China May Be Rising, But America Is Not in Retreat

U.S. Navy and Japan Maritime Self-Defense Force ships underway in formation as part of a photo exercise on the final day of Keen Sword 2011. Wikimedia Commons/U.S. Navy

Cold War–era Asia was a dangerous and often bloody place. But its alignments were predictable and its problems readily identifiable. No longer.

November-December 2016

SEEN IN historical perspective, a Western-dominated world represents a recent phenomenon. Not until the fifteenth century did the gap between the West and the rest start widening dramatically, with the Industrial Revolution, which followed much later, serving as the critical accelerator. For centuries before that, the centers of cultural splendor, wealth and scientific achievement lay in the East. Asia accounted for nearly 60 percent of global economic output as recently as 1700. Its position declined steadily thereafter, but started regaining ground in 1980. China’s remarkable post-1978 economic resurgence, along with rapid growth in South and East Asia, ranks among the most significant changes in the international system in the last three decades. This does not necessarily betoken the West’s marginalization. Still, the change in Asia’s relative standing has ended the long era of unrivaled Western preponderance—and the trend will persist.

In the near term, the United States will continue to possess the world’s largest economy, and by an overwhelming margin: a $17.95 trillion GDP in 2015, according to the World Bank. China, its putative challenger for global primacy, registered a second-place GDP of $10.87 trillion. Japan occupied third place with $4.12 trillion—less than one-fourth of the American economy. The disparity favoring the United States becomes starker still in the military realm. Its 2015 defense budget totaled $596 billion; China’s, the world’s second largest, was $141 billion. The same picture—American preeminence—comes into relief if one turns to venture-capital investment (the global share of the United States is 70 percent), social-media use (about 60 percent) or spending on research and development (about 25 percent). While American foreign policy raises hackles in many parts of the world, attitudes toward the United States remain positive in several respects. In Asia and elsewhere, America still retains considerable appeal as a place to live. The allure of its culture and lifestyle in other countries is readily apparent (if not always aesthetically pleasing), and its universities remain peerless in quality and reputation, attracting thousands of students (975,000 over the last two years) annually from across the world. The American model of liberal democracy does not lack for critics, at home and abroad, and its failings have occasioned much comment lately, but its worldwide influence remains undeniable nevertheless. It does not face a challenge from an alternative political model with global appeal, whether Chinese, Russian or Japanese. In short, America leads in the fuzzier, soft forms of power as well.

To be sure, the United States does not dominate across the board in power-relevant indices. In some, its relative position has declined since the middle of the last century; in others, China has emerged as a competitor. The U.S. share of global GDP has fallen from about 20 percent to about 17 percent in the last decade, whereas it was around 30 percent in 1950 and 25 percent in 1970. But the loss of relative standing was unavoidable as Europe and Japan, demolished by World War II, recovered—and, in no small measure, because of American protection, aid and investment. For decades, technological innovation was an American preserve, and in many ways that remains true; but the picture has changed of late. Consider one indicator: annual patent filings. China led the United States in 2013, though the latter reclaimed first place, and by a sizable margin, in 2015. With start-ups mushrooming, a massive internal market and consumers with growing purchasing power, and generous government financing for research and development, China now makes products once monopolized by the West, Japan and South Korea. India seems poised to follow suit, albeit at a slower pace.

Given the magnitude of its effect on the international order, China’s economic transformation merits special attention. The breakneck pace of Chinese economic growth since the 1978 Deng Xiaoping revolution—on average 10 percent annually—has eroded the advantage the United States enjoyed in East Asia for more than half a century. This trend will continue unless China experiences a prolonged economic crisis or deep political upheaval. If the GDP comparison is made in purchasing power parity (PPP) terms, China ($19.5 trillion) edged out the United States ($17.9 trillion) in 2015, a significant achievement given that Chinese GDP (based on PPP) was less than $1 trillion in 1980. Measured in constant 2000 U.S. dollars, Chinese per-capita income soared from $165 in 1978 to almost $7,000 in 2013. It is difficult to deny the shift in the economic balance of power in China’s favor. Yes, China’s growth rate started to slow in 2014, but most countries would envy even the lower growth rate, 6.8 percent in the first quarter of 2016.

In 1980, China accounted for only 4 percent of global economic production, the United States for 22 percent; the present proportions are 16.3 and 16.1 percent respectively. As recently as 2006, the United States was the top trade partner for 127 countries, China for seventy. By 2012, the figures had flipped: China, 124; the United States, seventy-six. By 2013, China had surpassed the United States as the world’s top trading country, with $4.2 trillion (exports plus imports) to America’s $3.8 trillion. China, which has the world’s largest foreign exchange reserves ($3.3 trillion in 2016), holds $1.2 trillion in U.S. Treasury notes, 7 percent of America’s staggering national debt (close to $18 trillion). And U.S. dependence on Chinese credit does not look poised to abate. The Congressional Budget Office estimates a 2016 U.S. government budget deficit of $544 billion.