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Is America Destined for War Against China?

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Is America Destined for War Against China? Dr. Leif Rosenberger Chief Economist ACERTAS Introduction Back in 2015 Harvard Professor Graham Allison wrote a best-selling book that says America and China are “destined for war.” He notes that war broke out 12 out of the last 16 times in history when a rising power threatened to displace a ruling power. A U.S. war against China would be the 17th time war would break out given these strategic conditions. Professor Allison’s book helped to turn almost all Republicans and Democrats on Capital Hill into hawks on China. A cosmetic trade agreement between the U.S. and China pleased Wall Street and cooled things down for a while. Stop Blaming China for Covid-19 But President Trump is once again beating the drums of war. Admittedly, China’s initially

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Is America Destined for War Against China?

Dr. Leif Rosenberger

Chief Economist

ACERTAS

Introduction

Back in 2015 Harvard Professor Graham Allison wrote a best-selling book that says America and China are “destined for war.” He notes that war broke out 12 out of the last 16 times in history when a rising power threatened to displace a ruling power. A U.S. war against China would be the 17th time war would break out given these strategic conditions. Professor Allison’s book helped to turn almost all Republicans and Democrats on Capital Hill into hawks on China. A cosmetic trade agreement between the U.S. and China pleased Wall Street and cooled things down for a while.

Stop Blaming China for Covid-19

But President Trump is once again beating the drums of war. Admittedly, China’s initially mismanaged coronavirus in Wuhan province. But if President Truman were president he would be saying “the buck stops here.” In sharp contrast, President Trump irresponsibly opted to cut and run away from leadership. Trump keeps passing the buck to 50 governors and keeps blaming the Chinese for exporting “their disease” to America.

If President Trump had any moral integrity, he would stop blaming China and start blaming himself for dismissing repeated warnings from the intelligence community and public health care experts of an imminent pandemic since January. President Trump also squandered two and a half months dithering at his Mar-a-Lago Club in Florida rather than immediately a) invoking the Defense Production Act and b) scaling up the production of ventilators for patients and personal protection equipment (PPE) for our brave doctors, nurses and paramedics struggling to contain the surge of the invisible enemy.

In just three months, covid-19 has needlessly killed over 60,000 Americans, more than the 58,220 U.S. deaths over nearly two decades during the Vietnam War. Is America destined for another war, this time against China? Yes, if the U.S. keeps learning the wrong lessons from history.

The Failure of Economic Coercion

George Santayana once said that those who cannot remember the past are condemned to repeat it. After World War 1, we had the Treaty of Versailles. Its whole idea was to keep the German economy down and its military weak. That did not work out so well. This ill-advised economic coercion led to German resentment, the rise of Adolph Hitler and the outbreak of World War 2. That should have been a wake up call that economic coercion often backfires.

The Success of Shared Prosperity

Thankfully after World War 2, there were great statesmen who thought differently than after World War 1. Cordell Hull, FDR’s Secretary of State used to say, “If goods don’t cross borders, armies will.” Instead of isolating German as a pariah, the great French statesman Jean Monnet had a better idea. He opted for what former Chairman of the Joint Chiefs General Marty Dempsey would later call “radical inclusion” of the French and Germans under one tent. Jean Monnet’s European Coal and Steel Community enabled French and Germans to enjoy economic interdependence. This shared prosperity turned longstanding French and German enemies into friends – not a bad way to keep the peace in Europe for 70 years. That should have been a positive lesson learned regarding how to use shared prosperity to reduce the demand for violence.

The Failure of Economic Coercion Again?

Unfortunately, U.S. politicians never learned these two postwar lessons that shared prosperity was a better strategy than economic coercion. While economic coercion continues to be a favorite foreign policy tool of both U.S. political parties, this tool at best allows lawmakers (regardless of party) to claim moral high ground without actually accomplishing anything. Despite the promises of fervent U.S. economic warriors, Logan Albright argues that “the inconvenient truth is that sanctions don’t work – have never worked – to punish bad actors abroad.” South Africa may be one of the rare exceptions to the rule.

President Jimmy Carter tried a grain embargo after the Soviets invaded Afghanistan. The grain embargo hurt U.S. farmers, but the Soviets had no trouble buying grain from other countries. President Obama tried sanctions against the Russians after their aggression in Ukraine, with the same frustrating inability to get the Russians to change their behavior.

Throw Away Success

To be fair, there have been examples where sanctions initially appeared promising in getting Iran to come to the negotiating table and freeze its nuclear program for 15 years. But then President Trump threw that agreement away with nothing to replace it with since that mistake.

The Economic White Flag

Another time the great General David Petraeus tried to do at CENTCOM what Jean Monnet had done after World War 2. His New Silk Road Initiative was similarly designed to create shared prosperity, this time in and around Afghanistan. But when General Petraeus left CENTCOM and went to Afghanistan, the ill-advised powers that be threw that good idea away as well.

That economic white flag (or economic cut and run) was a serious strategic mistake and left a huge economic vacuum throughout Eurasia and beyond. China filled this economic vacuum with its own version of the New Silk Road which it calls the multi-trillion-dollar Belt and Road Initiative (or BRI). The problem with China’s BRI is that it goes around Afghanistan. General Petraeus’ New Silk Road was designed to go Afghanistan in order to reduce the demand for violence.

Make America 1953 Again?

Fast forward to 2016. President Trump wore a baseball cap that read “Make America Great Again.” George Will says that maybe Trump wanted to make America 1953 again. 1953 was the year when the U.S. had a dominating 30% market share in global manufacturing. The U.S. could have tried economic coercion again. But thankfully, our statesmen like the great George Marshall had bigger things in mind, like helping Germany rebuild their factories and giving them a meaningful stake in shared prosperity.

85% of U.S. Jobs Lost to Technology, Not Trade

When Donald Trump became president, he had heartburn with the U.S. trade deficit and launched an ill-advised trade war against China. China retaliated. U.S. farmers, blue collar workers and consumers all suffered. President Trump told his base at rallies that he wanted to bring back American jobs. The problem is there is nowhere to bring American jobs back from. Findings from a Ball State study showed that 85% of U.S. jobs were lost because of technology, not trade.

Macroeconomic Primacy of Trade

Moreover, Trump shows his economic ignorance when he and his economic nationalists blame China for the other 15% of U.S. jobs “lost to trade.” The lion share of the U.S. trade deficit reflects macroeconomics, not trade violations. 70% of U.S. GDP goes for consumption and 11% of U.S. GDP goes for imports. If Trump were serious about lowering the trade imbalance, he would increase national savings which have declined from 8% of GDP to a dangerously low level of 2% of GDP. If U.S. national savings rose, U.S. consumer spending, U.S. imports and the trade imbalance would all fall.

China as Final Assembler

Over the years, the size of the U.S. trade deficit with Asia has stayed about the same as a percentage of GDP. However, what is relatively new is China being the final assembler of many manufactured goods. If China were no longer the final assembler, the US trade deficit would remain the same. The only thing that would change is some other Asian country would replace China as the final assembler. However, embattled American consumers would be unhappy to see prices rise and the quality fall of their favorite products at Wal-Mart.

Transnational Production

It is also important to understand that the days of one product being made in one factory in one country are over. Most of Asian manufacturing is done by multiple countries with a complex supply chain.

On the positive side, this transnational production is a good thing because it democratizes trade. It creates a web of economic interdependence. It also fosters shared prosperity and reduces the demand for violence.

Trade War Threatens Supply Chain

On the negative side, President Trump’s trade war with China also hurts U.S. allies and friends who make intermediate components. It also seriously disrupts the fragile supply chain in the South China Sea. The trade war increases the demand for maritime violence among China, Vietnam, the Philippines, Malaysia and Brunei who have competing territorial claims.

Back in early November, then U.S. Secretary of the Navy Richard Spencer warned that the U.S. supply chain for warships was fragile. He said the Pentagon was at risk of having to rely on adversaries such as Russia and China for critical components for warships. Fast forward to late April when rising tensions between China and Malaysia also included U.S. and Australian warships.

Russian Financial Strength

To make matters worse, the U.S. was not just using economic coercion against China. The U.S. was also trying to use economic coercion against Russia, the other major power in its great power competition. President Obama and President Trump may not agree with each other on much else, but they both promised that their economic coercion would bring Russia’s economy to its knees. Well, guess again. The promises of their economic warriors were dead wrong.

Russian agricultural production is soaring. Russian wheat production is at a record high. Its foreign reserves have increased 50% since 2015 and are now the fourth highest in the world. U.S. foreign reserves are not even in the top 10. Russia has a sovereign wealth fund (SWF) that is 7.3% of GDP. How is the U.S. national SWF doing? We do not have one.

The Biggest Threat to U.S. National Security

Back in May 2011 Admiral Michael Mullen -- then Chairman of the Joint Chiefs of Staff -- said the U.S. national debt was the biggest threat to U.S. national security. If so, how is the U.S. great power competition doing to win this financial competition with Russia? Well, an EU Maastricht criterion says a national debt over 60% of GDP is financially unstable. The U.S. government debt is an alarming 105% of GDP and rising because of trillion-dollar tax cuts for billionaires and trillions of dollars more that needs to be borrowed because President Trump kept saying covid-19 was a hoax. In sharp contrast to this irresponsible U.S. fiscal policy, Russia’s national debt is only 20% of GDP. Is this how President Trump keeps America great?

Sino-Russian Partnership and U.S. Odd Man Out

So, U.S. economic warfare strategy against Russia and China has not only failed miserably, but it has simultaneously antagonized both. Not surprisingly, Russia and China turned the tables on America. Putin made a pivot from Europe to Asia and formed a Sino-Russian Energy Partnership and strengthened bilateral military ties. Chinese President Xi personified this U.S. strategic failure when he said, “Putin is my best friend.” So U.S. economic warfare that promised to isolate and bring the Chinese and Russian economies to their knees has resulted in President Trump as the odd man out, U.S. financial failures and a resilient and resurgent Sino-Russian partnership outperforming the U.S. in Syria (where Trump betrayed the Kurds) and across Eurasia with the multi-trillion Belt and Road Initiative which wins hearts and minds with trillions of dollars of shared prosperity.

More Chocolate Cake?

It is also important to understand the U.S. needs a good working relationship with China to influence North Korea to de-nuclearize and dissuade Iran from developing nuclear weapons. Unfortunately, antagonizing Chinese President Xi with a trade war means President Xi is in no mood to do any favors for President Trump no matter how much chocolate cake Trump gives Chinese President Xi to eat at the Mar-a-Lago Club.

Leif Rosenberger
Dr. Leif Rosenberger retired from the US government in March of 2016 following a 35 year career in the civil service. He was a Full Professor of Economics at the US Army War College as well as the Chief Economist at both the US Pacific Command in Hawaii and the US Central Command in Tampa, Florida.

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