"The U.S. - China Debate"

Sydney M. Williams

Thought of the Day

“The U.S. – China Debate”

January 14, 2011

The contrast between Gideon Rachman’s piece in the January/February issue of Foreign Policy http://www.foreignpolicy.com/articles/2011/01/02/think_again_american_decline and a recent book by Adam Segal, Advantage, could not be more different. Gideon Rachman is a highly respected columnist who writes regularly for the Financial Times. Mr. Segal is the author of High-Technology Enterprises in China and is the Ira A. Lipman senior fellow for counter terrorism and national security studies at the Council on Foreign Relations.

The opposing views by two intelligent and well-read observers lend credence to an observation by Nigel Lawson who recently wrote a piece entitled “Five Myths and a Menace.” In it Mr. Lawson writes of the myth that economics is a science: “…economic policy is more like foreign policy than it is like science, consisting as it does in seeking a rational course of action in a world of endemic uncertainty.” Forecasting the future is a bet on anticipating human behavior, thus scientific analysis, or assuming static accounting, is of little use. Things change.

Mr. Rachman presents the more pessimistic view. He points out that China’s population is roughly four times that of the United States with a GDP that is growing almost three times as fast. He bases his conclusions on three premises. While the U.S. military might is substantially greater than that of China, our deficits will mandate a slowing in defense spending. At the same time, China is increasing her defense spending, thanks to $2.5 trillion in foreign reserves. Second, Mr. Rachman questions the assumption that economic growth inevitably leads to democratization and that, even if it does, concludes that those democracies would not necessarily be friendly and helpful to the U.S. And, third, he worries that globalization may not be a zero-sum game – that a mercantilist China may encounter a protectionist America.

While China is much larger than the U.S. in terms of population (1.3 billion versus 300 million), their population is growing more slowly than the U.S. (a total fertility rate of 1.73 versus 2.05) and aging more rapidly. The median ages of the two countries are not that different; (China’s is 34.1 versus 35.3 in the U.S.). However, if current GDP trends persist, China could overtake the U.S. as the world’s largest economy in less than ten years. If, over the next ten years, China grows its GDP at 9% (less than the last ten years) and the U.S. grows its GDP at 3.5% (a little more than the ten year average), China’s GDP will exceed that of the U.S. by about ten percent in 2021.

In his book, Advantage, Adam Segal provides a primer as to what must be done to compete effectively with a rising, economically powerful Asia. He lays out an argument suggesting the future may not be so dire as many fear. He suggests that two characteristics uniquely reflect America – technological innovation and entrepreneurship. Half a million companies are founded each year in the U.S. and, while most fail, the number is indicative of America’s creative spirit. He acknowledges that technological capacity is shifting to China, but suggests the spread is “incremental.” In the meantime, the United States, despite a level of xenophobia emanating from Washington, remains more open to immigration than China. Mr. Segal points out that a Duke University study found that a quarter of tech companies started between 1995 and 2005 had at least one foreign born founder. He writes of the continuing need to address the attracting and keeping of immigrants. Mr. Segal points out that eighteen of the world’s fifty best universities are American.

Mr. Segal acknowledges that China copies technology and argues that the U.S. should make protection of intellectual property an element of competition. He cites the America Competes Act of 2007, signed by President Bush with bilateral support from Congress, a bill that doubled the budgets of the National Science Foundation, the Department of Energy, and the National Institute of Standards and Technological Laboratories. The bill also provided more scholarships in math and science. Certainly, more needs to be done, but it is not as though the competitive threat has gone unnoticed. Toward the end of the book, Mr. Segal writes: “Yet one of the great strengths of the U.S. has always been its ability to re-create and renew itself, especially when confronted with a crisis.”

In my opinion, I believe we have the ability to follow the roadmap laid out by Adam Segal. The question is: do we have the will? The very size of our deficits, a consequence of unaffordable entitlements, places us in a precarious financial position. This morning’s Wall Street Journal has an article (page C2 in my edition) headlined, “S&P, Moody’s Warn U.S.” They point out that markets may be focused on Europe, but debt problems in the U.S. continue to worsen. Admiral Mike Mullen, chairman of the Joint Chiefs of Staff, has said that the national debt is the single greatest threat to national security.

Mr. Rachman ends his article with what seems to me a truism: “But America will never again experience the global dominance it enjoyed in the 17 years between the Soviet Union’s collapse in 1991 and the financial crisis in 2008. Those days are over.” It is hard to disagree with that assessment, but that does not necessarily mean the U.S. is bound for second or third place. It does mean, though, that we have to become far more competitive, which will require rethinking our priorities as a nation, a subject I am sure that will be on the mind of President Obama when he sits down next week in Washington with President Hu Jintao of China.