China Versus America

By Ian Bremmer
Prospect Magazine, March 2010
 

Edited by Andy Ross
 

Chinese officials argue that their country's resilience in the face of America's meltdown has vindicated Chinese state capitalism. China has embarked on a process of economic and political decoupling from the west. But there is still considerable mutual dependence between the United States and China.

American policymakers must ensure that U.S. power remains indispensable to China's rise. This will not be a popular undertaking in Washington. Americans will be asking why a country with 10 percent unemployment can't persuade a country with 10 percent growth to respect trade rules and play a responsible role on the global stage.

The collapse of European communism taught China's leadership that to hold onto power, it must succeed where other socialist states had failed by offering people a rising standard of living. Building China's economy meant establishing the country as an export powerhouse.

The creative destruction that comes with decades of double-digit growth has created big problems inside China: disparities of wealth between coastal cities and the rest of the country, serious environmental damage, and social unrest. The Communist party is using markets to create wealth that can be directed as officials see fit. The motive is to maximize the state's control of development and the leadership's chance of survival.

China's ambitions have provoked a sharp response from high-tech companies in the United States and Europe. They charge that China's policy of favoring products made with domestically created intellectual property proves that Beijing is no longer even pretending to observe international intellectual property rules. The predicaments of Boeing and Google illustrate how the U.S. and Chinese brands of capitalism are pushing Washington and Beijing toward conflict.

China will not mount a military challenge to the United States any time soon. A cold war-type conflict is much more likely to develop over issues of economic security than military confrontation. Charges of Chinese corporate espionage will complicate the efforts of Chinese companies to invest in the United States. And western companies will find themselves competing for natural resources across the developing world with Chinese state-owned companies.

America's cold war experience offers a useful strategy. The stalemate imposed by mutually assured destruction created a sense of stability. Today, the United States and China are locked in a new form of mutually assured economic destruction. America still needs China to help finance its debt. China needs access to U.S. consumers to keep unemployment in check and for continuing foreign investment.

Over the next several years, hard power will ensure that the United States remains indispensable for global political and economic stability. The United States now spends more on its military capacity than all potential competitors combined. It outspends China by about eight to one.
 

AR  I see the need for a tripartite world order: China, the United States, and the European Union. Then we shall have the follow-the-sun coverage we need for seamless Globorg.
 

America and China in 2020

By Ian Bremmer
World Affairs, July/August 2010
 

Edited by Andy Ross

Increasingly, the United States and China are in a zero-sum competition for resources and wealth.

There is still considerable mutual dependence in U.S.-Chinese relations. The financial crisis of the past twenty months has produced significant aftershocks in China. The risk of an intensifying cycle of recrimination is increasing. To manage this risk, U.S. policymakers should find every available means over the next decade to ensure that American economic and military power remains indispensable to China's rise.

China's commitment to foreign trade and investment has generated an astounding three decades of double-digit growth. Western firms are now banking on the promise of steady long-term profits as China develops what is expected to become the largest middle class in history.

Yet over the past several years, China's leadership has also been forced to embrace the natural volatility and often toxic side effects that come with decades of hypertrophied growth in a developing country. Rapid industrialization has done enormous environmental damage, displaced huge numbers of people, and widened wealth gaps between coastal cities and the interior.

The leadership has invented state capitalism with Chinese characteristics. China's finance ministry has reported that state companies produced $3.3 trillion in sales in 2009, about 70 percent of the country's GDP. China's political leaders are using markets to create wealth that can be used to maximize state control of the next phase of development.

As China's need for foreign investment wanes, so will the influence of foreign companies. Chinese companies are already using their new leverage within the political bureaucracy to win advantages and protections that force their competitors onto a less-than-level playing field.

A growing number of U.S. companies have begun to complain about the Chinese government's plan to support homegrown intellectual property. Beyond claims of espionage, high-tech firms in the United States and Europe now charge that China's policy of favoring products made with domestically created intellectual property in government procurement proves that Beijing has lost interest in even pretending that it will observe international intellectual property rules.

A perceived shift in the balance of power within U.S.-Chinese relations are pushing Washington and Beijing toward conflict. The Chinese leadership has made it clear that its primary goal is to create new jobs and to ensure steady and predictable economic growth. Beijing has every incentive to resist any commitment that distracts from that ongoing project or exposes China to unnecessary risk.

Washington is wise to continue to seek closer economic integration with China and to try to work toward eventual realization of a G-2 model of cooperation. Between now and 2020, U.S. policymakers should do everything possible to cultivate mutually assured economic destruction.

The U.S. government should also invest in its hard power. Soft power played a crucial role in helping America outlast the Soviet Union, and it will continue to help extend U.S. political and cultural influence. But hard power can ensure that the United States remains internationally indispensable for political and economic stability.

China will one day possess a much more substantial military capacity than it has today, and China will expand its political, economic, and cultural influence. But China has no reason to gamble its economic future and political stability by challenging U.S. hard power outside of Asia.

There will be more battles like those with Google and Boeing as Beijing responds to threats from Washington by limiting the access of U.S. firms to Chinese markets. China and other governments that embrace state capitalism will increasingly direct trade flows toward one another, sharply lowering the trajectory of economic growth in the West.

By 2020, America and China will have more than ever to gain from closer ties.