ARGUMENT: China watchEconomics, National Security, and the Competition with China

Bookended by the global financial crisis and the COVID-19 pandemic over the last 13 years, the world has been presented with a third existential shock that is the defining drama of these early decades of the 21st century: a more truculent and assertive China. George Magnus writes in War on the Rocks that China, once viewed by liberal-leaning democracies simply as a formidable consumer and feisty competitor, has also grown and changed over the last decade to become an economic and national security adversary with which the United States has locked horns in ideological and strategic competition.

Magnus adds:

Economic and financial rivalry between Beijing and Washington is now commonplace in industry, investment, information systems, and innovation, all the more so in the wake of vulnerabilities, including high levels of economic interdependence, exposed by the pandemic. These have raised anxiety about what needs to be done to strengthen America’s economic system and national security. Yet, China worries about these things too, and for good reason. Its economic outlook and prospects are not only very different from the past in this new environment, but also much more nuanced than the formal narrative suggests. Indeed, the China drama includes a major paradox. The authoritarian and rigid nature of its governance system — with no rivals to President Xi Jinping or succession plan — is simultaneously the biggest threat to the global order and China’s biggest fault line. The United States needs to be aware of and responsive to both, as President Joe Biden — like his predecessor Donald Trump — places geopolitical competition with China at the forefront of U.S. foreign policy.

He concludes:

Over many years, China has used a blend of state-directed policies and selected market mechanisms to build an economic platform that has allowed it to consolidate its national security at home and, over the last decade, project geopolitical expansion abroad. Officials in Washington increasingly view this as a threat to vital U.S. interests. China’s economic, industrial, and technological policies have always been of the “China First” variety, designed to favor domestic firms and producers. However, while globalization and political pragmatism also enabled it to construct that platform, the former has stalled or gone into reverse, and the latter has been overtaken by a more ideological and authoritarian governance system. Economic development, moreover, isn’t a linear path, and China’s highly centralized power structure now faces growing economic headwinds and an overreliance on key individuals and top down decision-making rather than institutional and market structures. In short, China’s economic security is not assured.

Moreover, as China expert Rana Mitter has pointed out, China’s growing security presence abroad, fueled by its economic, trading, shipping, and supply chain logistics, is also having a perverse effect on its popularity. Indeed, Chinese authoritarianism, policies of repression, and coercive diplomacy in the wake of the pandemic have contributed to a growing backlash of resentment and suspicion not just among developed market economies but also nations in the Belt and Road universe.

The United States should take note because many constituencies and countries will be trying to pull the Biden administration in different ways that may be inadvertently prejudicial to either economic or national security. Strengthening economic and trade arrangements with other countries, especially in Asia for example, is viewed as an important goal. All the more so, perhaps, because China’s own behavior and actions are a major impediment to its already limited soft power. Yet, Washington should be careful not to compromise domestic economic interests too much because in the longer term, these constitute the core of American national security and global leadership. Its economic security derives from the strength and structure of its own economy and financial system, and the dynamism of its enterprises and culture. Put another way, in its thinking about competition with China, the Biden team working on China at the White House, Defense Department, and State Department should focus on the strength of Detroit, Disney, and the dollar.