The United States vs. China. C. Fred Bergsten
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increasingly frequent and severe. Income distribution has regressed within numerous countries, including the United States and China. Wages have been stagnant in some, including the United States. Domestic opposition to features of the system – most notably the backlash against globalization in the United States itself dating from the middle 1990s – arose on numerous occasions in numerous quarters.
The overall record, however, is a stunning success. Per capita incomes have risen six-fold over the postwar period. Across the globe, income is more equal than it has been in centuries (the Gini coefficient improved from 0.60 in 1990 to 0.47 in 2013, though it is still much too high) as poor people in China and other poor countries advanced rapidly. More than three dozen countries have graduated from developing to high-income or middle-income status. A billion people have escaped extreme poverty in the last two decades; the share of the global population living in extreme poverty fell from 40 percent in 1980 to less than 10 percent in 2015 (prior to the coronavirus pandemic). Far fewer people than ever go hungry; the share of the world’s population that is malnourished has fallen from 50 percent to 13 percent since the 1960s. Advances in technology have been breathtaking and occur at an accelerating pace.
Both the United States and China have benefited enormously from the postwar order. The US economy is $2 trillion richer per year as a result of the globalization of the past 75 years (Hufbauer and Lu 2017). Though it started late, entering the world economy only with its reforms of the late 1970s, China has been by far the greatest single beneficiary of the global system: its nominal economy grew by 37 times from 1978 to 2018, its average standard of living multiplied by a factor of 26, its share of the world economy rose from less than 2 percent to 16 percent, and its per capita incomes expanded from one fifth of the world average in 1949 to that average itself (Yang 2020).
The system also succeeded in heading off the risk of a second Great Depression in 2008–9. The contrast with the 1930s could not have been greater. Better national policies were of course a central reason, but so was international cooperation to avoid the trade barriers and competitive devaluations that were so devastating in the earlier period. Those outcomes, including the improved national policies, were fostered by international cooperation via the G-20 and through the IMF and WTO.
The system passed its most critical stress test with fairly flying colors (Drezner 2016). It can certainly be improved, but there can be no doubt that it is worth preserving. Ikenberry (2020) summarizes the verdict nicely: “Despite its faults, no other organizing principle currently under debate comes close to liberal internationalism in making the case for a decent and cooperative world order that encourages the enlightened pursuit of national interests.”
The China Challenge
There can also be no doubt that China is challenging the existing order and will do so increasingly over the years and decades ahead. The official Chinese narrative is that its rise to its current and prospective global status is simply a restoration of the country’s historical position. China was the largest economy in the world, at least until 1750, or perhaps even 1850, when the Industrial Revolution enabled Great Britain and Europe, and the West more generally, to supersede it.
The “century of humiliation,” from the Opium Wars until the Communist revolution, deepened China’s demise and instilled a yearning for recovery (and even revenge) that infuses the country’s thinking today. President Xi Jinping importuned President Trump with the Treaty of Versailles, in which the victorious allies of the First World War gave a Chinese province occupied by defeated Germany to Japan, rather than back to China (Bolton 2020). At a minimum, China clearly wants to regain the respect, and preferably deference, that it received during the long era when the Middle Kingdom reigned supreme.
There are already numerous indications of China’s impact on the world, and indeed on the United States itself. China has already pushed other powerful countries, including the United States, to alter their own economic policies. The United States – especially under President Trump, but pre-dating him in some cases and post-dating him in a few – has “fought fire with fire” by adopting restrictive trade, investment, and industrial policies that considerably deviate from its traditional market-based approaches. It raised substantial tariffs against a large volume of imports from China (and other countries), sharply tightened its controls over technology exports, limited Chinese direct investment in the United States, discouraged US investment in China, rejected Chinese students and tourists, and adopted preferential industrial policies and extensive “Buy America” preferences of its own. After decades of supporting a global Internet of open systems, the United States now envisions a restricted Internet that is cordoned off by governments “adopting the Chinese model” (Zakaria 2020).
Many countries, especially in Asia but ranging well beyond it, have emulated Chinese policies such as currency manipulation and industrial supports via state-owned enterprises (SOEs). BRI conditions (or lack thereof) may increasingly dominate traditional multilateral development bank (MDB) conditions in some recipient countries. More broadly, the world is becoming both less market oriented and less democratic – not solely due to China, but certainly influenced by it.
China has also moved to the center of the international bargaining table on a wide range of issues. As a dominant player in the world economy, it had to be invited to join (and, indeed, help to lead) the response to the global financial crisis in 2008–9. Given China’s own institutional preferences, this in turn propelled the G-20, including other emerging markets, to supremacy over the G-7 of solely high-income countries as the chief steering committee for the world economy. China was able to lever these developments to subsequently increase its role in the governance structure of the IMF.
As the world’s largest polluter, China was an essential participant in global efforts to address climate change and played a central role in the Copenhagen conference in 2009 and the Paris Agreement in 2015. As a repressive country, it is increasingly driving the evolution of international rules and norms to govern the Internet. It will have to play a major role in any effective international response to the coronavirus and future pandemics. As noted already, China has also been active in creating new international institutions; one astute observer suggests that “China is meticulously constructing an alternative and parallel global institutional architecture … motivated by Beijing’s long-standing dissatisfaction with what it perceives to be inherent pro-Western biases of the post-World War II institutional architecture” (Shambaugh 2016).
Until recently – and perhaps still – it could reasonably be assumed that any Chinese ascent toward global economic leadership would take place gradually over a period of years or, more likely, decades. China traditionally takes a long-run view and clearly believes that time is on its side as its economy catches up to, and in absolute terms increasingly exceeds, that of the United States, and eventually perhaps even the hegemonic coalition as a group. Deng Xiaoping famously counseled that China “hide its might and bide its time,” to avoid alarming the rest of the world, and that guidance has driven Chinese foreign policy, at least until recently. “The China dream” itself frequently envisages the country assuming a central global role by 2049, more than a quarter of a century away. President Xi has recently reiterated that target date.
Most Chinese leaders have also wanted to avoid disruption of the global system to avoid jeopardizing their overriding priorities: the domestic development agenda and the dominance of the CCP. They have preferred to avoid confrontation with the United States. For its part, the United States, before and after President Trump, has wanted to retain its global leadership role despite faltering increasingly in the exercise of the accompanying responsibilities.
There may nevertheless be a “Thucydides trap” for the world economy. That theory posits inherent conflict between a rising power, in this case China, and an incumbent power, in this case the United States. The economic-only corollary would presumably be less apocalyptic than pure Thucydides.2 However, we are already seeing trade and technology wars between China and the United States. Renewed Cold War has become a real possibility and is promoted by important factions in both countries. Major systemic conflict is clearly possible due to the rise of China, abetted by the flagging will of the United States.
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