Economic troubles could thwart China’s rise
by Timothy J.A. Passmore
Dec 28, 2012 | 550 views | 0 0 comments | 7 7 recommendations | email to a friend | print
For the better part of a century, the United States has seen largely unparalleled global domination. Yet with prolonged economic decline and weakened by two long and costly wars, and with the rapid rise of China, many are predicting the impending end of America’s reign. But is this a real threat, and if so, can the United States take steps to prevent, or at the very least, delay it?

One hundred years ago, few would have seen China as an emerging threat to the global order. Not only was the country decades behind the rapidly industrializing West, but it would soon enter a prolonged period of communist rule. Under Mao’s regime from the 1940s to the 1970s, China would fall further behind its competitors as a bloated and inefficient government held China back from any kind of real development, and effectively shut itself off from the outside world.

It was not until the economic policies of Deng Xiaoping in the 1980s that things changed. By embracing market-driven strategies, while focusing heavily on exporting goods to other countries, China began a period of rapid economic growth. While other countries were growing incrementally, if at all, China was posting annual GDP growth rates of up to 9 percent.

While the economic crisis of 2008 has wreaked havoc on the U.S. economy, China has seen continued growth of almost 3 percent. Its success has led many to believe it is only a matter of time before the United States is replaced by China as the world’s most dominant power. As some assert, history is littered with the rise and fall of empires, and the U.S. can do little but step aside and make way for the new Chinese era of global domination.

However, one should not be too hasty in assigning any degree of inevitability to this transition. In fact, any serious student of China’s growth will readily admit that it has a number of serious problems of its own to face in the coming years that will very likely threaten its challenge to U.S. supremacy. Furthermore, the United States is wrong if it thinks there is nothing it can do to prevent or slow China’s rise.

Certainly military strategy will play a role in any upcoming challenge to the United States. However, while the U.S. should continue to project military strength to solidify its strategic position, economic policies may be the key to suppressing any threat from China. Effectively, the answer to the U.S.’s global power struggle resurrects Bill Clinton’s conclusion that “It’s the economy, stupid!”

It was likely apparent to most on Christmas morning that this country buys a huge amount of Chinese-made goods. In fact, no country imports as many Chinese goods as the United States. The goods are substantially cheaper than domestic-produced items, not only because the labor-intensive Chinese society allows for goods to be created with a much lower overhead, but also because the Chinese yuan is undervalued (despite numerous calls from the U.S. to revalue it). As a result, American consumerism has been fueling the fire of China’s growth for the last several decades.

The suggestion that U.S. manufacturers can in any way compete with China for goods is a troublesome one. The very nature of American society means companies can ill-afford to pay such low wages, with the relative sparsity of workers and the presence of unions driving up the cost of labor. The answer, then, lies in the consumerist nature of this country. Having enjoyed one of the world’s highest per capita income rates for decades, Americans have become the world’s leading consumers. By comparison, the increasing wealth of China has not found its way to many millions of its people, who consume very little. To be sure, Chinese manufacturers primarily create goods not for their own people, but for Americans and other foreigners. This lower demand for imports enables China to maintain a significant trade surplus with other countries.

If general consumption in the U.S. were to decrease, the resulting decline in demand for Chinese goods would greatly affect China’s trajectory, and do much to prolong America’s supremacy in the world.

China’s answer to lower demand for its goods would hardly be to further reduce prices. With a rising per capita income and a widening middle class, the cost of labor will have to rise in the coming years. This is further compounded by China’s ill-conceived one-child policy, which will leave a smaller number of workers in the near future, another factor that will drive up wages and increase the cost of exports. China will inevitably lose at least a portion of its competitive edge, and if other countries buy fewer of its products, it will have to find a way to sell them to its own people or risk economic plateau after decades of rapid growth.

In short, China cannot sustain the kind of growth it has witnessed since embracing market economics several decades ago. Inevitable demographic changes, along with the right combination of actions taken by the U.S. government and its people, could very realistically stifle China and prevent its challenge to the U.S. in the coming years.

In fact, this is only one emerging problem of many that convinces this author that China will not pose a major threat to the United States. The entire Chinese machine is in grave danger of collapsing in and on itself in the coming years, for reasons too numerous to list here, which should bring relief to any who fear the U.S. being supplanted by China in the future.