The United States vs. China. C. Fred Bergsten

and the systemic transformation of the late nineteenth and early twentieth centuries, when Wilhelmine Germany challenged Great Britain for global leadership. Kissinger (2014) recalls the Crowe Memorandum, produced by the British Foreign Office in 1907, that posited an existential threat to British interests from the rise in German capabilities, whatever its contemporary intentions.³ There is an “uncanny resemblance” to the current situation (Brunnermeier, Doshi, and James 2018):

Both rivalries take place amidst the emergence of economic globalization and explosive technological innovations. Both feature a rising autocracy with a state-protected economic system challenging an established democracy with a free-market economic system. And both rivalries feature countries enmeshed in profound interdependence wielding tariff threats, standard-setting, technology theft, financial power, and infrastructure investment for advantage … Both countries (Germany then and China now) believed that catching up with established powers required state-directed economic and technology programs. Fair competition was beside the point and national strength was the goal under both Otto van Bismarck and Deng Xiaoping, to the eventual detriment of relations with free-market Great Britain and the United States.⁴

The New Systemic Shocks

      Five developments over the past decade or so raise the possibility of a more rapid transformation of global economic leadership or even a Chinese “dash for dominance.” First, the global financial crisis, which originated in the United States and whose second major phase emanated from its closest allies in Europe, and the responses to it were viewed by many in China (and elsewhere around the world) as an inflection point in the evolution of the global economy. The episode both generated new self-confidence in China and shook global confidence in the traditional leading countries and their market-based economic model, and even in their democracies. China, in particular, began to question the wisdom and judgment of its “previous teacher,” the United States, and was emboldened to think even more aggressively about its own global role (Paulson 2011; Geithner 2015). The highly successful conduct of the Beijing Olympics in 2008 added further to China’s self-confidence and hubris in this pivotal period.

      The success of China’s recovery and its provision of more than one quarter of all global growth for the succeeding decade, and its rise to the no. 1 position in global GDP (at PPP) and world trade in the years after the crisis, validated its model of state capitalism in its own mind and in other quarters. They added substantially further to its impact around the world.

Second, China has modified its own development strategy in ways that potentially escalate its challenge to the existing global order. Though always retaining an important role for the state, China appeared to be moving toward increased reliance on the market, and even its version of free enterprise, from the outset of its economic reforms in the late 1970s at least through the middle 2000s (Lardy 2014). It has continued to declare its commitment to such a path – indeed, escalating its rhetoric to speak of a “decisive” role for the market as late as 2013.

      In practice, however, China has devoted renewed emphasis to state enterprises and the role of the government, and especially of the Communist Party, over the past decade or longer. Investment and credit, which had increasingly been directed to private firms, have been reoriented to the state sector (Lardy 2019). Central planning has regained a major role (Wu 2016). The “Made in China 2025” strategy, designating ten cutting-edge sectors for Chinese global domination and promoting new national champions to advance those goals, and its successors became a centerpiece of economic policy.

      The model that China presents to the world, after having converged toward global norms and even the Washington Consensus for three decades, has seemingly reversed course. Though some knowledgeable Chinese predict that reform will inevitably return to center stage, this shift could represent another historic inflection point that challenges the underlying concepts of the existing international order and many of its specific rules and norms.

      Third, the seizure of indefinite authoritarian power by President Xi Jinping could accelerate the impact of these changes on Chinese economic policy. Internally, Xi and the CCP seemingly have authority to enforce the state-centric trend of economic policy even as they reverse the course of their predecessors (including Deng Xiaoping). Externally, Xi has forcefully and repeatedly stated his intention to restore China’s role at the center of the international system and to achieve “a new type of great-power relations,” in which China would enjoy global status on par with the United States. With his expanded tenure in power, which could last at least until 2035 (Rudd 2021), Xi is “a man in a hurry” who believes that the next 10–15 years could provide China with unique opportunities (Blanchette 2021), and could indeed seek to initiate a Chinese “dash for dominance.” There is some pushback within China to Xi’s ascent but these political changes too are likely to intensify the global leadership contest.

Fourth, the onset of the novel coronavirus in 2020–1 opened a new and further damaging front in the growing conflict between the United States and China. There was plenty of blame to go around: China hid important information about the outbreak and subsequent evolution of the pandemic, and the United States badly mishandled its spread to American shores. But President Trump chose to accuse China of exporting the disease, even doing so deliberately to attack the United States, and of co-opting the WHO for its own purposes (and encouraged anti-Asian racism within the United States as a by-product). Some Chinese countered by blaming Americans for igniting the initial outbreak in Wuhan. Arising in the already fraught context of the trade war, this public health crisis further exacerbated the tensions and conflict between the two superpowers. China’s relative success in responding to the crisis, in both health and economic terms, probably tilted the global contest further in its favor and even reinforced its view that its health system is superior to that of the United States.

      Fifth, as will be seen in chapters 2 and 6, the policies of President Donald Trump and the anti-globalization tendencies of its internal politics may indicate that the United States is no longer interested in asserting global economic leadership, at least to the degree exercised in the past (Daalder and Lindsey 2018). President Trump’s withdrawal from the Trans-Pacific Partnership (TPP) and the Paris accord on climate change, after his predecessor fought long and hard to achieve both, were dramatic cases in point. So were his neutering of the dispute settlement mechanism at the WTO and his withdrawal from the WHO in the wake of the coronavirus pandemic. President Trump’s overtly protectionist trade policies struck at the heart of both the postwar order and US leadership of it. All these steps created major tensions with traditional allies, whose participation in the hegemonic coalition had made it potentially dominant well into the future even if China were to increasingly exceed the United States on most bilateral comparisons. Those allies explicitly rebuked the new US policies at the G-7 summit and OECD Ministerial meetings in June 2018.

      President Trump of course brought his own concept of global economic leadership: “Make America Great Again.” He viewed his widespread use of tariffs (and threats thereof) and bullying tactics as a reassertion of American power that would resolve the “hegemon’s dilemma,” the lead country’s inherent tendency to be saddled with excessive costs to provide the needed global public goods because other countries are unwilling to pick up their fair share of those burdens.

In the short run, and undoubtedly with some lasting impact, however, President Trump’s policies had the opposite effect. By violating fundamental rules and norms of the system himself, he invited others to follow suit (and emulate many of China’s proclivities, including trade and investment restrictions) and jeopardized its basic institutional foundations. By attacking allies and multilateral institutions, as well as adversaries, he threatened the hegemonic coalition on which the entire international economic order (and much of US power) is based. He raised doubts about the reliability of America’s global economic leadership (and much else), which survive his presidency because some degree of Trumpism may well continue with or without President Trump himself. By challenging the long-standing (if increasingly debated) consensus in favor of globalization, both domestic and around the world,