Analysis & Opinions - Barron's

Economic Weight Is Power. China Is Gaining Fast.

| April 15, 2022

Who is the manufacturing workshop of the world? Who is the major trading partner of most nations? Who is the exporter of the most essential links in the global supply chain? Who is the largest producer and consumer of electric vehicles? According to the yardstick that both the Central Intelligence Agency and International Monetary Fund judge the best for comparing national economies, who has the largest economy in the world today?

Readers who hesitated before answering any of these questions will find the Harvard China Working Group’s latest report on the U.S.-China economic rivalry bracing. The report documents what has actually happened in the economic competition between China and the U.S. in the first 21 years of the 21st century. Two decades ago, China was still classified as a “poor, developing country,” struggling to be admitted to the World Trade Organization. China’s gross domestic product was less than a tenth of what it is today, and 460 million of its citizens were struggling to survive on less than $2 a day. Back then, the answer to each of the questions in the paragraph was the U.S.

But China’s miracle economic growth over the past four decades at an average rate four times that of the U.S. has created a new global economic order. The day when China could be thought of as a “near peer competitor”—as Washington keeps trying to call it—is over. Today and for the foreseeable future, China will be a full-spectrum peer competitor.

Economic weight creates the substructure of power in international relations. While gross domestic product doesn’t automatically translate into military or economic strength, if history is our guide, nations with larger GDPs over time have proportionally greater influence in shaping international affairs. In the succinct summary of Singapore’s founder, Lee Kuan Yew, “China is sucking countries into its economic system because of its vast market and growing purchasing power.” One hundred and thirty countries now trade more with China than they do with the U.S., and more than two-thirds of those countries trade twice as much with China. Moreover, while China is carefully reducing its dependence on imports from others, it is deepening global dependence on itself. As Xi Jinping has said, it is “tightening international production chains’ dependence on China [to] form a powerful countermeasure and deterrent capability against foreigners who would artificially cut off supply to China.”

China has embraced Lee Kuan Yew’s vision of a 21st century in which “the balance of economic power would be as important as the balance of military power.” In every nation, leaders’ mandate to govern depend on their ability to deliver improvements in their citizens’ standard of living. Imports and exports are essential drivers of national economic growth. Thus, China has chosen trade as its preferred instrument for advancing its interest in the world and honed its skills in weaponizing commerce to coerce others. The textbook case remains its treatment of Japan in 2010, when it blocked exports of all refined rare-earth minerals to Japan in response to Japan’s seizure of a Chinese ship and detention of its captain that it claimed was in Chinese waters. Since China accounted for 97% of the world’s supply of refined rare earths at the time, to no one’s surprise, Japan quickly released the captain. More recently, China responded to South Korea’s decision to participate in the U.S.-led Terminal High Altitude Area Defense missile program by driving one of South Korea’s leading department stores, Lotte, out of business in what had been its second-largest market. South Korea capitulated and announced the “three noes”: no additional Thaad batteries, no participation in any U.S. regional missile defense system, and no trilateral alliance with the U.S. and Japan. Today, China is squeezing Lithuania for its decision to open a representative office in Vilnius under the name “Taiwan” rather than “Taipei”—the name that China has deemed acceptable for Taiwan’s 28 other offices in Europe.

China’s demonstrated readiness to use its economic weapons also serves as a powerful deterrent to governments thinking about crossing its red lines. Fear of punishment has discouraged nations that might otherwise have joined the U.S. in condemning China’s violations of basic human rights, particularly in Xinjiang. How many of the world’s 195 countries joined U.S. diplomats in boycotting the recent Beijing Winter Olympics? Just five.

What about the future? In the decade ahead, will China continue growing at twice or more the rate of the U.S.? Given the storm clouds on the horizon, much of the current American press and commentariat are now answering “no.” But since the best projections expect the U.S. economy to grow less than 2% annually, and major economic forecasters all expect China to average 4.5% to 5% growth through 2030, the CEOs of the world’s most valuable company ( Apple ), largest asset manager ( BlackRock ), and most successful entrepreneur and auto maker ( Tesla ) are all betting “yes.”

In the Olympic rivalry for economic primacy in the 21st century, the race is on.

  – Via Barron's.

For more information on this publication: Belfer Communications Office
For Academic Citation: Allison, Graham.“Economic Weight Is Power. China Is Gaining Fast..” Barron's, April 15, 2022.