The world has changed. Over the past decade, we have witnessed a distinct shift toward a renewed competition between the great powers. The bipolar struggle between the U.S. and China is the new Great Game of the 21st century.
Because both sides have nuclear weapons, we can expect leaders in Washington and Beijing to be reluctant to engage in behavior that might raise the risk of actual war. And we can be thankful that at least one key lesson came out of the Cold War: that neither side can afford to push the system to anything that resembles the Cuban Missile Crisis of 1962. This is the good news.
Yet there is also bad, or at least concerning, news. Great powers need continued economic prosperity to support their militaries and to ensure that they can maintain stability at home in the face of other states’ possible efforts to subvert it. They thus have an ongoing drive to expand their economic and commercial power spheres beyond their borders, and to support these spheres with strong navies and offensive power-projection capability. The American ongoing military presence in the Middle East and the Indo-Pacific regions since World War II and China’s growing naval support for its Belt and Road Initiative are two obvious examples from recent history.
This means that even in the nuclear age, great powers will struggle to improve their geoeconomic positions around the world. They will worry that their adversaries might decide to cut them off from access to vital raw materials, investments and markets (“RIM”). In short, commercial struggles for prosperity and position remain an essential element of great power grand strategy, and these struggles can end up leading to crises that increase the probability of devastating war between the powers.
To see the inherent dangers, we need only remember that the Second World War in the Pacific came directly out of the tightening of an economic noose around Japan beginning in the early 1930s and ending with a total allied embargo on oil exports to Japan in 1941. Chinese leaders are aware that the scenario of 1941 is the one to avoid.
Yet they also know that China must work hard to extend its commercial presence if it is to sustain the growth that has made it the stable and secure superpower that it is today. This tension between needing to expand one’s economic sphere of influence and wanting to avoid an escalatory spiral that might restrict access to vital goods and markets is baked into the DNA of modern great power politics. It is a tension that the U.S. has faced repeatedly since the founding of the republic — and it is the paramount challenge now facing China.
Xi Jinping’s policies have burst the economic engagement bubble, and there is now bipartisan support in Washington to prevent China from growing further in relative economic and military power. Both Republicans and Democrats are now willing to project U.S. power into the Indo-Pacific region to make Beijing think twice about any further aggressive expansion of its influence and control.
But we should be careful not to assume that a rising China will inevitably be as much of a threat as the two biggest rising threats the U.S. faced in the 20th century: Nazi Germany in the late 1930s and Soviet Russia in the early Cold War.
For starters, there has been much loose talk about Xi Jinping having global ambitions to dominate the world that imply parallels to Adolf Hitler and Joseph Stalin. But China started to become more assertive before Xi Jinping; over issues such as the Senkaku Islands near Taiwan and the atolls in the South China Sea just after 2007, for example.
Moreover, while the push to extend China’s economic footprint certainly got a lift with Xi’s Belt and Road Initiative, this initiative was really a new name for a series of policies that started in 1997–98 and gained steam after 2007. They were part of a larger strategic decision to “go abroad” — to use investments in smaller trade partners to increase China’s control over both export markets and sources of raw materials.
Significantly, the upticks in China’s going-abroad policies came just after periods when China’s growth rate had slowed dramatically and CCP leaders could see what might happen should China not be able to increase its production efficiency. China had an annual growth rate of 14 percent in 1992 but this rate was falling every year thereafter, and by 1998 growth was around 8 percent. A significant effort was made to integrate China even more into the global economy, including through the controversial decision to join the World Trade Organization.
China’s growth rose again into the double digits, and again hit 14 percent by 2007. But by 2009 China’s growth rate fell below 10 percent, and it has been steadily falling since; by the mid-2010s Xi was talking regularly about 5 to 6 percent growth as the future “new normal.”
The problem of diminishing marginal returns and declining rates of growth are classic great power concerns. China’s responses to the anticipation of slowing rates — the effort to extend China’s trade into new areas, to energize Chinese firms to be more competitive, and to protect the new trade routes with naval power — are themselves traditional actions that great powers do to increase the scope and wealth of their economic power spheres.
Such behavior comes out of the fundamental great power drive to extend one’s economic power sphere to sustain growth, and this drive gets stronger over time as economic growth uses up raw materials at home and industrial firms need larger markets to cover high fixed costs. China is no different. We should therefore not be surprised that in an era of slowing growth Xi Jinping, like Chinese Communist Party leaders before him, has been seeking to extend China’s economic reach, even if it means bumping into the vast American sphere that is the legacy of Franklin Roosevelt’s wartime policies.
China’s problem with falling rates of growth goes beyond the traditional great power concern about sustaining one’s power position relative to primary adversaries.
But before we assume that China must be countered by an all-out effort to match its military buildup and reduce its economic growth by trade restrictions, two issues must be raised. First, China has domestic concerns unlike any other great power in history. Its population is huge — over 1.4 billion — and 90 percent of it is concentrated on around one-third of the land. China’s problem with falling rates of growth goes beyond the traditional great power concern about sustaining one’s power position relative to primary adversaries.
And second, we must determine to what extent Washington’s own behavior, including the promotion of democratic liberalization around the world, can affect the way Chinese leaders see the level of external threats that surround them. The issue of peace or war in East Asia is very much in the hands of U.S. policy makers.
CCP CONUNDRUM #1
First off, there is no reason to believe China will “inevitably” overtake the U.S. in relative economic power, or that even if it does this is a huge problem for the Western world. The scholarly debate over whether China’s economy is already peaking or whether it will continue to grow reinforces just how uncertain it is that China’s GDP will ever overtake America’s GDP.
But if it does, there are two key factors that will make this of much less practical salience than the similar fear of the Soviet Union overtaking the U.S. in the 1950s.
First, China’s huge population means that it will have, for quite some time, one-fourth to one-third the GDP per capita of the United States. This leaves the Chinese state with much less surplus — after fulfilling basic citizen needs of food, shelter and health care — for power projection around the world.
China is now a regional power in East Asia. But to “dominate the world” it would have to be able, as the U.S. has for eight decades, to position its army and navy forces around the globe and be ready to put boots on the ground when a crisis arises. Not only can China not do this now, but its small per capita GDP would make it hard to sustain such a global posture if it were to try.
Second, China is highly constrained in its ability to build an “empire,” even if its leaders wanted to, by the “FDR legacy” — the arc of aligned powers from Britain to Japan that are either formally aligned with the U.S. or see America as their primary patron. China does not even have the equivalent of Comecon, the Soviet-era economic sphere in Eurasia, let alone the series of far-flung client states Moscow had during the Cold War such as Cuba, North Vietnam and Nicaragua.
China has done an effective job of using the Belt and Road Initiative to increase its economic penetration of some of the states that have historically been a part of the U.S. economic power sphere. But the acceptance of Chinese money to build railways, ports and infrastructure does not mean that when push comes to shove such countries will switch to trading exclusively or even primarily with China, let alone shift their political allegiance to Beijing.
For one thing, many countries within the BRI are already worried about becoming too dependent on Chinese loans and Beijing’s “debt trap diplomacy,” and have sought to scale back BRI projects and renegotiate the terms of the loans.
Moreover, states that have signed onto BRI are not terribly interested in selling primarily to China. There is one simple reason for this: They need reserves of fully convertible currencies to pay for their own imports, including oil, food and medical supplies. China does not have, and is unlikely to ever have, a fully convertible global currency on par with the U.S. dollar, the Euro or the Japanese Yen.
Authoritarian states in history have always shied away from creating fully convertible currencies, since it would mean that wealthy citizens that want to leave the country to flee political repression could take their wealth with them. The capital flight that would occur could not only destroy the value of the currency but would also lead to a massive transfer of “human capital” to more liberal and democratic great powers. The best and brightest citizens would leave for countries that not only protect their political rights, but also their property rights.
In short, China is stuck in a conundrum that has plagued all autocratic great powers in history: It must increase repression to keep the revolutionary ideas of liberal democracy from infecting a modernizing citizenry and causing rebellion (as they did with Tiananmen Square in 1989). But this very repression increases the desire of the wealthiest and most innovative individuals to flee the country.
Hence, despite a decade of effort to create some form of a convertible Renminbi that China’s trade partners will want to hold as a foreign currency, the Renminbi still constitutes less than 4 percent of global currency reserves, despite China’s GDP being over 18 percent of the global economy.
The final point is perhaps the most important. Because the liberal democratic states in the U.S. economic sphere are also politically aligned with the U.S. — and unlike past imperial systems, are freely choosing to be so — Washington has leverage over their larger foreign economic policies and how those policies shape the U.S. relationship with China.
Since the Obama pivot of the early 2010s, and especially under the Trump and Biden administrations, Washington has been much less willing to let either U.S. firms or firms from aligned countries trade freely with China in high-tech goods. And since U.S.-designed or manufactured components so often go into these goods, the Americans have an easy way to make their leverage felt: They can ban the sale of high-tech inputs to foreign firms that use these inputs for manufacturing or assembling their products that are eventually sold to China.
For example, the Chinese firm Huawei, not only one of the world’s largest makers of 5G communication systems but also cell phones, was devastated by the 2020 ban on the selling of American-designed components, such as the Android operating system, for Huawei’s popular smartphone. Huawei’s position in the global smartphone market went from number three to number 24 within a year and a half.
For these reasons, the U.S. should not be as worried about China having a GDP that is larger or even significantly larger than its own. The collective economic size of America’s “realm one” — the realm of commercial partners that it has strong political influence over — is so large, and its combined technological strengths so immense, that with a simple turn of policy, the U.S. and its allies can decide to make it hard for China to reach its dream of self-sufficiency in high-tech production.
…with a simple turn of policy, the U.S. and its allies can decide to make it hard for China to reach its dream of self-sufficiency in high-tech production.
And without its own high-tech sphere, there is little China can do short of invading neighbors, which would lead, as we saw with Russia in 2022, to devastating sanctions that would defeat Beijing’s goal of increasing its economic growth and concomitant internal stability. War in its region would end up killing the golden goose — international trade — that has laid so many golden eggs.
CCP CONUNDRUM #2
By understanding the way Chinese leaders see their country’s larger security problem, we can also see why a preponderant China in the future will be much more restrained than past authoritarian states that have achieved a certain level of dominance in either their regions or the system.
The CCP leaders’ biggest security obsession is not with invasion — foreign troops are unlikely to start landing on China’s shores, as they did during the century of humiliation — but with liberal democratic countries undermining social stability from within, à la 1989.
And here the fear is not just the active efforts of the U.S.; there is also the ongoing “demonstration effects” of democratic neighbors such as Taiwan, South Korea and Japan simply sitting there, providing the good life without the political repression that Chinese citizens face on a daily basis.
What a Xi Jinping or any future Chinese leader knows, going forward, is that the ability of the Chinese state to resist the internal threat posed by liberal democracies will depend fundamentally on whether the economy keeps growing. And given the nature of China’s post-Mao reforms, this growth will continue to depend on China’s ability to bring in cheap raw materials and high-tech components and to sell its manufactured goods in foreign markets.
CCP leaders thus face yet another conundrum: commerce exposes the people to foreign ideas, but trade is also the main way to create the wealth that sustains the Party’s legitimacy.
If one is inclined to doubt trade’s importance, consider what happened from early 2021 to the middle of 2022. After essentially negative or no growth during the first year of the COVID-19 pandemic (2020), China was able to achieve a remarkable 18 percent growth in the first quarter of 2021, relative to Q1 of 2020. Q2 saw a respectable 8 percent growth. Yet with the slowing of infrastructure and housing construction in the second half of 2021 — spurred in large part by Beijing’s decision to put “red lines” on lending to debt-heavy construction companies — China’s GDP growth rates were only 5 percent for Q3 and 4 percent for Q4.
So, while Xi could tout the 8 percent average growth for 2021 as a significant sign of China’s rebound from the pandemic, the downward trend in growth across four quarters was a sign of problems. And if we unpack the components of GDP for the fourth quarter, we see something startling: growth in infrastructure and construction was basically flat.
So how did China eke out a modest 4 percent growth in Q4 2021? Through a 30 percent increase in exports.
This strong growth in exports — itself fueled by Western countries coming out of their Covid downturns — continued into 2022, albeit at lower levels, enough to allow Chinese leaders to achieve around 3 percent growth for the year. Yet if such a growth figure — below Xi’s desired “new normal” of 5 to 6 percent — is still dependent on exports to the world, as it almost certainly is, it means that the ten-year effort to shift China to a greater reliance on internal consumer demand has either failed or reached a major roadblock.
What this means for China’s foreign policies going forward is significant. Chinese leaders, even if they do have desires to establish the glorious state and put China on the map as a true superpower, will be forced to confront major trade-offs in their ability to achieve these non-security ends. Will Chinese leaders be so obsessed with glory or their legacies that, like Putin, they will undertake foolhardy military actions that jeopardize the long-term power and security of the state itself?
Given that China’s concentration of population is many times greater than Russia’s, only the most irrational of Chinese leaders would risk everything the Chinese state has achieved over four decades to indulge in actions that satisfy the status whims of certain individuals.
Xi at least has shown himself to be cool and calculating on the world stage. In July–August 2022, for example, when he signaled with military displays his anger over House Speaker Nancy Pelosi’s Taiwan visit, Xi avoided any actions that would hurt China’s ability to import semiconductors and other high-tech goods from Taiwan or to trade with the U.S. and its allies. Five months later, he sought to improve relations with Washington by moderating his rhetoric while making changes at the top, including appointing a more accommodating foreign minister, which communicated his desire to avoid an action-reaction cycle that might lead to further restrictions on Chinese high-tech imports.
The above analysis suggests that in forecasting where U.S.-China relations will go from here, we must bring in the issue of how American foreign economic policies will shape Chinese expectations of future trade and thus Beijing’s assessment of its likely future growth rates.
CHOICES
I offer three pieces of advice to present and future U.S. officials. Given that, since 1991, the U.S. has had and still has a dominant position in the world, the first is both obvious and absolutely critical: Do not push adversaries that may be already experiencing slower growth to believe that they will in the future decline deeply and inevitably due to the policies being implemented by Washington.
The lesson of 1941 and the Pacific War is clear: Driving another state into the ground economically through sanctions — and giving it little way to find diplomatic solutions to get trade reinstated — will likely lead the now declining adversary to undertake risky actions to preserve its position and security.
China today needs trade to continue to grow, at least absolutely if not relatively. From the perspective of leaders in Beijing, a China that was expected to suffer from prolonged declining trends in GDP would be inclined, like Japan in 1941, to lash out at the U.S. and its partners if it were to see Washington as the main source of its problems.
It is critically important that the U.S. use policy signals to assure China that it will continue to have open access to commodities like oil and semiconductors, at least as long as Beijing does not engage in aggressive military strikes against its neighbors. The situation over Taiwan, for example, can remain stable, even if tense, as long as the CCP leaders know that they will have access to chips if they maintain the status quo, but will be cut off from chips and other high-tech components should Beijing become expansionist in the region.
In short, Americans must remember that China’s high level of economic dependence can act both as a constraining factor for peace (if positive expectations of future trade continue) and a propelling force for war (if these expectations turn negative). The spirals of hostility associated with the trade-security dilemma are, in this sense, a choice, not a given reality. Knowing this can help the U.S. avoid decisions that lead to the second Pacific War in a century.
The second big piece of advice is that both American and Chinese leaders need to constantly remind themselves that all great powers have an incentive to expand their economic power spheres, and that this natural impulse arises because of uncertainty about the security of future trade and the desire to establish a position that can deal with any unforeseen threats to that trade.
Understanding the great power drive to extend one’s economic power sphere can help leaders in Washington be more relaxed about why China is spending so much time and effort on advancing its commercial presence in Southeast Asia, Central Asia, the Middle East and beyond. The Belt and Road Initiative may not end up working as well as America’s strategy after 1944 of expanding commercial connections around the world — after all, the war had left three-quarters of the globe under the oversight of the U.S., and China is working against this legacy. But the fact that the BRI bumps up into the established American economic power sphere should not force the U.S. to adopt an all-out containment logic akin to what Washington did from 1947 to 1971.
Were Washington to really move on the talk of “decoupling” the U.S.-European-Japanese economic bloc from China — talk that could become a reality only if the Americans chose it — it would greatly increase China’s suspicions of long-term U.S. goals and lead Beijing to employ military and not just political means to protect its own export and import markets. A return to the kind of intense trade-security spirals seen in the 1930s would not be unimaginable.
Finally, U.S. officials must make sure they understand that the policies of the Chinese government that appear to be part of a larger drive for glory, status, and the spreading of techno-authoritarianism may be more the actions of leaders worried about threats to the cohesion and stability of their society.
Xi Jinping’s clampdowns at home and his bombastic foreign policy rhetoric… in part reflect the success of the U.S. in using its soft power to reshape the values of a large segment of China’s population.
Threats to internal stability continue to obsess leaders in Beijing, which is not surprising since the educated middle and upper classes have had access to foreign ideas through education and travel, and thus do know what life is like on the outside. Xi Jinping’s clampdowns at home and his bombastic foreign policy rhetoric, as distasteful as they are, thus cannot be seen as arising from a fundamentally irrational character type of the kinds the world saw in the 1930s. Indeed, they at least in part reflect the success of the U.S. in using its soft power to reshape the values of a large segment of China’s population.
This does not mean we shouldn’t consider China’s regime type as potentially pathological to some degree. But we must be careful not to become so disillusioned by the failure to moderate China’s behavior through engagement that we jump to the equally incomplete view that Chinese leaders are akin to Hitler and Stalin and are bent on “world domination.”
The fragility of the Chinese domestic situation alone makes any CCP leader quite frightened about putting boots on the ground abroad, not only sacrificing valuable butter for uncertain guns, but taking soldiers away from their homeland where they may be needed for repression. CCP leaders are well aware that with its level of population concentration — 50 cities of over two million people, and two (Shanghai and Beijing) over 20 million — protest can turn into rebellion and revolution at the drop of a hat.
Being sympathetic to China’s domestic fragility does not mean leaders in Washington should not project strong military power into the East Asian region, nor that they should shy away from assuring regional partners of America’s resolve to protect them and to punish China commercially if Beijing attacks them. A strong military posture is essential, for the simple reason that all great powers, even security seekers, will seek to exploit opportunities to expand if they are not deterred by the high costs and risks of such expansion.
But it does mean that in negotiations with Beijing, Washington must assure CCP leaders that the U.S. is not seeking to destroy China’s economy, and that as long as China does not invade its neighbors, oil, raw materials, semiconductors, and other high-tech components will continue to flow into the country, while Chinese products will be accepted in markets around the world.
In a world where nuclear weapons make leaders disinclined to initiate any crisis that might unleash their missiles, diplomatic moves that shape the other state’s expectations of future trade — positive or negative — can make all the difference between whether their policies end up fostering cooperation or lead to spirals of mistrust that heighten the risk of a slide into devastating war. If leaders in Washington and Beijing, knowledgeable about the past, can improve each other’s expectations of both trade and future behavior, many more decades of peace in East Asia should be achievable.
Excerpted from A World Safe for Commerce: American Foreign Policy from the Revolution to the Rise of China by Dale C. Copeland. Copyright © 2024 by Princeton University Press. Reprinted by permission.
Dale C. Copeland is professor of international relations at the University of Virginia. He is the author of Economic Interdependence and War (Princeton University Press) and The Origins of Major War (Cornell University Press).