HONG KONG – Next year will mark 50 years since U.S. President Richard Nixon traveled to China to meet with Communist Party of China Chairman Mao Zedong and Chinese Premier Zhou Enlai — a major step toward restoring relations after decades of estrangement and hostility.
A half-century later, the progress they launched has been all but lost, and U.S. President Joe Biden is partly to blame.
The ideological differences between the United States and China in 1972 could not have been starker. But both sides recognized the vast benefits of a detente. By isolating the Soviet Union, they hastened the end of the Cold War. And by enabling China to shift its focus to peaceful economic development, they bolstered global prosperity for decades to follow.
Thanks to a large labor force and abundant land, China became a manufacturing powerhouse, enabling international firms to slash their production costs and deliver more affordable goods to consumers. Over time, Chinese incomes grew, and low-cost production began to move elsewhere. But China’s economic progress — in particular, growing demand from its massive domestic market — has continued to benefit the rest of the world.
In fact, as Charles Goodhart and Manoj Pradhan have pointed out, the world owes the Great Moderation — the period of decreased macroeconomic volatility that lasted from the 1980s until 2007 — largely to China’s integration into the global economy. The U.S. reaped rich rewards from China’s rise during this period.
But the U.S. also made several strategic mistakes. The end of the Cold War gave the country an unprecedented opportunity to update the world order for an era defined by new challenges and rivalries. But, as Richard Haass has lamented, it squandered that opportunity, instead dedicating itself — and $8 trillion — to a War on Terror that was flawed in design and a failure in practice.
Meanwhile, the U.S. failed to adapt to a changing global economy. When millions of Americans lost manufacturing jobs, they blamed trade, especially with China, even though technology played a far bigger role. Declining middle-class incomes and rising inequality exacerbated discontent.
The 2008 financial crisis sent these frustrations into overdrive. Beyond highlighting the government’s utter failure to keep the financial sector in check, the crisis showed that America’s position atop the global economic pecking order was no longer unassailable. Whereas the U.S. triggered the crisis and suffered through a recession, China’s growth never dipped below 6%, and the country’s massive 2009 stimulus package helped fuel the global recovery by driving up commodity prices.
Donald Trump won the White House in 2016 by sensing — and then stoking — voters’ growing fears and frustrations, and by portraying the loss of American primacy as an existential threat for which China was to blame. But far from “making America great again,” Trump eroded the country’s global standing further by abandoning commitments, alienating allies, and failing to devise anything close to a coherent strategy for tackling shared challenges. His counterproductive trade war with China is a case in point.
Yet Trump was hardly alone in viewing China as a major threat that must be contained. That much has become clear under the Biden administration, which, despite reversing many of Trump’s other policies, has maintained a hard line on China, and is even attempting to create a coalition of democracies to contain it.
After Trump’s tumultuous four years in office, Biden had an opportunity to engineer a reset, engaging constructively with China, as well as with Russia, to figure out how to manage a multipolar world. Instead of seizing it, he has created the sense that countries may need to pick a side in the U.S.-China rivalry.
Given America’s battered global reputation, Biden may well find that this approach does not produce an entirely favorable outcome. Even European powers have struck a softer tone toward China — with which they maintain crucial economic ties — and have expressed a desire to avoid an overly militarized strategy.
Whether the U.S. likes it or not, a multipolar order is in many ways already here. As recent studies by Harvard’s Belfer Center show, China is rapidly catching up with the U.S. in terms of technology and military capabilities, though the U.S. still leads in finance, research and development, education, and access to global talent.
Moreover, unlike during the Cold War, the leading global powers — especially the U.S. and China — are economic peers. As a 1988 RAND study showed, the Soviet Union’s GDP peaked at 60% of U.S. GDP in 1977. While the Soviet Union was spending 15%-17% of GDP on defense — three times the share in the U.S. — its per capita income amounted to just half of America’s.
By contrast, China and Russia together account for about 77% of U.S. GDP in current dollar terms and 137% by purchasing power parity. Furthermore, the U.S. is weighed down by debt, which has swelled to $29.2 trillion. At 122% of GDP, America’s debt-to-GDP ratio now exceeds its World War II peak of 119% of GDP.
The 19th-century German statesman Otto von Bismarck observed that in a world order dominated by five states, it is always desirable to be part of a group of three. As former U.S. Secretary of State Henry Kissinger has pointed out, this implies that in a three-country order, one should want to be in the group of two.
Instead of isolating itself by alienating Russia and China, the U.S. should engage with them as equals — most immediately to clarify sensitive issues relating to buffer lands and borders. The U.S. should understand well why Russia is so concerned about Ukraine joining NATO, and why China will not accept any declaration of independence by Taiwan or its militarization by foreign powers. The U.S. was not going to tolerate Soviet missiles in Cuba in 1962, was it?
American hegemony is over. But a stable global balance of power is achievable. It is Biden’s move.
Andrew Sheng, a distinguished fellow at the Asia Global Institute at the University of Hong Kong, is a member of the UNEP Advisory Council on Sustainable Finance. Xiao Geng, Chairman of the Hong Kong Institution for International Finance, is a professor and director of the Institute of Policy and Practice at the Shenzhen Finance Institute at The Chinese University of Hong Kong, Shenzhen. © Project Syndicate, 2021
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