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China may be having a hiccup in the economic rise it has been experiencing over the past decades. But should China wind up as comparable in economic status to the United States, it might be a good thing all around.
China has had it rough economically for a long time. It was defeated in the two Opium Wars with Great Britain and split between the Spheres of Influence of the Great Powers. The disastrous Taiping Rebellion further disgraced the Qing Empire in the Victorian Era. It was immediately followed by China’s humiliating loss of Korea to the Japanese Empire in the First Sino-Japanese War. This led to the collapse of the Qing Empire, the creation of a republic, and the outbreak of civil war between forces loyal to the Kuomintang-led government and forces loyal to the Communist Party of China. Meanwhile, decades-long Japanese imperial policies matured, prompting Japan to instigate the Second Sino-Japanese War in 1937 and hastening the onset of World War II. The Communists won the Civil War and Mao Zedong came to power, a series of catastrophes in itself.
This century-long period of political depravity clearly doomed the Chinese economy. But following Mao’s demise, China began to slowly to thaw. It began experimenting with free markets in such arenas as farming and businesses, leading to the expansion of its private sector economy. The Party didn’t interfere so long as it didn’t threaten the state sector. Ronald Coase and Ning Wang tell the story of China’s economic transformation in an essay based on their book, How China Became Capitalist.
The result of political stabilization and market reforms was an explosion of economic growth. China held a mere 2.42 percent of world GDP in 1980. Now it holds 17.24 percent.
This massive expansion caught the world off guard. Many in the United States have begun to think of China as our new rival.
Despite its recent stutter, China will continue to grow economically. I argue that a nationalist, tough-on-China stance predicated on fear of their vaulting economic growth would be the wrong approach.
There’s a widespread perception that China’s economic growth is bad for the United States, and amounts to them “winning” against us. But in truth, China is destined to be an economic superpower, and that’s fine. China is very large (slightly larger than the United States); it is very fertile, with the largest population in the world; and it is a fairly homogeneous, with an ancient history and culture. Together, this gives China the greatest economic potential of any country on the planet. China failed to expand until recently only because its potential was unmet. It was unmet because its political situation was dire. Recently, political stability and economic reforms have allowed China to begin reaching its potential.
Too often, Americans look at this growth and assume China will outpace the United States and make us poorer in the process. The reasoning is fallacious. It is grounded in the assumption that China’s success must come at the expense of the United States.
But it is simply foolish to assume that China won’t grow, given its huge economic potential. The failure to understand that some countries are destined to be large and powerful is one reason we were startled by Vladimir Putin: We saw the Soviet Union’s collapse and thought Russia would stay down. We failed to appreciate that it was still the biggest country in the world, with a population of nearly 150 million. If American leaders had accounted for this, they would have predicted that Russia would sooner or later become a major world player again — meeting its potential — and their brains wouldn’t have been so readily scrambled by Putin’s behavior.
China’s Economic Growth is Good for the United States
The argument that the success of a foreign nation can have a positive effect on every other nation contradicts the competitive, zero-sum view of most nationalists. But it’s just common sense.
When China grows, economically, it produces more. When it produces more, it can sell more goods abroad, specifically to the United States. Increased supply lowers prices, lowering our cost of living and reducing the amount of capital required to start certain businesses, too. This does not result in lost jobs. To the contrary, it frees up resources that previously would have been used to produce these goods and allows them to be spent on other industries, ones in which we have a competitive advantage. Increased Chinese production opens a new market from which Americans can choose to buy products. This means Americans can then use their saved resources to produce things Americans are better at producing than they are at producing the product they bought from China. Of course this helps China, too, because the same thing happens to them when we begin to produce in arenas where we have a comparative advantage and begin supplying more of China’s demand for those goods.
You understand this principle if you shop at a supermarket. You could produce your own silverware by going into the woods and spending a week sharpening stones. But the silverware manufacturer has a comparative advantage at producing silverware because he has a factory. So it’s better for you to concentrate on your own work, instead — your work being the area of your own competitive advantage. You trade your hour of work for the silverware — and this is a better deal for you than spending a week in the woods. The mechanism by which this happens is money and a vendor at the market, but it’s still the same concept when we trade overseas. You benefit if the silverware manufacturer gets rich by inventing a new machine that produces silverware twice as fast, because it means you can now buy the same silverware at a much lower cost. And more people will be able to afford silverware.
This means that China’s recent economic growth should be welcomed. Not only is it lifting more than a billion people out of poverty in East Asia, but it makes our lives better in the United States, too.
But What About their Military?
The only potential downside to China’s increased economic power it also funds the People’s Liberation Army. This raises the odds that they could be successfully aggressive. This threat is real. It is wise for the United States to remain in East and Southeast Asia to defend the region militarily.
But to maintain peace in the region, it might well be shrewd to encourage the transformation China’s seen since the death of Mao Zedong. China’s shift toward market freedom has led to massive economic growth. If China continues to discover the benefits of capitalism and continues to prosper as a result, history suggests that economic opening will result in political opening, too. Capitalist countries are much less likely to go to war with each other than socialist countries.
The best way to make this happen is to trade more with China without reducing our military defenses, and to accept all economic opportunities cordially. This will benefit both countries and make China less hostile to the West.
More Chinese prosperity means more Chinese liberty and freer Chinese markets. Free people and free markets mean a less hostile China, making Western fears of a Red Blitz across Asia less acute.
One such fear is that in 2047, Hong Kong’s “One Country, Two Systems” agreement with the mainland will expire, allowing the CCP to foist a communist system upon Hong Kong. But by that point, if the West is wise and economically open to China, we may well see Hong Kong conquer the mainland for capitalism instead.