As China eclipses the U.S. economy, here's what Biden can do that Trump didn't: Ask for help
The U.K.'s begging the United States for a bailout to avoid default in 1965 was a sad denouement to the story of the country that colonized most of North America, the Caribbean and South Asia. And it's hard to do what I do for a living without wondering whether a story of global supremacy is once again coming to a sorry conclusion. After President-elect Joe Biden gets Covid-19 under control and reignites the economy, he should focus on stopping the decline of the American Empire — lest the world's most important democracy end up a shadow of itself, as Britain did two decades after the Second World War.
The world looks at a country differently when it no longer is supreme, and the sun is about to set on the United States' eight-decade run as the world's dominant economy. By some measures that adjust for the value of currencies, China's economy eclipsed the U.S.'s in 2016. And it's close to universally accepted that China's will be the biggest by any measure within a decade.
After President Xi Jinping led the world economy out of the Great Recession a decade ago by ordering a massive stimulus program, his country is set to lead the world again, as China's will probably be the only major economy that grows this year, according to the International Monetary Fund.
While there's dispute about when China will reach the largest economy milestone — a research group backed by the Chinese government predicted recently that the flip will occur only in 2032 — the exact date doesn't really matter. The point is that the U.S. is on the verge of surrendering its most important advantage over the rest of the world. There's not much the U.S. can do about that, given that China's 1.4 billion people are getting richer while America's economic growth has naturally slowed at a high level. But there are things Americans can do to stay in China's league, starting with accepting their fate and using their friends to greater advantage.
America's military is often seen as what sets it apart, and while there's no rival for its armed forces, several countries are capable of inflicting nuclear destruction. Only the U.S., however, has had the financial clout to muscle into any situation it wants to. China will soon be its match on that front, along with being one of the global heavies with an arsenal of nukes. So they are on trajectories that will make them at least equals. The risk is that they won't stay that way, as history is replete with examples of bad things happening when existing powers refuse to make room for rising ones.
"A thing that will feel pretty strange is that the Chinese economy is probably going to be at least twice as big as the United States' economy, maybe three times," Elon Musk, founder and chief executive of Tesla, said this year. "The foundation of war is economics," Musk added. "If you have half the resources of the counterparty, then you better be real innovative. If you're not innovative, you're going to lose."
If you question Musk's credentials to herald an epic showdown, how about Harvard University? The Kennedy School of Government has devoted special attention to the question of whether the U.S. and China can avoid "Thucydides' Trap," named after the celebrated author of History of the Peloponnesian War, who observed, "It was the rise of Athens, and the fear that this instilled in Sparta, that made war inevitable."
Biden's goal should be coexistence, and the U.S.'s best chance is to beat its Asian rival at its own game.
China has been extending its reach through economic diplomacy of both the friendly and the unfriendly sort. The country created an international lending institution in 2016 as a rival to the World Bank; it already has more than 100 members, and it has been spending the equivalent of tens of billions of dollars throughout Asia and Europe to create a trade corridor that would extend to Europe from East Asia.
Last month, it facilitated the creation of the Regional Comprehensive Economic Partnership, or RCEP, a 15-country trade agreement, including Japan, Australia and South Korea, that will cover 2.3 billion people and about 30 percent of the world's gross domestic product. In comparison, the U.S. trade agreement with Canada and Mexico covers 28 percent. The RCEP was seen as a publicity win for China, as President Donald Trump abandoned the Trans-Pacific Partnership, a trade agreement that would have tied the U.S. to many of the same countries with which China will partner under the RCEP.
At the same time, China has developed a Trumpian knack for bullying trade partners with arbitrary duties, including the imposing of tariffs on imports from Australia and the blacklisting of canola from Canada, after both countries offended Beijing. The upshot is that China is now viewed as a menace in such countries, when not so long ago it was seen as a potential counterbalance to America's dominance.
For instance, Canada's prime minister, Justin Trudeau, had wanted to negotiate a free trade agreement with China when he was first elected in 2015, but that's no longer on the table. Xi's government arbitrarily jailed two Canadian citizens two years ago in apparent retaliation for Canada's detention of a Chinese executive sought by U.S. authorities. China was in a position to make friends, and it has ended up making enemies.
China's poor treatment of smaller countries is Biden's opening. The president-elect's idea to assemble the world's leading democracies for a summit that would get them all on the same page is a good one. "China can't afford to ignore half the global economy," Biden wrote this year in Foreign Affairs.
He's right. Trump's mistake was assuming he could use the weight of the U.S. economy to bring China to heel. But China is too big for that now. America needs help. It's not something for which Americans are used to asking, but it could be the price of maintaining their influence.
By Kevin Carmichael, national business columnist at The Financial Post