“Every now and then a big thesis captures the world's imagination,” began an article in The New Yorker in 2008. “The latest… is that America's time of global dominance is over and that new powers like China, India and Russia are poised to take over.” There has been no shortage of optimism about China since then, with Foreign Affairs running a headline in 2011 with the headline “The Inevitable Superpower” and a 2018 Economist article writing, “The Chinese century is in in full swing.” What a difference the last few years have made.
The conventional wisdom that China's economy would eclipse the United States in a decade, perhaps even sooner, seems uncertain. The view that China is the rising geopolitical power, with developing countries under its wing, looks similarly uncertain. It is now unclear whether China's GDP will ever surpass that of the United States, and nations around the world are rethinking their relationships with Beijing and the Belt and Road Initiative debt trap.
China's population growth is now complete. Chinese entrepreneurs are leaving the country. Optimism among Chinese youth is waning. The Chinese stock market is collapsing. Foreign direct investment is in free fall as the global economy looks for alternatives to the “world factory” that do not involve the same geopolitical risk and political interference by large states. The economic indicators are so bad that Beijing is blocking many of them from public view.
The USA is considered the fastest growing and most dynamic economy in the world. Inflation is falling while jobs, real wages and productivity are rising.
What happened? China is exposing the inevitable limits of a state-run economy and society when political dictates begin to trump the economic self-interest of the open market. You can't grow the economy forever under state-controlled companies and subsidized infrastructure, electric vehicles and real estate, especially not while simultaneously tightening political control over both the masses and the business leaders. Just listen to Chinese businessman Chen Tianyong's warning about why he's packing up: “China's economy is like a huge ship heading into the abyss.” Without fundamental changes, it is inevitable that the ship will be destroyed and the passengers will die. “
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Former Chinese leader Deng Xiaoping's genius was to lead the country from a state-run economy to global capitalism almost 50 years ago. This economic opening allowed China to unleash the talents of hundreds of millions of entrepreneurs. The results were breathtaking: in just a few decades, China has transformed from a relatively poor, rural society to home to the world's largest middle class.
Unfortunately, China's current leader Xi Jinping, intoxicated by the geopolitical influence that economic strength brings, is too focused on concentrating his power. Economic dynamism thrives on freedom – the freedom to think, create, speak, travel and do business with whomever you want – all tied to the rule of law that ensures fair and open business conditions.
It is no coincidence that most major technological breakthroughs – from silicon chips, computers and smartphones to the Internet and AI – come from the United States and its Democratic allies. The more educated and free a society is to express itself, the more likely it is to be a source of the technologies and ideas that transform economics and culture, and the more likely it is to continue to attract the best and brightest from around the world to join the innovation party.
That’s not to say the U.S. is lacking challenges. The Biden administration must accelerate the push to reinvest in our core economies and our people to combat economic inequalities that are the root cause of anti-democratic movements at home and abroad. These domestic investments must be combined with a robust allied shoring regime that expands our economic integration and production with countries that share our values, and in turn strengthens our collective economic and political position in the global competition against authoritarianism.
But the USA is not seizing the moment. President Biden is busy ensuring his re-election; The prospect of Donald Trump returning to the White House poses great risks. What with his open embrace of Russian President Vladimir Putin and his de facto takeover of China's global leadership role by defaulting on America. Trump is already endangering the future of a democratic Ukraine (and possibly other NATO allies) by telling House Republicans that they cannot help Ukraine if an aid package is stalled.
Read more: China's economic downturn will continue
The world's other rich and democratic nations now face the daunting prospect of either “Trumpproofing” a Western alliance or praying that Biden is re-elected in November. A prudent course of action for the U.S. president would be to reaffirm the set of collective economic and political alliances and supply and trade regimes that consolidate and strengthen the U.S. rules-based order.
Taking advantage of China's economic missteps, democratic allies must also increase efforts to rewire and “reconnect” critical supply chains from China to countries invested in and committed to this order.
If done right, ally-shoring can provide all countries with a more attractive trade, investment and development offer than that of a weakening China. It will also send a clear message to China that the US and its allies will end dependencies that can be used for political and economic blackmail, as China had hoped.
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