US competitiveness key to avert US/China war

Andrew, 4/3. “Bloomberg New Economy: Biden’s Infrastructure Plan May Reshape U.S.-China Competition.” https://www.bloomberg.com/news/newsletters/2021-04-03/bloomberg-new-economy-biden-s-infrastructure-plan-may-reshape-u-s-china-competition

Starting with the Peloponnesian War (431-404 BC), military conflict generally resulted when a rising power challenged an established one. Three out of every four times, to be precise.

Hence, escalating fears that the U.S. and China are destined for war. But as the economist William H. Overholt points out, the world has changed: modern weaponry has become so lethal that gaining power through conquest is no longer an option. Instead, the path to global dominance runs through the economy. And a healthy economy depends on capable infrastructure.

President Joe Biden’s announcement this week of a $2.3 trillion infrastructure plan is an explicit acknowledgement of that transformed reality. The stated goal of the most sweeping U.S. spending plan in at least half a century is to reshape the American economy and counter China’s rise—primarily by building bridges, highways, electric vehicle infrastructure and the like—rather than warships, fighter jets and missiles.

U.S.-China competition for global leadership in the 21st century has just taken a new turn. It won’t end the same way as America’s Cold War with the Soviet Union, regardless of how many billions of dollars in Biden’s spending plan survive a divided Congress. There’s no chance that China will ever find itself economically outmatched, go bankrupt and give up the struggle. (Like the Soviet Union.)

As this newsletter pointed out recently, when it comes to infrastructure, the U.S. is playing catch-up. In less than a decade, China built a high-speed rail network that’s bigger than all of the rest combined. The country is the global leader in green energy. It also has a head-start on 5G networks.

But Biden’s historic effort to get America back in the game could alter Chinese calculations. So much of China’s assertive behavior in recent years, from its massive naval buildup to its territorial quarrels with almost all of its neighbors, stem from a belief that the U.S. and the rest of the West is in terminal decline—and that China’s best days are still to come.

“China thinks the West is weak, venal and ill-disciplined, and must be brought to heel, like a dog,” is how one Western envoy put it to the Economist.

Extreme ideas like that could trigger conflict—and they certainly weaken the bargaining position of U.S. trade negotiators. Why should China offer market-access concessions to a country it considers a failing superpower? Why should it abandon its industrial model as a sop to a has-been?

The Trump administration had virtually nothing to show for its all-out tariff war with Beijing. Wisely, the Biden administration has deferred decisions on whether to keep, toss or modify the Republican’s trade policies until it has in place a credible blueprint for national economic rejuvenation—one that will (not coincidentally) give the U.S. bargaining power.

Biden’s infrastructure plan—Great Society 2.0 as some are calling it—is an excellent start. For too long, America’s approach to competition with China has been trying to trip up a rival rather than pick up its own pace. Lazy (and xenophobic) politicians in Washington have found it far easier to blame Beijing for America’s ills than to fix dilapidated airports, crumbling schools and potholed highways. Indeed, the more America tried to tear China down, the harder China worked to achieve industrial “self-reliance.” The effort is ultimately self-defeating.

The very real risk posed by Chinese overconfidence has been compounded by America’s recent lack of confidence. Biden’s plan, if implemented, could spur the U.S. to compete more effectively with China, in turn diminishing American fears and lowering the temperature. Prospects for cooperation in areas like climate change would improve, too.

A more economically sound America would also be better able to build the international coalitions needed to push back against China’s bullying behavior abroad and human rights abuses at home.

This year will be a watershed: Goldman Sachs predicts that the U.S. economy will grow by 8%, outpacing China for the first time in decades. Indeed, it’s quite possible that America is on the cusp of a productivity boom driven by advances in technologies where it’s still ahead—like gene editing and artificial intelligence—which are starting to deliver breakthrough applications such as the mRNA vaccines.

A future in which China is the world’s largest economy is by no means ordained. And while U.S.-China relations remain “a minefield of explosive problems,” as the Wall Street Journal put it, competition has just entered a decisive new phase. For the first time in years, it favors America.