The roots of the US-China rivalry
The theatres of conflict include trade, geopolitics, technology, climate, and political values
The global economy has grown over the last decade at 3.2% per annum to $86 trillion in nominal terms. What has been markedly different in the last 10 years has been the dominant contribution of China to global growth. China’s contribution to global growth at 37.6% has, in fact, exceeded the contribution of the United States (US) at 30%. The size of the Chinese economy at $14 trillion is today 66% the size of the US economy. It is worth recounting that in 2000, Chinese GDP at $ 1.2 trillion was just 10% of US GDP. The full impact of the rise of China has begun to deeply influence not just the global economy and trade but also geopolitics, technology standards, sustainability and climate change, and the shift in consumption away from developed markets.
The immediate positive development is the emergence of new consumption demand by the four billion new emerging markets consumers, many of whom are in China but also in India and Southeast Asia. By 2025, $30 trillion of demand will come from the consumers of emerging markets. These consumers have a middle-class mindset with high aspirations, and demand global quality in line with their newfound increase in wealth. However, their per capita income is lower than that of their counterparts in the West, and so companies need to re-craft their business models to be able to serve them effectively at a lower price point.
In other ways, China’s rise comes with its challenges. Back in 450 BC, when the Greek historian Thucydides wrote that “it was the rise of Athens and the fear that this instilled in Sparta that made war inevitable”, he could have been writing about China and the US today. Dominant countries are always insecure about another rising power that could challenge them. The fast growth of China in the first decade of the 21 century was welcome, as it provided cheaper manufacturing locations and efficiently integrated global supply chains. The last decade has changed all that. Its continued dramatic rise has made it an economic giant. Its massive investments in technology and the manner in which it extracted intellectual property from foreign companies has made other countries resentful. Whatever the misgivings, China today is like a superpower in economic, military, nuclear, and most importantly, in its technological strength.
With Donald Trump’s presidency, the underlying hostility in the US has been given expression. There is direct conflict in trade, contested geopolitical spheres of influence, and in deciding the underlying standards in modern technology. Trump has forcefully taken on the adverse terms of trade by imposing tariffs on China, and, more broadly, heralded a new nationalism with his America First policy. China, on its part, has always objected to its insignificance in the post-World War II institutional structure. To correct this, China has created new institutions that it can dominate — Asia Infrastructure & Investment Bank and New Development Bank — to challenge the US and European control of the International Monetary Fund and the World
Bank. It has also asserted its newfound status in developing a more muscular foreign policy, with its best expression being the Belt and Road initiative. It is working hard to create its own sphere of influence.
This clash is most apparent in the area of technology — Artificial Intelligence (data), quantum computing and cyber standards. What is making a compromise more difficult is the differing underlying beliefs and values underpinning this superpower rivalry. A clash between individual enterprise and public good, between privacy and State rights, and between checks and balances and authoritarian rule. This is making a search for acceptable global standards for data and its storage and use very difficult. The race in quantum computing, 5G and cyber is on, and is creating a fundamental challenge to rule-based institutions because of the disparate starting position of the two superpowers on underlying values. Splitting the world into two technology standards will be unfortunate, but the current path is headed that way.
Global warming is another deep area of global concern. China’s rapid rise, which brought with it great improvements in its per capita income, taking millions out of poverty, was accompanied by accelerated CO2 emissions, making it one of the world’s worst polluters. Most developing countries had long argued that on their journey out of poverty, tight global environment standards should not be imposed as these did not exist when the current developed countries exited poverty. The problem is that with the US withdrawal from the Paris accord and Trump’s denial of the seriousness of climate change, the world is faced with a collective crisis. Our planet is already one degree hotter. On its current path, it will become three to four degrees hotter by 2100. That will seriously challenge how future generations live. It is clear that the world has lost its first battle against global warming and needs to adapt to living on a hotter planet, but if serious and urgent actions are not taken today, we may have an unlivable planet.
In this new world order, what has caused most countries the greatest consternation is the desire of the US, under Trump, to vacate the global stage. Trump’s foreign policy has been unpredictable and shaken its former allies like South Korea and Europe when he has favoured deal making with North Korea and Russia over them. Trump believes that being a global superpower on a continuing basis does not serve the US well — it costs too much, the recipients do not appreciate the US, and it is not politically popular to send US troops abroad. He also believes bilateral deals serve US better than a multilateral system which can constrain it. Geopolitics has become both more important and more difficult between the assertive Chinese and the unpredictability and global retreat of the US. For most countries, including India, as Singapore’s PM Lee Hsien Loong says, “Choosing between the US and China will be painful.”