of “unconstitutional.” I’ve heard it argued, and been convinced, that Social Security did more to relieve fear, promote happiness and engender social justice and cohesiveness than any other legislation in the twentieth century. The accusation of unconstitutional has been leveled at pretty much any serious reform from the beginning, but the constitution is an evolving document, as it was designed to be. A southern conservative (and many others) from revolutionary days would be horrified by the changes that the amendments have wrought on the constitution. But that was the plan, flexibility and organic growth.
    Secondly, foreign aid is less than 1% of the budget, a smaller percent than most if not all other democracies. It is a favorite target of the right, even though it has mostly gone to Israel and and the dictators of Egypt. I don’t like those choices, but less than 1% just isn’t enough to worry about.
    Third, cutting medicare just hurts the poor, and pushes health cost around (emergency rooms at local county hospitals, for example). Instead focus on where the real money is: the cost of health care, which is double per person what it is in any other developed country… with worse health outcomes (the US is ranked 17 in world health comparisons). Those countries control costs through socialized medicine. No other method has worked.
    Last, beware the expression: unnecessary government expenditures. There is no such thing as unnecessary, only priorities and principles. Every expenditure is seen as necessary by someone. I believe half our military budget is wasteful and in the case of nuclear weapons, actually dangerous to our security. No republican would ever agree with me, ever, no matter how many ways I argued my point.
    And another thing: I’m not convinced that math and science is what will save this country. The asian countries will always beat us at that. I think we can offer something else, ideas rooted in a sense of adventure and imagination. That’s how our arts and entertainment industry still dominates the world and that’s how the US invented computers and all that went with them. Jobs was a designer, and Gates was a businessman; if they were just math geeks, nothing would have happened. And before that, cars and planes and all that. When we needed to go to the moon, and needed a physics guy, we brought over an old nazi to design our rockets. Too bad Hitler didn’t dream of going to the moon, the way Kennedy did, instead of what he did dream of.

    Anyway, thanks for the article. Much to chew on.

Leave a Reply

Your email address will not be published. Required fields are marked *