Think Again: American Decline

This time it's for real.
BY GIDEON RACHMAN JANUARY/FEBRUARY 2011


"We've Heard All This About American Decline Before."

This time it's different. It's certainly true that America has been through cycles of declinism in the past. Campaigning for the presidency in 1960, John F. Kennedy complained, "American strength relative to that of the Soviet Union has been slipping, and communism has been advancing steadily in every area of the world." Ezra Vogel's Japan as Number One was published in 1979, heralding a decade of steadily rising paranoia about Japanese manufacturing techniques and trade policies.

In the end, of course, the Soviet and Japanese threats to American supremacy proved chimerical. So Americans can be forgiven if they greet talk of a new challenge from China as just another case of the boy who cried wolf. But a frequently overlooked fact about that fable is that the boy was eventually proved right. The wolf did arrive -- and China is the wolf.

The Chinese challenge to the United States is more serious for both economic and demographic reasons. The Soviet Union collapsed because its economic system was highly inefficient, a fatal flaw that was disguised for a long time because the USSR never attempted to compete on world markets. China, by contrast, has proved its economic prowess on the global stage. Its economy has been growing at 9 to 10 percent a year, on average, for roughly three decades. It is now the world's leading exporter and its biggest manufacturer, and it is sitting on more than $2.5 trillion of foreign reserves. Chinese goods compete all over the world. This is no Soviet-style economic basket case.

Japan, of course, also experienced many years of rapid economic growth and is still an export powerhouse. But it was never a plausible candidate to be No. 1. The Japanese population is less than half that of the United States, which means that the average Japanese person would have to be more than twice as rich as the average American before Japan's economy surpassed America's. That was never going to happen. By contrast, China's population is more than four times that of the United States. The famous projection by Goldman Sachs that China's economy will be bigger than that of the United States by 2027 was made before the 2008 economic crash. At the current pace, China could be No. 1 well before then.

China's economic prowess is already allowing Beijing to challenge American influence all over the world. The Chinese are the preferred partners of many African governments and the biggest trading partner of other emerging powers, such as Brazil and South Africa. China is also stepping in to buy the bonds of financially strapped members of the eurozone, such as Greece and Portugal.

And China is only the largest part of a bigger story about the rise of new economic and political players. America's traditional allies in Europe -- Britain, France, Italy, even Germany -- are slipping down the economic ranks. New powers are on the rise: India, Brazil, Turkey. They each have their own foreign-policy preferences, which collectively constrain America's ability to shape the world. Think of how India and Brazil sided with China at the global climate-change talks. Or the votes by Turkey and Brazil against America at the United Nations on sanctions against Iran. That is just a taste of things to come.

"China Will Implode Sooner or Later."

Don't count on it. It is certainly true that when Americans are worrying about national decline, they tend to overlook the weaknesses of their scariest-looking rival. The flaws in the Soviet and Japanese systems became obvious only in retrospect. Those who are confident that American hegemony will be extended long into the future point to the potential liabilities of the Chinese system. In a recent interview with the Times of London, former U.S. President George W. Bush suggested that China's internal problems mean that its economy will be unlikely to rival America's in the foreseeable future. "Do I still think America will remain the sole superpower?" he asked. "I do."

But predictions of the imminent demise of the Chinese miracle have been a regular feature of Western analysis ever since it got rolling in the late 1970s. In 1989, the Communist Party seemed to be staggering after the Tiananmen Square massacre. In the 1990s, economy watchers regularly pointed to the parlous state of Chinese banks and state-owned enterprises. Yet the Chinese economy has kept growing, doubling in size roughly every seven years.

Of course, it would be absurd to pretend that China does not face major challenges. In the short term, there is plenty of evidence that a property bubble is building in big cities like Shanghai, and inflation is on the rise. Over the long term, China has alarming political and economic transitions to navigate. The Communist Party is unlikely to be able to maintain its monopoly on political power forever. And the country's traditional dependence on exports and an undervalued currency are coming under increasing criticism from the United States and other international actors demanding a "rebalancing" of China's export-driven economy. The country also faces major demographic and environmental challenges: The population is aging rapidly as a result of the one-child policy, and China is threatened by water shortages and pollution.

Yet even if you factor in considerable future economic and political turbulence, it would be a big mistake to assume that the Chinese challenge to U.S. power will simply disappear. Once countries get the hang of economic growth, it takes a great deal to throw them off course. The analogy to the rise of Germany from the mid-19th century onward is instructive. Germany went through two catastrophic military defeats, hyperinflation, the Great Depression, the collapse of democracy, and the destruction of its major cities and infrastructure by Allied bombs. And yet by the end of the 1950s, West Germany was once again one of the world's leading economies, albeit shorn of its imperial ambitions.

In a nuclear age, China is unlikely to get sucked into a world war, so it will not face turbulence and disorder on remotely the scale Germany did in the 20th century. And whatever economic and political difficulties it does experience will not be enough to stop the country's rise to great-power status. Sheer size and economic momentum mean that the Chinese juggernaut will keep rolling forward, no matter what obstacles lie in its path.


"America Still Leads Across the Board."

For now. As things stand, America has the world's largest economy, the world's leading universities, and many of its biggest companies. The U.S. military is also incomparably more powerful than any rival. The United States spends almost as much on its military as the rest of the world put together. And let's also add in America's intangible assets. The country's combination of entrepreneurial flair and technological prowess has allowed it to lead the technological revolution. Talented immigrants still flock to U.S. shores. And now that Barack Obama is in the White House, the country's soft power has received a big boost. For all his troubles, polls show Obama is still the most charismatic leader in the world; Hu Jintao doesn't even come close. America also boasts the global allure of its creative industries (Hollywood and all that), its values, the increasing universality of the English language, and the attractiveness of the American Dream.

All true -- but all more vulnerable than you might think. American universities remain a formidable asset. But if the U.S. economy is not generating jobs, then those bright Asian graduate students who fill up the engineering and computer-science departments at Stanford University and MIT will return home in larger numbers. Fortune's latest ranking of the world's largest companies has only two American firms in the top 10 -- Walmart at No. 1 and ExxonMobil at No. 3. There are already three Chinese firms in the top 10: Sinopec, State Grid, and China National Petroleum. America's appeal might also diminish if the country is no longer so closely associated with opportunity, prosperity, and success. And though many foreigners are deeply attracted to the American Dream, there is also a deep well of anti-American sentiment in the world that al Qaeda and others have skillfully exploited, Obama or no Obama.

As for the U.S. military, the lesson of the Iraq and Afghan wars is that America's martial prowess is less useful than former Defense Secretary Donald Rumsfeld and others imagined. U.S. troops, planes, and missiles can overthrow a government on the other side of the world in weeks, but pacifying and stabilizing a conquered country is another matter. Years after apparent victory, America is still bogged down by an apparently endless insurgency in Afghanistan.

Not only are Americans losing their appetite for foreign adventures, but the U.S. military budget is clearly going to come under pressure in this new age of austerity. The present paralysis in Washington offers little hope that the United States will deal with its budgetary problems swiftly or efficiently. The U.S. government's continuing reliance on foreign lending makes the country vulnerable, as Secretary of State Hillary Clinton's humbling 2009 request to the Chinese to keep buying U.S. Treasury bills revealed. America is funding its military supremacy through deficit spending, meaning the war in Afghanistan is effectively being paid for with a Chinese credit card. Little wonder that Adm. Mike Mullen, chairman of the Joint Chiefs of Staff, has identified the burgeoning national debt as the single largest threat to U.S. national security.

Meanwhile, China's spending on its military continues to grow rapidly. The country will soon announce the construction of its first aircraft carrier and is aiming to build five or six in total. Perhaps more seriously, China's development of new missile and anti-satellite technology threatens the command of the sea and skies on which the United States bases its Pacific supremacy. In a nuclear age, the U.S. and Chinese militaries are unlikely to clash. A common Chinese view is that the United States will instead eventually find it can no longer afford its military position in the Pacific. U.S. allies in the region -- Japan, South Korea, and increasingly India -- may partner more with Washington to try to counter rising Chinese power. But if the United States has to scale back its presence in the Pacific for budgetary reasons, its allies will start to accommodate themselves to a rising China. Beijing's influence will expand, and the Asia-Pacific region -- the emerging center of the global economy -- will become China's backyard.

"Globalization Is Bending the World the Way of the West."

Not really. One reason why the United States was relaxed about China's rise in the years after the end of the Cold War was the deeply ingrained belief that globalization was spreading Western values. Some even thought that globalization and Americanization were virtually synonymous.

Pundit Fareed Zakaria was prescient when he wrote that the "rise of the rest" (i.e., non-American powers) would be one of the major features of a "post-American world." But even Zakaria argued that this trend was essentially beneficial to the United States: "The power shift … is good for America, if approached properly. The world is going America's way. Countries are becoming more open, market-friendly, and democratic."

Both George W. Bush and Bill Clinton took a similar view that globalization and free trade would serve as a vehicle for the export of American values. In 1999, two years before China's accession to the World Trade Organization, Bush argued, "Economic freedom creates habits of liberty. And habits of liberty create expectations of democracy.… Trade freely with China, and time is on our side."

There were two important misunderstandings buried in this theorizing. The first was that economic growth would inevitably -- and fairly swiftly -- lead to democratization. The second was that new democracies would inevitably be more friendly and helpful toward the United States. Neither assumption is working out.

In 1989, after the Tiananmen Square massacre, few Western analysts would have believed that 20 years later China would still be a one-party state -- and that its economy would also still be growing at phenomenal rates. The common (and comforting) Western assumption was that China would have to choose between political liberalization and economic failure. Surely a tightly controlled one-party state could not succeed in the era of cell phones and the World Wide Web? As Clinton put it during a visit to China in 1998, "In this global information age, when economic success is built on ideas, personal freedom is … essential to the greatness of any modern nation."

In fact, China managed to combine censorship and one-party rule with continuing economic success over the following decade. The confrontation between the Chinese government and Google in 2010 was instructive. Google, that icon of the digital era, threatened to withdraw from China in protest at censorship, but it eventually backed down in return for token concessions. It is now entirely conceivable that when China becomes the world's largest economy -- let us say in 2027 -- it will still be a one-party state run by the Communist Party.

And even if China does democratize, there is absolutely no guarantee that this will make life easier for the United States, let alone prolong America's global hegemony. The idea that democracies are liable to agree on the big global issues is now being undermined on a regular basis. India does not agree with the United States on climate change or the Doha round of trade talks. Brazil does not agree with the United States on how to handle Venezuela or Iran. A more democratic Turkey is today also a more Islamist Turkey, which is now refusing to take the American line on either Israel or Iran. In a similar vein, a more democratic China might also be a more prickly China, if the popularity of nationalist books and Internet sites in the Middle Kingdom is any guide.


"Globalization Is Not a Zero-Sum Game."

Don't be too sure. Successive U.S. presidents, from the first Bush to Obama, have explicitly welcomed China's rise. Just before his first visit to China, Obama summarized the traditional approach when he said, "Power does not need to be a zero-sum game, and nations need not fear the success of another.… We welcome China's efforts to play a greater role on the world stage."

But whatever they say in formal speeches, America's leaders are clearly beginning to have their doubts, and rightly so. It is a central tenet of modern economics that trade is mutually beneficial for both partners, a win-win rather than a zero-sum. But that implies the rules of the game aren't rigged. Speaking before the 2010 World Economic Forum, Larry Summers, then Obama's chief economic advisor, remarked pointedly that the normal rules about the mutual benefits of trade do not necessarily apply when one trading partner is practicing mercantilist or protectionist policies. The U.S. government clearly thinks that China's undervaluation of its currency is a form of protectionism that has led to global economic imbalances and job losses in the United States. Leading economists, such as New York Times columnist Paul Krugman and the Peterson Institute's C. Fred Bergsten, have taken a similar line, arguing that tariffs or other retaliatory measures would be a legitimate response. So much for the win-win world.

And when it comes to the broader geopolitical picture, the world of the future looks even more like a zero-sum game, despite the gauzy rhetoric of globalization that comforted the last generation of American politicians. For the United States has been acting as if the mutual interests created by globalization have repealed one of the oldest laws of international politics: the notion that rising players eventually clash with established powers.

In fact, rivalry between a rising China and a weakened America is now apparent across a whole range of issues, from territorial disputes in Asia to human rights. It is mercifully unlikely that the United States and China would ever actually go to war, but that is because both sides have nuclear weapons, not because globalization has magically dissolved their differences.

At the G-20 summit in November, the U.S. drive to deal with "global economic imbalances" was essentially thwarted by China's obdurate refusal to change its currency policy. The 2009 climate-change talks in Copenhagen ended in disarray after another U.S.-China standoff. Growing Chinese economic and military clout clearly poses a long-term threat to American hegemony in the Pacific. The Chinese reluctantly agreed to a new package of U.N. sanctions on Iran, but the cost of securing Chinese agreement was a weak deal that is unlikely to derail the Iranian nuclear program. Both sides have taken part in the talks with North Korea, but a barely submerged rivalry prevents truly effective Sino-American cooperation. China does not like Kim Jong Il's regime, but it is also very wary of a reunified Korea on its borders, particularly if the new Korea still played host to U.S. troops. China is also competing fiercely for access to resources, in particular oil, which is driving up global prices.

American leaders are right to reject zero-sum logic in public. To do anything else would needlessly antagonize the Chinese. But that shouldn't obscure this unavoidable fact: As economic and political power moves from West to East, new international rivalries are inevitably emerging.

The United States still has formidable strengths. Its economy will eventually recover. Its military has a global presence and a technological edge that no other country can yet match. 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 of 2008. Those days are over.