During the Trump administration chaos reigned in the China-U.S. relationship; anything including a hot war seemed possible and there was certainly a drift toward a cold war. With the Biden administration the relationship has become more predictable and less confrontational; the focus has shifted to doing better than the opponent. This makes the conflict between the two countries potentially productive for them as well as the rest of the world.
But the world is not out of the woods yet; a drift into cold and hot war is still a real possibility. Because of the United States’ investment capacity disadvantage against China, the EU, Japan, and other lesser powers are in a position to steer the world away from such undesirable outcomes.
Aiming to outdo China, the Biden administration’s announced programs and bipartisan initiatives that accompany them promise to rebuild the United States’ dilapidated infrastructure, enhance its innovation and manufacturing capacity, and improve the lives of the “forgotten Americans” who voted Donald Trump into the presidency. This is likely to make the United States economically, technologically, and socially better off.
Though less confrontational than Trump’s approach, the Biden administration’s policies are likely to make life harder for China. It is likely that the Biden administration, in time, will discontinue or modify such Trump era measures as additional tariffs on Chinese exports, the cost of which exceed the benefit to the United States. But the Biden administration’s embrace, unlike the Trump administration, of cooperation with allies will make it more difficult for China to acquire technology and tools to develop its own technology. Similarly, the Biden administration’s willingness, unlike its predecessor, to give better play to international bodies such as World Trade Organization will make China’s state-led industrial and technological development policies much more difficult to implement.
However, it will not be all bad for China either. When companies have access to the best technology, they have little incentive to take the hard and risky road of developing their own, even with the strongest government push. Technology sanctions leave Chinese companies no option but to develop their own capabilities. Chinese leadership is also moving toward making the country’s economy more immune from sanctions and de-coupling. To this end, the “Dual Circulation” policies aim to make China’s domestic market into the main engine of economic and technological development for the country, as well as to increase its attraction for, and hence the leverage it provides over, other countries. This requires making advances toward solving China’s many big and stubborn problems like the disadvantaged status of rural residents, income inequality, inefficiency of state-owned enterprises, market fragmentation due to local government protectionism, and unevenness of the playing field for the private sector. The 14th Five-Year Plan shows that the country’s leadership will be going after all these problems. Consequently, China, like the U.S., is likely to get better and stronger through this competition.
China-U.S. competition is likely to be good for the rest of the world as well. The productive competition we are already witnessing in areas like infrastructure assistance and vaccine supply to the developing world is likely to intensify. The competition for climate leadership will also make the world much better off.
However, the world may not stay on this track for long. As widely recognized, the fact that in spite of his catastrophic handling of the COVID-19 crisis Trump lost the 2020 election by a small margin shows that “Trumpism lives” in the United States. Toward the end of his days as president, Trump’s policies had turned toward a state of cold war with China. A Trumpist new administration would likely pick things up from there and push the world in that direction.
The costs of a cold war need no elaboration. A divided world would damage global welfare, democracy and freedom, scientific knowledge production, and the ability to deal with global problems. With the two top carbon emitters fighting for survival and deeply suspicious of each other’s intentions, cooperation needed to deal with global warming would likely not be forthcoming and the world would slide toward conditions unsupportive of human civilization.
A populist administration in the United States would make a hot war also more likely. In terms of military power, China is no match for the U.S. globally, being dwarfed in terms of expenditure and assets. But as is well known, the situation is different locally; China has developed a strong capability to degrade U.S. power projection capacity and fight a regional war. It is not taken as given anymore that the United States would win such a war. With such a local balance of power, and with seas around China and Taiwan fertile fields for frictions, misunderstandings, and miscalculations, armed conflict between the United States and China is always possible. A populist administration in the U.S., especially in a state of cold war, would significantly increase its likelihood. In all too many scenarios, such a conflict would lead to a world war, even a nuclear one.
If the Biden administration is not able to improve the lives of the “forgotten Americans,” the middle and lower income citizens of the country whose incomes have stagnated since the late 1970s and whose expected life spans have decreased, a return to a Trumpist administration in the U.S. is a real possibility. This possibility may materialize because of resource constraints. Taking into account the price differences between countries, the Chinese economy in 2019 was about 10 percent bigger than the U.S. economy. China’s national savings rate is nearly 2.5 times that of the U.S. Together these mean that China’s national savings, hence investment capacity, is almost three times that of the United States. And because of its stronger control over the economy, Chinese government can direct the use of this capacity much more effectively.
Under these conditions it may not be possible to simultaneously fund big infrastructure and technology investments, international influence projects, increased military expenditures, and improved lives in the United States. This may open the door to a Trumpist administration, and increase the chance of both hot and cold wars with China. Militarization of the China-U.S. conflict, in addition to directly increasing the chances of an armed confrontation, would exasperate the resource problem by shifting spending toward military and away from expenditures that better American lives.
In other words, the world may drift toward a cold war also because the post-Trump political dynamics in the U.S. tend toward an excessively hard stance that aims to maximize damage to China.
However the national savings of the U.S., EU, and Japan as calculated above match that of China. The three together also equal China in manufacturing value added. The U.S., EU, and Japanese markets together would outsize the Chinese one for a long time to come. To compete effectively with China, while spending enough to put her house in order, the United States needs these allies.
This puts these lesser powers into a position to provide friendly advice on domestic spending priorities in the U.S., to influence the course of the great power competition away from militarization, confrontation, and excessive hardening, and hence to keep the world in a state of productive competition, away from hot and cold wars. The leaderships of these countries should be aware of this power and responsibility.