The Invisible Hand of Great Power Politics: China and United States Fight for Economic Supremacy in Asia

Written by  Wednesday, 23 November 2016 16:33
 
   It is widely accepted that the future of the world will rest in the hands of Chinese and U.S. world leaders. Both President Obama and President Xi have, on numerous occasions, voiced this sentiment. In 2013, in a joint press conference with Obama in California, President Xi said, “A sound China-U.S. cooperation can serve as the ballast for global stability and the propeller for world peace.”1  Their choice to cooperate (or not) will shape every global issue from nuclear weapons and terrorism to trade and technology.  This is the first great confrontation between great powers with profoundly different world views since the Cold War, and yet there is greater cooperation and negotiation between the two sides than that which existed between the United States and Soviet Union.    
  
   We have already seen how the complex relationship between the U.S. and China has shaped the internal economic workings of the two countries.  It is estimated that China now employs nearly one million Americans, and it is likely that America employs many more Chinese; furthermore, investment and foreign capital flows benefit both economies.2   Domestically, the impact of trade relations has already been shown and its benefits and drawbacks are well understood.3  However, as the relationship develops and China’s new economic power begins to take shape, how the U.S.-Chinese economic relationship will shape regional and world trade in the future is less certain.  Likewise, China and the United States’ shaping of issues from nuclear proliferation to climate change has greatly benefited the study of great power politics; additionally, their cooperation and conflict in international organizations such as the United Nations and World Trade Organization has promoted critical thinking about the intersection of liberal institutionalism and great power politics.  However, there is still much to be learned about how the evolving nature of the relationship, shaped largely by the growing economic prowess of China, is changing trade and development in East Asia and how the competition for influence will change our understanding of great power politics.
 
   Our understanding of power and its relationship to international economic trade is hazy, as Benjamin Cohen points out, saying,“Scholars find it difficult to concur even on a basic definition of the term.  What are the essential properties of power?  What are its sources?  How does it operate?  And what are its limits?”4  However these are questions that an analysis of the complex relationship between the world’s two great powers, China and the United States, can help answer.  More recent understandings of the economic manifestations of great power politics include the battle over resources, competition for favorable trade situations, and the threatening of economic sanctions.  East Asian development and the rapid rise of China have already shaped the field of great power politics in the post-Cold War period, mainly by giving information on how East Asian countries negotiate trade.  In this realm, China seems to have done well negotiating a large trade surplus with the United States for itself.  The United States ran a trade deficit with China every month last year, with a cumulative 367,172.9 million dollars – a  staggering number.5 
  
 
 
 
   However, the relationship between China and the U.S. is much different from the relationship between the United States and the Soviet Union, largely because of the history of the two countries and the development of their relationship up until this point.  China has relied on inflows of U.S. currency to fuel its rapid economic growth, and access to cheap labor in China helped U.S. companies produce cheaper goods and continue high consumption rates.  This, along with the rapid growth of exports to China as its economy improved, allowed the United States to recover faster from the 2008 recession than almost any other country.6  This proliferation of interdependence means that the United States benefits from a strong China and vice-versa, creating significantly less of a “zero-sum game” than the one the U.S. and Soviet Union played.  
 
    Nonetheless, economic cooperation between the two countries has created an “asymmetrical interdependence,” and there will still be competition as China and the U.S. jockey for better trade environments for their perspective industries of comparative advantage.7  This is perhaps most apparent in the Chinese government’s ownership of U.S. debt, numbering 1.2428 trillion dollars, which is higher than any other country (Figure 1).8  In an asymmetrical interdependent relationship, and as both countries are looking for edges over the other, this is hard to discount; however, it is cursory to the study of great power politics.  Instead, China’s vast holding of U.S. debt helps to answer Cohen’s question about the limits of power, because it has been shown that China’s holdings are most likely not as great of a threat to the United States economy as many politicians would lead people to believe.  China and many Asian economies hold U.S. treasury bonds as hedges against economic crises at home and as a way to maintain currency stability.  This is particularly important as the Chinese economy receives major benefits from a weaker Renminbi. Although persistent deficits and growing debt are not on their own good for the U.S. economy, the position of the U.S. dollar as the choice for foreign debt holdings shows the strength, stability, and accessibility of the dollar.  Another limit to Chinese power that can be gained from leveraging debt holdings is the large amount of debt held domestically (Figure 2).9
 
 
 
   Perhaps the greatest threats to the United States’ prominent world position (and of most relevance to the field of great power politics) are China’s growing interests in the creation of financial institutions and the brokering of trade deals.  This growth of institutional threats to U.S. economic world order versus the traditional threat of sanctions, leveraging of debt, or competition over resources is the difference between relational and structural power as outlined by Susan Strange.  According to Strange’s understanding, structural power is “the power to shape and determine the structures of the global political economy ... the power to decide how things will be done, the power to shape frameworks within which states relate to each other.”10
 
   With the United States rebalancing towards Asia, and the Chinese government’s increased interest in regional trade, differing ideas for trade systems in East Asia are emerging.  An in-depth analysis of China’s One Belt One Road (OBOR) proposal and the drafted Trans-Pacific Partnership will do more to define the battle for structural power in East Asia.  Both proposals promise huge returns for participatory countries; however, they also mean big changes to the nature of financial institutions and trade agreements.  For its part, OBOR has been looked at with skepticism by the United States, and the Asian Investment Bank (AIIB), the financial arm of OBOR, has been flat-out rejected.  This rejection is mainly the product of United States policymakers’ inability, or reluctance, to make changes to the world financial system which it helped create and from which it derives comparative benefits.11  Whether fears that OBOR and the AIIB will undermine the existing framework are justified remains to be seen.12  
 
   The Trans-Pacific Partnership has also been looked at with skepticism on the part of China, even though it stands to gain much from joining the agreement.13  This is mainly because  of the unique nature of the agreement, in that it goes further than any agreement until now in approaching issues outside the traditional scope of trade, including environmental, labor, and intellectual property rights.  These are great barriers to China’s entrance to the agreement, even while the overall partnership promises great potential for growth.  The United States sees this situation and welcomes the opportunity to continue to set the rules for trade in the Asian pacific area.14  
 
   The difficult situation that the United States has put China in is what Susan Strange anticipated with her definition of the “shaping frameworks” in which countries deal with each other; however the TPP has not been widely accepted by the American citizenry or by Congress.  Whether the partnership can survive competition both at home and abroad is in question, but there is little doubt that if passed it will change the landscape of trade relations in East Asia.  This deal will set the course of future trade deals to come, as it brings together forty percent of the world’s economy and shows what greater trade congruency could look like for the remaining sixty percent.15  In contrast, the AIIB has already changed the landscape of world finance, creating larger opportunities for development in Asia, Africa, and investment opportunities around the world.  In terms of great power politics, rebalancing between the China and the United States is clear, and as they redraw the rules for trade it is unclear which nation will be the winner. That said, it is possible that the true winner will be the average consumer and business person, who will enjoy lower barriers to trade, greater investment opportunities, and cheaper goods.
 
Figure 1
 
 
Figure 2
 
 
[1] Xi Jinping, “Joint Press Conference” (June 7, 2013)
[2] Barack Obama, Xi Jinping, “Remarks by President Obama and President Xi of the People's Republic of China in Joint Press Conference” (Sept. 25, 2015) White House, Office of the Press Secretary

[3] Zhong Shan, “U.S.-China Trade Is Win-Win Game” Embassy of the PRC in the U.S. http://www.china-embassy.org/eng/xw/t675646.htm

“FACT SHEET: U.S.-China Economic Relations” (Sept. 25, 2015) White House, Office of the Press Secretary

[4] Benjamin Cohen, “Power in a Changing World Economy: Lessons from Emerging Asia” (2014)

[5] “Foreign Trade China” U.S. Census Bureau: https://www.census.gov/foreign-trade/balance/c5700.html

[6] Donald Gross, “The United States Can Benefit from China’s Rise” World Policy (2012)

[7] Robert Keohane, Joseph S. Nye, “World Politics and International economic system” The Future of the International Economic System (1973)

[8] “Major Foreign Holders of Treasury Securities” U.S. Department of Treasury http://ticdata.treasury.gov/Publish/mfh.txt

[9] Scott Miller, “Is it a risk for America that China holds over $1 trillion in U.S. debt?” Center for Strategic & international Studies (2016)

[10] Susan Strange, “Interpretations of a Decade” The Political Economy of International Money (1985)

[11] Donald Kirk, “China's Asian Infrastructure Investment Bank Upsets U.S., Lures U.S. Allies, Including Korea” Forbes (March 23, 2015)

[12] David Dollar, “China's rise as a regional and global power: The AIIB and the 'one belt, one road'” Brookings Institute (2015)

[13] Collin Lloyd, “What’s Right with the Trans-Pacific Partnership?” Cobden Center (2015)

[14] John Kerry, “Remarks at the Pacific Council on International Policy” U.S. Department of Sate (April 12, 2016)

[15] “Weighing anchor:Negotiators agree on an ambitious trade deal, but opposition to its ratification is already fierce” Economist (October 10, 2015) 

 
 
 
 
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