blindness and fear and China

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“The United States has a very deep, profound interest in a rising China to be a responsible global stakeholder, to contribute to our shared prosperity and security. But we also know that with a rising power comes a rising sense of ambition, and we will welcome China’s active participation in global affairs so long as it is responsible and transparent.”

U.S. Secretary of State Hillary Clinton, 2011

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“China is a big country, inhabited by many Chinese.”
Charles de Gaulle

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• ** note: just as I was finishing this piece Noah Smith published a piece, A DemTech Economic Agenda: Ten Steps Towards Collective Resilience, which basically states all the essential points to support what I am saying. If you must choose whether you read my piece, or Noah’s, read his.

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America is what America is and, in this case, what it is, is afraid of China. No matter where you turn someone is claiming China is going to war with US, replace the dollar with the yuan as global currency, spy on every American thru TikTok (albeit no one has clarified what they may do with that spying) and basically making America a third world country. I would be remiss if I didn’t point out this is an extension of America’s predilection to address everything as either Spinal Tap 11 or, well, zero. China is currently the 11.

Should we be concerned? Sure. Should we be complacent? No. Should we view this as a competition? Yes. Should we consider this a war? No (in my opinion). China is clearly a geopolitical and economic competitor that could pose a threat to American economic interests, but the issue is in the nuance. While it is a competition, we cannot neglect the importance of constructive engagement with China because, well, globalization isn’t going to just go away. It is important to approach the U.S.-China relationship with an understanding in a connected world. There has to be a commitment to nuance. And that nuance needs to extend to rhetoric. US does some things exceptionally well and some others not as exceptionally. The challenge will be to ensure the exceptional things do not lose their competitive edge. And, yes, it is now a competition. An economic power with 20% of the world’s population, China has the ability to reshape the international system and when Xi Jinping says China should “lead in the reform of the global governance system” it suggests ambition. What I will say, without fear, is that an enormously ambitious China is peaking now and a competitive confrontation is upon us.

Before I specifically address the fear of China let me state three underlying beliefs.

1. fundamentally labor and building costs remain higher in the United States than they do either in China or the majority of alternative sources. This is due to a higher standard of living and a cost of living therefore is not easily solvable and maintain ‘lowest prices available’ for consumption or ‘lowest costs’ for creation.
2. we need to discern between creation and consumption. Manufacturing in terms of sourcing is different than markets within which we can sell things.
3. the asymmetry of the US China relationship finally reminded us of an old lesson we had forgotten. Don’t be (over)reliant on a single source for anything. As Toffler once said “if you don’t have a strategy, you are a part of someone else’s strategy.” We didn’t have a strategy except a maniacal blind objective of the pursuit of money (profits and revenue) wherein businesses pursued fragile ‘efficient’ mechanisms of creation and consumption.

Which leads me to looking at this as seeking potential.

The existing situation is a reflection of past behaviors in seeking potential. What I mean by that is as the world became increasingly better at globalization, i.e., ability to distribute creation/manufacturing became more efficient and more markets became open, business, as businesses do, sought potential sales, revenues, margins, and profits. In other words, they sought potential. To be clear, this is business potential not country potential. Business does not prioritize country other than as a criteria for its existence, not its potential. So, by the 2000’s most businesses had fallen into a comfortable balance sheet position wherein their manufacturing is sourced out of the United States and China had a disproportionate hold on both key manufacturing as well as offered a massive user market. Because it was a balance sheet friendly choice, it became a given. And once it became a given, businesses had a propensity to simply build upon that premise to make as much as possible in China. What I am suggesting is that China gained a disproportionate hold on global manufacturing simply by the inevitable gravity of China as the world’s “plant” and US (and some others) as the world’s innovation research hub. To be clear, balance sheets can blind many businesses to potential risks. The good news it is correctible blindness.

Which leads me to exploring potential.

Potential is neither simple nor absolute, but rather within pace layers and pace layering. What is the real potential? And where is the real change? What is a real threat and what is a real opportunity? Those are the questions that we should be asking and asking without fear; seeking direction from the answers we discover. While a common topic within this fear driven conversation is that power is shifting away from the West and from the United States. I have to question is it really shifting power or is it just simply power flexing. The true perceptions of any perceived change or even power flexing typically depends on where one stands. But the entire fear rhetoric creates a siege mentality and this happens when we’re not really sure whether some of the things we’re discussing pose real threats or are they simply perceived ones mixed up combined with a lack of nuance from a political standpoint. In addition, the lack of nuance encourages a zero sum fear winner-take-all attitude lacking the natural proportionality of a globalized economy. What I do know is that is that the uneasiness is grounded in losing what you have.

Which leads me to fear always fills absence.

The current situation demands we at least acknowledge the political policy dynamics. Objectively speaking, viewing substance over rhetoric, the Trump Administration retreated from the global role that the United States typically had in the global interconnectedness. This had repercussions. Some welcomed it, some people became uncomfortable with it, but the truth is in the current moment there is no substitute the leadership that America has offered to the globalized world that exists today. This does not mean that American policies haven’t offered up the possibility that some of the deeds that were implemented may not have been evil, but they weren’t necessarily good. This becomes important because many because many times within the fear-driven dialog much of the citizenry struggles to see how the United States could be anything but benevolent or “good” in a good versus bad binary world. The reality is most American citizens need to stay need to take a step back and under that some of the images and verbiage that get transmitted simultaneously into homes around the world can trigger can trigger opposing perceptions. Where homes in the United States may applaud some behavior there will be other areas in the world that will consider dangerous if not misguided. And where Americans may see consistency other countries may actually see inconsistency. For example, the war in Ukraine it is difficult for any American to think that American involvement in the Ukraine Russia war is not the right thing to do. However what makes it righter then the lack of involvement that America has elected to do in several of the African conflicts which actually involve more people more lives And even pass even possibly more of the global future. Inactions send signals.

That said, we have now veered into a paranoia driven world in which it seems like it’s a one on one combat between China and the United States for control of the world.

First. No one country will control the world. One country can influence the world, but it will never control the world.

Second. From any objective view the United States which has treaties and trade agreements with over 150 countries around the world has disproportionate power than China which I believe only has seven alliances, the majority of which are with very small economies. In addition to that China surrounded by a number of countries and large economies that have no interest in losing their own power to China. I bring that up because while we like to talk about United States versus China there are a number of buffer zones between the two and I’m not speaking just of military engagements, but of economic engagement.

Which leads me to engaging (not in an America First way).

It’s quite possible instead of fear, we should view relationships as opportunistic and transactional. I believe this would be a healthy attitude because believing that the United States use of international institutions, military power, and economic resources to run the world in order to maintain United States dominance is a prescription for disaster. The reality is the United States is made up of 330 million people in a world of almost 8 billion. This does not mean that the United States does not have disproportional power within that larger context, almost kind of like the Intel inside a computer, but to suggest America’s interests can be solely pursued within a global system and have all the results it desires is simply wishful thinking. It seems like the question now should be how to organize to protect ourselves from other countries which desire to undercut the things that are most important to us which would include economic as well as human values. What I am suggesting is that simply pursuing a weakened them and strengthen us initiative is a reflection of an inability to conceive that this could cover up any structural weaknesses that the United States has is as well as assumes that this is but this is actually the best thing for the United States. What I mean by that is that the world really isn’t a zero-sum game that doesn’t mean that it may not be disproportional in terms of who wins and who loses but it is not a zero-sum game. That is important because that would mean that the best American policy for America is actually to seek out the ultimate triumph of a balance, or proportionality, of economic prosperity globally as well as some most important ideals associated with freedom and democracy. But it is hubris to state that United States can defy the economic laws of gravity. What I mean by that is that in order to seek out the best triumph for the United States, within the triumph of global economic prosperity, the United States has to get its economic engine working properly because if you do not maintain your own economic health, it is impossible to fully optimize economic potential. The United States is still the repository of the greatest assets to feed future progress.

Which leads me to why fear should be tempered.

China has a number of countries that it considers allies or partners, although the exact definition and nature of these relationships may vary. Some of China’s closest allies and partners include:

1. Russia: China and Russia have a long-standing strategic partnership, and the two countries have cooperated on issues such as energy, defense, and foreign policy.
2. Pakistan: China and Pakistan have a close relationship that includes military and economic cooperation. China has invested heavily in infrastructure projects in Pakistan, and the two countries have also worked closely on regional security issues.
3. North Korea: China and North Korea have a longstanding relationship that dates back to the Korean War. While their relationship has been strained at times, China remains North Korea’s largest trading partner and a key ally.
4. Iran: China has developed closer ties with Iran in recent years, particularly in the areas of energy and trade.
5. ASEAN countries: China has sought to build stronger ties with its Southeast Asian neighbors through the Association of Southeast Asian Nations (ASEAN), with which China has established a strategic partnership.
6. African countries: China has also developed close economic and diplomatic ties with a number of African countries, particularly through its Belt and Road Initiative (BRI), which seeks to promote infrastructure development and trade along the historic Silk Road.

“One simple question we should ask is which country—China or the United States—is swimming in the same direction as the majority of the other 191?”
Kishore Mahbubani

I began with China to point out its partnerships, in a cooperative economy, are relatively limited, or, let’s just say its capped. On the other hand, the United States has a number of allies and partners around the world spanning from strategic alliances to transactional relationships – with almost every country in the world. lately, in what appears to be a new interest in reshaping alliances and the economic sub-structure, the United States has deepened relationships in the Pacific Rim, southeast Asia and other countries which constrain China’s ability to expand its role globally.

Which leads me to what I think will happen (so we stop fearing).

One reasonable prediction is the era of global value chains will not come to an end. Offshore manufacturing and global supply chains are just how companies know how to produce stuff now, meaning that — barring a very catastrophic war — we will not go back to an era of largely self-contained national manufacturing economies. That said. I think the manufacturing construct will reshape itself into new blocks becoming less reliant on (a) China and (b) sole source creators. China will obviously attempt to build a block. But, referring back to China’s limited partnerships, China will be limited in how and what they make and own in the creation and who they can rely on for raw materials and other low-value goods. To be clear. There will be struggles over the resources of some neutral countries, including poor countries, and this could turn into some ugly proxy struggles. Interestingly, you can also see how America is attempting to build its own block. The most interesting aspect of America’s version is how ‘pod-like’ the thinking is. What I mean by that is while America benefits in the thinking construct it permits EU and other alliances tap into different creation resources in different ways; all the while optimizing the consumption market size. So, if Americans can finally pull their heads out of their asses and recognize that their country doesn’t dominate the world the way it used to, there’s a chance to create a non-China economic block that preserves lots of the efficiencies of the old globalized system while serving U.S. national security needs. That bloc would not only include America’s formal allies or developed democracies, but also include lots of developing countries – particularly in southeast asi like Bangladesh, Vietnam and Singapore – that would like to hedge against Chinese power and secure access to developed world markets.

“The world needs an international economic system that works for our wage-earners, works for our industries, works for our climate, works for our national security, and works for the world’s poorest and most vulnerable countries. That means replacing the idea of free markets alone with targeted and necessary investments in places that private markets are ill-suited to address on their own.

It means returning to the core belief we first championed 80 years ago: that America should be at the heart of a vibrant, international financial system that enables partners around the world to reduce poverty and enhance shared prosperity. And that a functioning social safety net for the world’s most vulnerable countries is essential to our own core interests.”

Jake Sullivan

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Which leads me to possibilities rather than fear.

China has a grand strategy. China has ambitions. USA has a grand strategy. USA has ambitions. Heck. The EU has a grand strategy and ambitions. But they are not on equal footing in a global economy. Currently it is asymmetrical and for the foreseeable future, based mostly on China’s grand strategy, it appears like it will remain asymmetrical. But even if it does become more proportional (China does have 3x the population of the USA) it shouldn’t create fear, it should create a competitive vision of potential and possibilities. Which leads me to end where I began. Fear generates misguided decision-making and potential is wasted. Period. The key to United States prosperity is international cooperation. And here’s the deal. The key to China prosperity is international prosperity. This doesn’t mean China doesn’t have a long term strategy, and ambition, to displace USA as the central player in the global economy just that these two things are not mutually exclusive. That said. While China seeks to become self-sufficient the US should be developing a coalition of interconnected productive prosperity. Instead of a self-sufficient USA it should be a shared prosperity and a self-sufficient coalition of countries. Why? The tide rises higher with a shared prosperity – there will be larger efficiencies and effectiveness and wealth generation. That doesn’t mean US couldn’t stand alone standing upon its own resources, but, why? It only offers a finite path where a coalition offers more possibilities AND maintains a competitive advantage against China.

Which leads me to end with getting out of our own way.

“.. brings into question how serious Washington is about leading the world. Washington’s dysfunction also helps its autocratic adversaries in the global contest over ideology.”

Christopher Chivvis

You can tell the ‘fear’ proposed by political leaders, particularly on the Republican side, is simply performative politics and rhetoric because from a pragmatic standpoint Washington continues to get in the way of actually placing United States in a position to lead the competition with China. It’s an absurd kabuki dance of fact and fiction. I will say, objectively speaking, the words and actions of the Biden administration have been surprisingly forward thinking. Many of the things I have noted in this piece America is actually either doing or discussing. So maybe we should stop fearing and start embracing the changes that are being implemented by ‘the experts.’ Ponder.