A More Stable World Ahead? Nope.

The contrast between China’s recent economic situation and ours is stark. From a North American perspective, it’s also disturbing. We can’t seem to create jobs, and they can’t seem to get enough workers. We can’t seem to find our lost growth spark, and they can’t seem to tamp down their growth enough to avoid inflation.

Our relationship with China is cast as both our greatest economic opportunity and the ultimate zero sum game, where we lose whenever they gain. But of all the possible causes of our current problems, the question of whether the rise of China is fueling our own downfall might be the hardest to answer. Are we helping a once-great nation emerge from the dark ages of its own Communism, or are we living through an economic version of that Twilight Zone “To Serve Man” episode? (“It’s a cookbook!!”)

America used to fear the unknown “Red Chinese.” Has that nation’s conversion to some strain of capitalism – even if different from our own — therefore made the world a safer, more predictable place?

WHY MICHAEL AUSLIN’S WORRYING

Michael Auslin doesn’t think so. As an American Enterprise Institute Asia Scholar, he spends his just about all his time digging deeply into the political, economic and military issues between the U.S., China, Japan, India, and other “Indo-Pacific” nations. He advises policy makers and Pentagon officials on the region, which he visits frequently on fact-finding missions. So he knows his stuff.

What’s his outlook for our interests over the next decade? Pretty grim, unfortunately.

Through the lens of those issues, he sees China leading an aggressive wave of destabilizing actions that threatens the global economic system as we have known it. He also worries that by the time Americans achieve a full national consciousness of what we’re losing to those efforts, it will simply be too late to reverse the damage.

Compared to other members of Economaney’s Over-the-Horizon Brain Trust, Auslin’s radar is picking up darker clouds and more a more worried view of the economic future.   And while he may come to the table with some natural Woody Allen-style pessimism about him, the case he makes for his concerns is compelling.

THE IDEA: THE FREE WORLD COULD BECOME LESS FREE AND MORE DANGEROUS

Auslin sees several “bad actor” states, China most prominent among them, actively working to undermine the foundations of the global trade and governance systems that have guided the Western world to increasing levels of prosperity for the last 200 years. It’s not a full frontal military assault, 20th century dictator style, that he’s sensing:  It’s a more nuanced but no less dangerous challenge to the economic and political power of the West generally and the U.S. specifically.

“So much of how people live and operate (throughout the world) is dependent on the certainty that that the U.S. has brought to the world community,” he says, pointing to Anglo-American legal and diplomatic frameworks that began under the British Empire and were fortified by an ascendant U.S. “In everything from security issues like the right to safe passage of ships on the high seas to the understanding that free trade and competition generate more wealth for everybody than mercantilism (tight government control of international trade for the attempted benefit of one nation over others), the U.S. has taken the lead and the responsibility.”

But he sees that rapidly breaking down today. “There is a scissors effect here that’s really bad for everybody,” he says. “We have the arrival of these new challengers, led by China, but there’s also Russia, which is putting its petrodollars to work, and Iran and others too, and they’re all working hard to insert instability into the system. And it’s happening at the very same time we’re choosing to reduce our ability to influence the world and play the same role we have, because we don’t have any money to project the kind of military strength we have for the last century.”

WHY YOU SHOULD CARE: AN EVEN MORE UNSTABLE WORLD ECONOMY

Auslin believes global economic life is becoming increasingly unstable and unpredictable because of the strategic actions of these nations. In a world already turned upside down by torrential information flows scouring out the economy as we once knew it, we now may be entering a time of increasing state-sponsored international instability.

“Nations like China have a completely different approach to ‘free trade’ than we do, or that many countries do. There’s overwhelming evidence throughout history that rising powers never seek to fit in with the system as it currently exists. They want to re-write the rules to their benefit.  But if we lose the international trading system we led the way in creating, it will be extraordinarily difficult to recapture it.”

He worries about the physical security of ship cargo. He worries about military intimidation of neighboring countries that could be aimed at influencing who those countries trade with. (Think “The Sopranos” meets Tai-Pan.) He worries about legal protections for foreign investors and joint venture participants and the rights of intellectual property owners.

Not surprisingly, none of that inures to our national benefit.

The effects, he says, could range from the trivial to the very serious. “Maybe we don’t get our Nikes when we want them for what we want to pay for them. Or maybe we watch the price of home heating oil suddenly skyrocketing through the roof. But if you’re a businessman, you have to understand that you can’t assume that the reliability of whatever it is you’re buying from an Asian supplier will be the same in the future as it has been under the current system.”

Higher uncertainty, in other words, and as we’ve seen in the recent dramatic recession, wide-scale uncertainty tends to kill business investment, which in turn tends to kill job creation, which in turn tends to further depress the economy.

EVIDENCE: WHAT EXACTLY HAVE THEY BEEN DOING?

What haven’t they been doing? Auslin sees China acting the part of assertive bully on all parts of the world stage:

  • They have aggressively manipulated their currency to keep the costs of manufactured goods artificially low.
  • They led the submarining of a proposed major international trade treaty  (The World Trade Organization’s Doha Round, aimed at lowering trade barriers worldwide.)
  • Speaking of submarining, they’ve built a fleet of 70 submarines. (“Submarines have only one purpose,” Auslin says. “They kill ships. What ships are they planning to kill?”) They’ve also launched an aircraft carrier (their first), a stealth fighter jet (unveiled on the day U.S. Defense Secretary Gates visited China), and have a thousand missiles pointed at Taiwan.
  • They have moved aggressively at home and in countries around the world to tie up supplies of “rare earth metals,” necessary for the manufacturing of critical technology components.
  • They’ve continued aggressive control over dissidents at home and efforts at muzzling dissent abroad.

And more, and more, and more.

In short, China’s not playing nice on any front. They’re making noise and making trouble and even using occasions like the recent Georgetown basketball tour, where the Chinese army team practiced kung-fu maneuvers on the Hoyas and starting swinging chairs at them during the brawl that broke out as a result, to project an image of “We can and will do whatever the hell we please.”

But why? Wouldn’t an unstable economy be bad for the rising powers, too? Shouldn’t they be averse to rocking the boat too much?

“That’s a good question,” Auslin says. “The Chinese have benefited more than anyone else from the current system, so you have people saying they won’t kill goose that lays the golden eggs. But through their behavior, they’re showing they’re taking aim at the system as it exists. We may think that’s crazy, but maybe they have a different calculus. Maybe they think it’s better to completely control a smaller slice of the pie than to be part of this system they have no control over. Who knows?”


Join the Discussion

Leave a Comment

By clicking submit you agree not to be a complete jerkface, etc.

Or Get to Dave

Do you have perspective and insight into the future economy? Get it directly to Dave on our contact page.

Contact Dave