America should worry about an existential threat, and it’s not China

  • Vasilis Trigkas says China today is grappling with many complex problems it has yet to solve, and that will undercut any hegemonic aspirations it may have
  • US fears of a ‘Chinese invasion’ is a reminder of its paranoia about the Soviet Union during the cold war. Washington should look elsewhere for what ails it
PUBLISHED : Monday, 07 January, 2019, 1:00am
UPDATED : Monday, 07 January, 2019, 6:32am

A radio broadcast of Orson Welles’ The War of the Worlds in 1938 provoked panic across the United States about an imminent Martian invasion. “The war of the worlds” could be the subtitle for a plethora of alarming policy reports and statements coming from Washington DC, referring to a Chinese “invasion”, not a Martian one, in US politics and its technological ecosystem. 

Yet, apart from China’s alleged tactical and operational offensives against the US – which could be addressed by targeted countermeasures – does Beijing really constitute an existential strategic threat for America? Will we all soon be paying tribute to the Son of Heaven of a rejuvenated and all-powerful red Celestial Empire leapfrogging the West into technological oblivion?

Flashback to 1979, when US president Jimmy Carter declared a crisis of confidence in an address to the people. Months earlier, CIA analysts had said the Soviet Union was twice as strong as the US. Even as early as the 1950s and 1960s, the Soviet Union was seen as an all-powerful industrial machine. Politicians and economists even proclaimed that a one-party communist regime may be capable of materially outperforming Western democracies. By 1991, all the Cassandras were proved wrong.

Economist Paul Krugman wrote in 1994 that the Soviet Union’s economic expansion was based on “perspiration rather than inspiration”. The three pillars of economic growth are labour, capital and total factor productivity, a variable evaluating technological progress. An agrarian nation starting from a low base can march ahead simply by drawing on its surplus labour and investing in heavy industry. However, as resource pools run dry, the only path towards more growth is through raising total factor productivity (TFP).

China’s TFP growth has faltered in the post-2008 period. The massive stimulus that Beijing unleashed in the wake of the global financial crisis saved the global economy and preserved the growth rate, but undercut domestic productivity improvements. The meteoric rise of investments as a percentage of gross domestic product has even led to China’s output-to-capital ratio (the wealth produced for every dollar invested) falling below that of the US – a paradox, as developing countries usually have higher untapped potential in greenfield investments.

If China is to continue to grow, it needs to empower its innovation ecosystem. It needs to inspire the innovators and entrepreneurs by creating an open society able to attract the world’s best and brightest, Chinese and non-Chinese alike. With its population ageing fast, China’s population dividend is running dry, and it is only by unleashing the human capital dividend that the country can sustain its growth.

Unfortunately, liberal reforms may clash with the Chinese Communist Party’s imperative for strong state-owned enterprises and restrictions on civil liberties. The trade-off will not be easy to reconcile.

To be sure, China’s recent breakthroughs in artificial intelligence, quantum communications (with European collaborators) and 5G networks are foundational for the country’s technological ascendancy. However, as James Lewis of the Centre for Strategic and International Studies pointed out, China’s “new burst of innovative energies came at the end of a period of relative political openness”.

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Even if one considers the optimal scenarios, China’s economy as a share of global GDP may soon reach its climax at around 20 per cent, and this will be less than half of the share the US enjoyed in the aftermath of the second world war when it designed the structure of the global liberal order.

China must also face an increasingly complex geo-economic environment. Surprisingly, given the polarisation in Washington, there seems to be a meeting of minds that the US-China commercial relationship is unbalanced and needs to be fixed. Even Elizabeth Warren – a staunch progressive and fierce Trump critic – once declared that Beijing has “weaponised its economy”.

America has time and again renegotiated its economic relations with key trade partners. In 1971, Richard Nixon shocked the world by unilaterally imposing a tariff on all imports, a blow to European exporters. In 1985, Ronald Reagan coerced Japan into agreeing to the Plaza Accord to depreciate the US dollar.

It is difficult to foresee how Beijing could resist a de facto Plaza Accord – an economic Iron Curtain, in Henry Paulson’s words – if the US prolongs its protectionist measures. Add to this a potential slowdown in the European economy, and Chinese exporters may see their two major export markets evaporate. This will not cause a Chinese economic doomsday but it will undercut growth by affecting investments and the people’s animal spirits.

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The average Chinese today is only one-sixth as rich as the average American. But even a China with a larger nominal GDP than that of America would still be outranked by the combined resources of the US and its allies. While the US is surrounded by friends, China is not equally fortunate. It lacks access to oceans, hindered by island chains allied to the US and cannot project blue-water force.

Some may quote President Xi Jinping’s speech at the 19th party congress – that China could serve as a model for other countries – as evidence of an existential threat for America. Yet it is hard to see exactly how a Chinese model could apply to other nations.

And if the Belt and Road Initiative is a vehicle for China’s global hegemony, then it will be an expensive venture with risky returns. Unlike the Soviet Union, China does not export autocratic politburos, central party schools and other red institutions. Any Communist Party attempt to export its domestic polity will be self-defeating as it will turn the doves in America into outright hawks and unify the Western camp.

China’s political economy and its insurmountable geographical restrictions naturally undercut its alleged hegemonic aspirations. The party’s ability to sacrifice current consumption for future gain cannot resolve the key problem of inter-generational resource allocation – let alone boost productivity.

It is thus the decay of America’s domestic political culture which must influence the strategic outlook of Americans. Neither the Martians nor the Chinese are coming but the demagogues may have already arrived. Another multitrillion-dollar war of choice and another Wall Street meltdown, and America’s social contract could be irreparably broken. This is America’s existential threat.

Vasilis Trigkas is an Onassis Scholar and research fellow in the Belt and Road Strategy Centre at Tsinghua University