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China is Going to Get Wealthier: That’s a Good Thing
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.
http://www.solarfeeds.com/how-long-can-china-sustain-mega-growth/
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.
Published in Foreign Policy, General
But the implementation of Market factors has surely curbed that tendency from the Communist Party. Compare it to North Korea which has no internet access.
Do you realize you’re saying The Great War ended that period & then the tariffs came rather than the other way around? You are aware no causation is going to go backward in time & persuade anyone? Are you even trying anymore?
Why did the war come? What in hell good did all that time of Pax Britannica do if all it did was prepare the worst slaughter in history up to that point–& redo it after a hickup of an interlude?
Or is your theory of the Great War that some tariffs or non-liberal policies on some economic matter caused it–hopefully, things done before the war started?
Try again-
Again. I recommend you read the article. I discuss in depth why it is reasonable to assume China will continue to grow.
And if you want me to go over every war in human history, and point out how few of them are between Capitalist Democracies, compared with how many involve a Socialist power, I am not going to waste my time. You can do it on your own.
I agree in one respect: the Chinese Communist Party has a long history of using the idea of external threats and nationalism to unify the people domestically in support of the CCP. That said, often (not always, see border wars during the Cold War, but often) this sort of nationalistic saber-rattling is not backed with any intention to use force to project power far beyond their borders. I feel like some still see China as a Cold War comic book villain bent on world conquest, but history doesn’t really bear that out. The Party uses foreign policy disputes to gain backing at home, but the how, and why, and how far to go part is really complicated and limited by the capabilities of the PLA.
All of which is to say, don’t underestimate or overestimate the Chinese military threat. I agree with the post that open, expanded trade is the best path for maintaining peaceful relations.
The Great War was so awful because there were more people. It was relatively no worse than any other war, except the population of the world was so much higher because Liberal Policies meant people didn’t die when they were born. So yes, the death count is higher because of Classical Liberalism, because those people didn’t die earlier of diseases.
And as was mentioned before. World War I started in the part of the globe that was the least Liberal, and had the least Free Trade.
My point is not that Tariffs caused WW1, my point is that WW1 happened because of Nationalism in Europe, and that led to tariffs and illiberalism in the rest of the world. Those tariffs and illiberalism led to the rest of the 20th Century. Compare that to when Classical Liberalism won out after the Napoleonic Wars, when there was peace and massive economic growth for a century.
I am against starting Nationalist Antagonisms with China, the same way the Nations of Europe did before World War 1.
I’ve been guilty of this myself, but I think we sometimes confuse capitalism with industrialization.
The two are not synonymous: Germany industrialized in the decades before WWI, but it never became capitalist, at least not in a free market sense.
Don’t forget the interlocking pre-industrial set of alliances and 19th century battle tactics coupled with 20th century technology.
China’s economy is (or rather was) consuming raw materials around the world at a rapid pace, leading to spikes in commodity prices. This was effectively a supply shock to western economies on the scale of the 1970’s oil shocks, but for a different reason.
Think of it this way. If a group of people got together, and through their efforts raised their income, and then they put this income directly into purchasing a particular good, then the price of that good would increase based upon the marginal consumption of this group of people. Meanwhile, everyone else who has not changed their consumption of the good must now pay the higher price of the good based upon the consumption of this tiny group of people.
The world has seen this before. Before the French Revolution, the aristocracy of France had rapidly rising income relative to other classes in France. The rise in their income was so rapid that their consumption pretty much determined the price of goods in France.
Additionally, the US is not a great trading nation. The marginal contribution of trade to US growth is tiny when compared to the contribution of domestic activities. This is just Econ 103 (open economy macro).
@Naudious- First off, welcome to Ricochet! I haven’t had time to read all the comments yet, but I do have an observation on your dispute with Titus Techera.
Democracies rarely go to war with other democracies, wars almost always involve dictatorships against other dictatorships, or against democracies.
Given that China is a dictatorship without an opposition party, as they get stronger economically and militarily, the temptation will grow to distract their citizens from a domestic economic, environmental or corruption crisis by beating the war drums and provoking a crisis with its adversaries- Japan, Vietnam, Taiwan, the Philippines or the US. So I am forced to see China’s rise as a threat, militarily if not economically. I do favor free trade.
You have to Supply before you can Demand. In order for China to buy massive amounts of commodities, it has to sell massive amounts of what it produces. The lower prices that result from China producing what it did not before will remain. However, the high prices caused by China’s new demand will eventually result in more producers of those commodities, so the price will find a realistic equilibrium once more.
It seems kind of silly to insist a billion people remain impoverished so the price of commodities doesn’t temporarily spike in the West. Especially considering that spike is fueling a gargantuan new market from which westerners can buy cheaper goods in the future.
I contend it is China’s Market reforms that have made it the China it is today, as opposed to the large North Korea it could have been; and that further economic development will coincide with further political reform.
Those that worry about short term market disruption over long term economic growth don’t really understand the mirical that is creative destruction. Read some Schumpeter and get back to me.
No, you don’t have to sell anything to the rest of world. You can simply increase your own productive capacity via such actions as legal and domestic economic reforms, thereby increasing consumption between people in a single economy, while only requiring the import of raw materials from other parts of the world. Effectively, this binds commodity producers to the largest consumer of particular commodities,creating a monopsony between this consumer and all the producers. Furthermore, since the location of commodities is fixed, the few commodity producers that have access to the Chinese market must rely upon the preferences and wishes of the Chinese authorities. Witness the current slowdown in China, caused by their policies, and the subsequent misery amongst the oil producers of the world.
No economist thinks that the laws of econ 101 hold in the real world. That is why there are econ papers and journals devoted to obscure topics. The models from econ 101 are filled with so many simplifying assumptions that they can’t even explain economic activity within a neighborhood, let alone between nations with different economic systems subject to constraints.
“It can’t be that simple?” is what is said before every bad policy is implemented. What you are suggesting is that china has the magic ability to buy things, without selling things. Its simple in order to buy something, you need capital, you acquire that capital by selling something. In the end a nation has to sell in order to buy, because other nations don’t just give their stuff to you for nothing.
The world of Physics can get very complicated very fast, but the laws of physics don’t change.
@Naudious- “I contend it is China’s Market reforms that have made it the China it is today, as opposed to the large North Korea it could have been; and that further economic development will coincide with further political reform.”
China’s system now is more like fascism than communism- i.e., There is a veneer of free enterprise combined with the reality of gov’t control. The US is trending in that direction with the PPACA’s de facto takeover of health care, 17% of our economy.
Mussolini was in power as a fascist from 1922 to 1943, and if Italy wasn’t losing WWII he might have stayed in power for several more decades, so there is no reason to believe that China will have democratic reforms and won’t retain the ability to suppress dissent and rebellion.
Fascist nations thrived on antagonisms with their neighbors. If it weren’t for World War I, Mussolini wouldn’t have come into power. China has some of this with the West and Japan, but nothing like Nazi Germany or Fascist Italy.
Fascist Nations also moved towards Nationalized economics. i.e. As the Country became more dictatorial, the economy became more state run. In China the economy is becoming more Free Market, and this is coinciding with a move away from dictatorial power, such as ending the One Chile Policy.
You can take a snap shot of the states and compare them, but it ignores the dynamics of change. Germany and Italy were becoming more and more national/socialist over time, at the same time they were becoming more dictatorial. China is becoming less national/socialist, and less dictatorial over time.
@Naudious- “Germany and Italy were becoming more and more national/socialist over time, at the same time they were becoming more dictatorial. China is becoming less national/socialist, and less dictatorial over time.”
Are you sure? As China becomes more economically and militarily powerful, combine that with their sense of historical grievance, and I expect them to become more aggressive. Iow, you might be right, but I think it would be unwise to simply assume they will peacefully transform into a democracy.
That’s the thing of it Mr. Meyer: If you wish capitalism to mean a free market: How are you ever going to persuade anyone China is going to get anywhere near Wilhelmine Germany? Or Russia, for that matter? Or any other of the countries now threatening the peace your arms guarantee, if not too strongly…
You can make unfree countries rich & industrialize them & they can be part of globalized trade. But you cannot make them peaceful or free market. Except by putting the fear of God into them, the old theological school of catastrophic war. That worked wonders for you on several continents. But it had nothing to do with trade & capitalism…
The World Wars prove that capitalism in any sense beyond ‘just America & Britain!’ does not conquer tyranny, but serves it-
No, let the guy give you the plan for when China lets Tibet & Turkestan go, in a fit of lack of nationalism, stops posting arms that gaze lovingly over Formoasa at Taiwan & stops rather than increases its claims to the sea abutting it, to the chagrin of every nation around. This is all going away if you just look the other way-
As for ‘less dictatorial’, the new ruler, Mr. Xi Jinping is the first strong hand on the reins since Deng Xiaoping & he has big ideas about a centralized fight against corruption, which means the party would take care of its own messes, which means he will have more power in his hands than anyone since Mao!
The Pax Britannica, an era of Free Trade and Enterprise, was also very peaceful. Not only were there very few wars, but the world ended mass slavery, monarchical rule and most aristocratic privileges. And if you want to sit there foolishly and say all of that doesn’t matter because there was eventually a war in 1914, sure, what ever. I am not saying peaceful utopia is ahead in China anymore than it was in the Victorian Era. However, I am saying that history shows that in eras of much more protectionism and nationalism, there was much more war.
My point is that the Victorian Era could have been riddled with wars between Great Powers, the way the 20th Century had WW2, Korea, Vietnam, the Soviets invasions of Poland, Finland, Hungary and Afghanistan, the 2nd Sino-Japanese War; not to mention nationalist-led genocides, wars in Africa and conflicts between South-East Asian Communists. All of these wars in the 20th Century involved illiberal nations who did not trade with each-other.
Instead, the Victorian Era only had the Crimean War, the Civil War and a short war between France and Prussia. This is because Free Trade prolonged the peace era, didn’t guarantee it, but prolonged it. Consider that Great Britain and France were bitter enemies up until the defeat of Napoleon, but have had peace since 1815. Why didn’t they go back at it like they always did? They signed a Free Trade Agreement in 1860.
It isn’t just a matter of liberating Tibet, it is a matter of the lives of the people in Tibet as they are under occupation. Free Trade may not Free Tibet from Chinese Rule (neither will a trade war), but it does make it more likely the Tibetan people will be less abused, since Free Trade & Classical Liberalism lead to more open skepticism of power.
The United States played a major role in pressuring Great Britain to dismantle its Empire. It wouldn’t have had much success if Britain and the US were antagonistic, and imposing trade barriers.
Mr. Naudious. you wish to say that I wish to sit foolishly where I happen to sit? That way lies a kind of trade of insults that I feel you could not possibly deserve.
Your description of ears is all lies of omission. Leave aside all the wars you leave you of your chosen period, let us look at the other matter, free trade. Most of history does not record much free trade & no globalization of trade as there was in 1914. But the difference between the hell of war is far less obvious. The association of free trade & peace is a fantasy born liberal political philosophers, the Lockes & Montesquieues of this world. That it could be accepted on the example of the Pax Britannica alone is a show of pure insanity. Two generations in Europe are supposed to prove something.
Let me explain war to you: The American Civil War killed more Americans than both world wars combined–to them, how possibly could it have been a peaceful era, when they murdered each other with a fanaticism never before or since exhibited, while preachers of influence told them God wanted them to do it & their president told them that they should think of the war as God’s punishment for all Americans on both sides. I wonder whether you are aware of what these thins mean…
You mean, there was European peace–& Germany had tree wars, I remind you, for unification, none of them really bloody.
I think you’re leaving out of the picture that the US is then responsible with Britain for the millions of slaughtered men in Africa & India subsequent to decolonization.
Are you at all aware of these things? You write like you were completely blind to the consequences of the actions, decisions, & events you mention! I thought even the peace-forever crowd was at least a little weirded out by the millions of corpses that make reading African history in the last three generations such a shocker! This is fun fo your? Part of the great success story of free trade-enhanced diplomacy between democratic capitalist countries?
China without European-American trade & tech would never have done to Tibet what it has done! After the long Manchurian invasion, Tibet might have gone free! But the Communists had the resources only a modern capitalist economy can provide to do the deed!
A century of peace is relevant, considering it is an anomaly compared to every other century in human history.
And regardless of the flaws of how decolonization was done, the point is regarding American influence. You seem to believe the only way to make China free Tibet and Turkestan is to be antagonistic and engage in trade wars. My point is that strong nations don’t usually do what their adversaries tell them, especially in the absence of economic ties. The United States played a pivotal role in pressuring Britain to decolonize (regardless if you think the end result was good), and was successful because it was Britain’s friendly trading partner. Compare that to when the United States imposed an oil embargo on Japan in the 1940s, which led to Pearl Harbor and more Japanese Fascism.
And again. War is more deadly now because there are more people to die. Capitalism makes people wealthier, healthier and lowers infant mortality. It isn’t like dictators didn’t exist before industrialization. Napoleon conquered more land than Hitler.
I would like to point out that we are currently living in the most peaceful time in human history. All that capitalism in the 20th Century sure has turned the world into a cesspool.
Now it’s a century? All the Romantic revolutions sweetly concealed by your liberal ideology? There was peace because so many were killed by people so willing to kill to secure peace. That did it, no kind of free trade or liberalism. Wellington’s & Nelson’s art of war was the same as Napoleon’s, sans ideologie-
It was not free trade that made for influence, it was the threat of horror.
My point is, there is no way,
You’ve got to be kidding! France did what she was told after conquering more than half of Europe precisely because her enemies told her in the most convincing way! It was the persuasiveness of horror that quelled all the revolutions of the 19th century.
America told Japan what to do sweetly up to ’41. No good. In ’45, America put words in her mouth & forced Japan to sing along to a foreign constitution, by MacArthur, who seems to have thought himself god-like. Don’t she sing sweetly now?
Sure. How lovely an American you are. What a great pleasure the modern economy has caused in this world of ours: Tyrannies controlling billions of men for most of the century, an hundred million or more killed by communism in peace time alone. But you can say: There was peace. New York was fine while peoples elsewhere, whose name you know nor more than their fates, were swallowed by a chaos bloodier than anything in history.
Free trade is completely innocent of all the weaponry sold by the truckload out of the collapsing USSR! The millions of corpses in Africa just in the last generation never happened. But you could say, New York may have been attacked, but LA is still fine.
It all ended without nuclear war, so that proves that modern technology that makes & is made by capitalism could not possibly come to a bad end! I’m sure, like the excellent writer of this excellent piece tells us the destiny of China–greatness, by the way!–you can tell us the destiny of America–greatness?–& that there will not be a horror that uses capitalism ever again.
I’m not convinced that this was a good move. Looking at the history of Africa in particular, many decades of misery and poverty have followed.
The question is not what to do during war and bouts of Fascism, it is what to do to prevent it. Given that China is moving away from Fascism, the best way to secure future peace is to open up trade with China. Not raddle our saber and give them a reason to turn back. Britain opened trade after the Napoleonic Wars, and peace prevailed for a century. It became antagonistic after WW1 and WW2 came two decades later. Britain set the agenda then, we set the agenda now.
Not so sure about LA. “Fine” is not entirely an accurate description.
But to quibble on the rest too: Were the African nations buying weapons by the truckload actually free? Was the collapsing USSR free? Was what followed in Russia free? No, none were. You can’t pin any of that on “free trade” or “capitalism”. Despotic tyrants, dictatorships, government backed cartels, quasi states, bloodthirsty revolutionaries, and glorified tribal leaders buying and selling among themselves are not examples of “free trade”.
Free trade, as a term, does not apply, in fact, to governments swapping goods and cash at all. It refers only to private individuals and businesses exchanging goods, services, and cash amongst themselves over international borders, with a minimum of regulation and governmental manipulation.