FEBRUARY2017marksthe45thanniversaryofthefirstSino-U.S.jointcommuniqué.PopularlyknownastheShanghaiCommuniqué,itformedthefoundationoftherelationstodaybetweenthetwocountries.TherecentU.S.presidentialcampaignanditsaftermath,featuring“Chinabashing”andevenattemptstounderminetheselongestablishedrelations,makeessentialaclearanalysisofwhystable,friendlyrelationsbetweenChinaandtheU.S.areinthefundamentalinterestsofbothcountriesandtheirpeoples.
Inparticular,itmustbeunderstoodthatthe2016U.S.presidentialelectionculminatedinthegreatestdestabilizationofU.S.politicssincetheGreatDepression.SuchinstabilityanddissatisfactionareundoubtedlyrootedinaneconomicandsocialsituationwhereU.S.householdincomesarelowernowthan15yearsagoandariseinU.S.economicinequalitythathasbeenafootforthreeormoredecades,
YetbothU.S.presidentialcandidatesattemptedduringthecampaigntodiverttheU.S.votingpublic’sattentionfromtheserealproblemsinvariousways,oneofthem“Chinabashing.”TrumpmadefalseclaimsthatChinagainsanunreasonablycompetitiveedgethroughanartificiallylowexchangerate–anargumentthateventheU.S.Treasuryhasabandoned.
Infact,“Chinabashing”goesagainsttheinterestsofbothChinaandthepeopleoftheUnitedStatesthemselves.Astheworld’smostimportantbilateralrelationship,thedynamicsbetweenChinaandtheU.S.affecttheglobalsituationasawhole.
IncomeTrends
U.S.medianhouseholdincomesin2015werestill2.4percentbelowthelevel16yearspreviously.AndatthetroughoftheGreatRecession,in2012,theywere9.1percentbelowtheir1999peaklevel.TheU.S.populationthereforesufferedmorethanadecadeandahalfofsignificantlyloweredincomes–somethingwhichcouldalonecausedeeppoliticaldiscontentandangerinanycountry.
ButthepoliticalconsequencesofthefallingU.S.incomestrendwereexacerbatedbygreatersocialinequalityandalowersharebytheoverwhelmingmajorityoftheU.S.populationinthenation’stotalincome.Theshareofthebottom80percentoftheU.S.population–theoverwhelmingmajority–intotalU.S.incomefellfrom56percentin1967to49percentin2015.Overthesameperiod,thetop20percentoftheU.S.population’sshareintotalU.S.incomerosefrom46percentto51percent.In2015,therefore,thetop20percentoftheU.S.populationreceivedahighershareofthetotalU.S.incomethanthebottom80percent.
ThisinequalityhasbecomemorepronouncedsinceReagan’spresidencyin1981.From1980to2015,thebottom20percentofU.S.households’shareinthetotalU.S.incomefellfromalowof4.2percentto3.1percent.Simultaneously,theshareofthetop5percentofU.S.householdsintotalU.S.incomeunderwentasharp5.6percentrisefrom16.5percentto22.1percent.Meanwhile,theshareofeachhouseholdincomegroupinthebottom80percentoftheU.S.populationintotalU.S.incomeshowedasharp7.1percentdeclinefrom55.9percentto48.8percent.
Giventhesedramaticandgrowingincomedisparitiessince1980,therisingpoliticalinstabilityintheU.S.isnosurprise.
ThefundamentaleconomicreasonsbehindthesenegativetrendsinU.S.incomesareequallyclear.Figure1showsthat,whentakinga20-yearmovingaveragetoremovealleffectsofshort-termbusinesscyclefluctu-ations,between1980and2016theannualgrowthofU.S.percapitaGDPfellbyhalf–from2.6percentto1.3percent.ThatthissloweconomicgrowthwasaccompaniedbyaradicalincreaseinsocialinequalityexplainsthefallinU.S.medianhouseholdincomes.
Recently,thisslowdownintheU.S.economyhasworsened.AsFigure2shows,undertheimpactoftheinternationalfinancialcrisisthe10-yearmovingaverageofannualpercapitaGDPgrowthintheU.S.hadfallento0.5percent–closetostagnation–bythesecondquarterof2016.SuchminisculepercapitaeconomicgrowthmadeimpossibleanysignificantincreasesinthelivingstandardsoftheAmericanpeople.
AWin-winU.S.-ChinaEconomicRelationship
While,asanalyzedbelow,foreigntradeandinvestmentarenotmainfactorsintherecentU.S.economicperformance,thecorrelationoftradeexpansionandpositiveeconomicperformanceisneverthelesswidelyacknowledged–boththeoreticallyandfactually.AdamSmithsaidinthefirstsentenceofthefirstchapterofhisseminalworkonmoderneconomicsTheWealthofNations:“Thegreatestimprovementintheproductivepowersoflabor,andthegreaterpartoftheskill,dexterity,andjudgmentwithwhichitisdirected,orapplied,seemtohavebeentheeffectofthedivisionoflabor.”Thedivisionoflabornecessarilyappliesbothinternationallyanddomestically.Numerousfactualstudieshaveconfirmedthepositivecorrelationbetweeneconomicopennessandfastergrowth.AtourismcampaignislaunchedineasternChina’sSuzhouCityinOctober2016aspartoftheChina-U.S.TourismYear.Thiseconomicconclusionisalsoconfirmed,inthenegativesense,bytheworld’spost-1929relapseintotheprotectionismthatpresagedtheGreatDepression–thegreatesteconomiccrisisinmodernworldhistory.ItwasindeedthiscatastrophicexperiencethatmovedtheU.S.afterWorldWarIItoreverseitspreviousprotectionistcourseand,forhalfacentury,promoteanopenworldtradingorder–onewithgreat“win-win”benefitsforbothitselfandothercountries.Globalizationbroughtgreatbenefitstoeconomies–notonlytotheU.S.butalsotoChinainthewakeofitsreformandopening-uppolicyof1978.
AtthepresentstageofglobalizationtheeconomicrelationsbetweenChinaandtheU.S.arecritical.TheU.S.andChinaaretheworld’sfirstandsecondlargesteconomies,accountingfor39percentoftheworldeconomyatcurrentexchangerates.Theyarehencetheworld’sfirstandsecondlargesttradingnations.
Insummary,ChinaandtheU.Sbinedaresufficientlypowerfultoplayadecisiveroleintheworldeconomyandinworldtrade.Approachingthequestionofhowtoachieveoptimumdevelopmentofworldtradeandinvestment,therefore,necessitatesdiscussionsbetweentheU.S.andChina.
Furthermore,itiseasy,fromthepointofviewofeconomicfundamentals,tounderstandandbuildontheframeworkofmutuallybeneficialeconomictradingrelationsbetweenChinaandtheU.S.duetothetwoeconomies’differentfeatures.
Chinaistheworld’slargest“uppermiddleincome”economy,whiletheU.S.istheworld’slargest“highincome”economy.Consequently,asregardsmediumtechnologyitems,ChinaenjoysthecombinationofacomparabletechnologicallevelbutwithmuchlowerlaborcostswhichtheU.S.cannotmatch.Therefore,Chinahasadecisivecompetitiveadvantageinmediumandmedium-hightechnologyproducts.If,ratherthanimportingthesemediumtechnologyproductsfromChina,theU.S.weretomanufacturethem,theresultwouldbesubstantiallyhigherpricesforU.S.consumersandproducers,andconsequentlylowerU.S.livingstandardsandU.S.internationalcompetitiveness.
But,equally,theU.S.hascompetitiveadvantagesoverChinaasregardshightechnology.China’spercapitaGDP,whichreflectsthecontrastingproductivityofthetwoeconomies,isonly27percentofthatoftheU.S.measuredinPPPs–themostappropriateunitforlong-termcomparisons.Evenwiththebesteconomicpolicies,therefore,itwouldtakeChinaseveraldecadestoequaltheU.S.’slevelofproductivity.Inotherwords,theU.S.willcontinuetoenjoyacomparativeadvantageoverChinaasregardshightechnologyproductsforseveraldecadestocome.
The“win-win”outcomeofeconomicrelationsbetweenChinaandtheU.S.,therefore,isclarityandstabilityinboththeshortandlongterm.ChinawillcontinuetobeabletoproducemediumandmediumhightechnologygoodsmorecompetitivelythantheU.S.,whichwillmeanwhileenjoyacompetitiveadvantageinthefieldofhightechnologyproducts.
Thetwoeconomies’fundamentalcomplementarityaccountsforthedynamismoftradebetweenChinaandtheU.S.ThattheU.S.isChina’ssinglelargestexportmarketiswellknown.Butsince1999,China’sshareoftotalU.S.exportshasincreased5.3percent,whereasthatoftheEUdeclinedby2.8percentandJapan’sby4.6percent.Inshort,thegrowthofU.S.exportstoChinaismuchmoredynamicthanitistoeithertheEUorJapan.Simultaneously,China’sshareoftotalU.S.importsroseby11.2percent,whilethatoftheEUfell0.2percent,andJapan’sbysixpercent.
Finally,fromageopoliticalstandpoint,thereisnocallforanymilitaryconfrontationbetweentheU.S.andChina.NosignificantforceoneithersideenvisagesanuclearwarbetweentheU.S.andChina,becausethatwouldresultinthedevastationofbothcountries.AstheU.S.isprotectedononesidebythePacificOceanandontheotherbytheAtlantic,aconventionalmilitaryinvasionoftheU.S.isalsoinconceivable.
Havinganalyzedthemutualbenefitsof“win-win”relationsforChinaandtheU.S.,InextexaminetheconsequencesfortheU.S.populationofanyU.S.decisiontoconfrontChina,thatis,toprogressfromverbaltophysical“Chinabashing.”
ConsequencesofConfrontationwithChina
BoththeU.S.militarybuild-upunderReaganandGeorgeW.Bushwerelimitedinscope.Reagan’saimwasnottofightawarwiththeU.S.S.R.buttoexerteconomicpressureontheSovietUnionatatimewhentheSovieteconomywasgrowinglessrapidlythanthatoftheU.S.MeanwhilethemilitaryforcesofGeorgeW.Bush’stargets,AfghanistanandIraq,werepitifullyweakwhencomparedtoChina’s.ButevenReaganandBush’spartialmilitarybuildupsneverthelessdestabilizedtheU.S.economyandswelledthenationaldebt.
AU.S.confrontationwithChina,whoseeconomyisgrowingmuchfasterthanthatoftheU.S.andwhichpossessesmilitaryforcesconsiderablymorepowerfulthanthoseoftheTalibanorSaddamHussein,wouldrequireafurthermassivediversionofU.S.resourcesintomilitaryexpenditure,andconsequentlyfargreaterdestabilizationoftheU.S.economythanwaseverwitnessedunderReaganorGeorgeW.Bush.This,inturn,wouldaffectthepoliticaldynamicswithintheUnitedStates.
IftheU.S.weretobedirectlyattacked,itspeoplewouldofcoursemakeimmensesacrificesanddisplaythesamebraveryasthoseofanyothercountry.TheU.S.’slossoflifeduringthePacificWarafterJapan’sattackonPearlHarborwassmallcomparedtoChina’s,butthebraveryofindividualU.S.soldiersfightinginIwoJimaandOkinawawasequaltothatdisplayedbyChinesesoldiersbattlingJapan’sinvasion.
Between1940and1945,thepercentageofU.S.householdconsumptionasGDPalsofellfrom69percentto53percent,duetothehugediversionofresourcesintomilitaryexpenditure.ButitbroughtnoserioussocialdiscontentordestabilizationintheU.S.,whosepeoplelogicallyandrightlyconsideredthesesacrificesnecessaryandjustifiedtorepelanydirectattackbyJapanontheUnitedStates.
ButtheU.S.populationhassinceWWII,againlogicallyandrightlydisplayedagrowingantipathytomakingsacrificesfornon-coreU.S.interestsorconflicts.ThishasintensifiedwiththeslowdownoftheU.S.economyandrelativedeclineofU.S.economicdominance.U.S.publicopinionhasthereforeshownacleartrajectoryofgrowingpopularoppositiontothelaunchabroadofanymajormilitaryactionsunlessU.S.coreinterestsaredirectlythreatened.
AU.S.decisiontoconfrontChina,notnecessarilyinawarbutinanattempttoexertonitseriouspressure,wouldofcourserequirefargreatersacrificesfromtheU.S.populationthanearlierconflicts.Butlocalwars(Vietnam,Iraq)andmilitarybuild-upsagainsteconomiesgrowinglessrapidlythantheU.S.bothdestabilizedtheU.S.economyandcausedadeclineinthepeople’slivingstandards.
U.S.publicopinion,asevidentinpolls,mayormaynotbefavorabletoChina.Thatissomethingthatchangesperiodically.ButthefactsasexplainedaboveshowaclearabsenceofanyindicationthattheU.S.populationwouldwillinglymaketheeconomicsacrificesnecessarytoconfrontChina.
Onthecontrary,allevidenceshowsthat,unlessChinaweretomakeaseriousandprovocativeforeignpolicymiscalculationthatrecklesslyandaggressivelythreatenedU.S.coreinterests,ormajorpolicyerrorsthatsloweddownChina’seconomy,theU.S.populationwouldshuntheconcomitantramificationsofconfrontingChina.
Conclusion
TheseeconomicprocessescleartwofundamentalpathsfortheU.S.people.Thefirst,whichcorrelatesbothtotheinterestsofChinaandtheprosperityoftheU.S.people,isthatwherebytheU.S.seeks“win-win”collaborationwithChina.Thismeansthat,forexample,importanttradenegotiationsbetweentheworld’stwobiggesttradingnations–ChinaandtheU.S.–wouldbeorientedtowardscooperativeagreement,ratherthan,asintheTPP,protectionism.U.S.foreignpolicywouldthusseektolightentheburdenofmilitaryspendingbylesseningdirecttensionswithChinaandseekingagreementswiththecountry,andotherpowers,ineffortstoavoidandcontainregionalconflicts.ThisisindeedintheinterestsofChinabutalsotakesintoaccounttheprosperityoftheU.S.people.
Theotherpath–ofU.S.confrontationwithChina–wouldmeanafurtherplummetintheU.S.population’slivingstandards.ItwouldalsohaveanevenmoreeconomicallydestabilizingeffectontheU.S.thanitsconfrontationswiththeU.S.S.R.whileineconomicdeclineorthemilitarilyweakAfghanistanandIraq.
Inshort,“Chinabashing”isintheinterestsneitherofChinanoroftheU.S.people.
Thedivisionoflabornecessarilyappliesbothinternationallyanddomestically.Numerousfactualstudieshaveconfirmedthepositivecorrelationbetweeneconomicopennessandfastergrowth.
Theotherpath–ofU.S.confrontationwithChina–wouldmeanafurtherplummetintheU.S.population’slivingstandards.