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China is the chief beneficiary, in potential leadership terms, from these (and other) US abdications. President Trump’s protectionism also implied a new type of economic policy convergence that plays further into China’s hands: a growing resort to government intervention, at least in international markets, and anti-democratic politics, that simultaneously undercuts the traditional “American model” in both economic and political terms, and advances the “Chinese model” that President Trump ostensibly was seeking to counter (Friedman 2018). The Trump approach was an uncomfortable manifestation of how state intervention and authoritarian politics by China, with its huge impact on other countries, begets like reactions from others, and demonstrates its “leadership” without any changes in written rules or formal institutional arrangements.
These US steps, moreover, reflect changes in American politics that run considerably deeper than President Trump. Democrats in Congress took credit for killing the TPP before Trump did so. Presidential candidate Hillary Clinton, and top nomination contender Bernie Sanders in both 2016 and 2020, also opposed TPP and NAFTA and objected to globalization almost as broadly, if not quite as shrilly, as President Trump. Democrats have been even less likely than Republicans to support free trade and globalization. There is widespread bipartisan support – a rarity in these times – for adopting and maintaining a tough policy stance toward China (though not President Trump’s methods for pursuing it). President Biden has been much more supportive of a restoration of US global leadership and the alliances but there remains a major question whether the United States appetite for leadership, at least to anything like the extent exercised in the past, can be revived and sustained; it will probably take a prolonged reversal of the Trump abdication, under both political parties, to rebuild global confidence in the United States.
Even with all these new opportunities, however, there is no evidence that China plans to make any early “dash for dominance.” There are no signs of a new Bretton Woods-type conference to design a reconfigured global architecture. China’s growing power is likely to continue to be exercised over time on a de facto and opportunistic, rather than de jure and architectural, basis. Its BRI is a clear example, especially when compared with the original TPP and its successor CPTTP. Because it believes that it can enjoy the best of both current worlds, gaining hugely from the open system while seeking to exploit its gaps and weaknesses, China will probably focus on expanding its clout within the existing order, rather than on overthrowing that order. China is likely to remain a revisionist rather than a revolutionary power for the foreseeable future, but that in no way minimizes the importance and likelihood of its growing influence and impact.
What if, however, China (suddenly) concluded that time was no longer on its side? Demography has turned against it: the size of the labor force and overall population has either started to decline already or will do so soon. The reversion to state/party control of the economy may lower the growth rate considerably and lastingly. President Trump demonstrated that the United States would push back, and more skillful successors might well restore traditional US alliances and do so much more effectively. The international environment is likely to become more hostile in general. So it may be better to move sooner rather than later – especially as Xi Jinping wants to leave a personal legacy of historic accomplishments.
Recent Systemic Competition
A number of skirmishes in the emerging competition for global economic leadership have already taken place. The most institutional was China’s launch of the AIIB in 2015, which sought to meet a widely felt need for increased infrastructure spending in Asia (and elsewhere) and promised from the outset to follow international best practices and work closely with existing multilateral development institutions, while adding a few innovative features of its own. It appears to have done so to date and has become a useful, if modest, component of the existing system rather than a threat to it.
However, the Obama Administration chose to regard the Chinese initiative as an explicit challenge to the World Bank and the Asian Development Bank (ADB), and thus to “its” Bretton Woods system. The United States not only rejected China’s invitation to join the new institution but vigorously lobbied the other major non-regional countries to do so as well, converting a largely technical economic initiative into a high-profile political cause célèbre. Led by the United Kingdom, despite its “special relationship” with the United States, however, all of the others – except Mexico and Japan, which has reasons of its own to oppose Chinese leadership – soon accepted China’s invitation and the new Bank quickly attracted over 100 members.
The episode illustrates how China can simultaneously work to strengthen the current system while staking out a distinct leadership role within it, and indeed function as the “responsible stakeholder” that the United States has advocated for well over a decade (Zoellick 2005). It also shows how China can chip away at the US-led hegemonic coalition with initiatives that are substantively compatible with the traditional order and systemically non-threatening, especially if the United States mishandles the issue. The AIIB could turn out to be a prototypical case of constructive engagement of rising China into an evolving global economic order.
Another modest but constructive episode of systemic competition was the decision of the IMF in 2015 to include China’s renminbi (RMB) along with the dollar, euro, yen, and pound in the basket of currencies that determines the value of its systemic reserve asset, the Special Drawing Rights (SDR). China had been seeking the move, which formally recognized the RMB as an international reserve currency, for several years. The RMB did not fully meet the traditional criteria for inclusion, however, and the Fund had to re-interpret its rules to accommodate the Chinese – indicating how China can already prompt systemic change, albeit in a very modest way in this case. But no harm was done and China stepped into a marginally more important role in the system, presaging the likely increased international importance of its currency over the coming decades.
The United States accepted the step grudgingly, but at least did not replicate its folly of opposition as with the AIIB. The Trump Administration did oppose the creation of an additional $650 billion of Special Drawing Rights in the IMF, supported by China and almost everybody else, to help the global recovery from the pandemic and especially the poorer countries whose external debts had built up sharply as a result, but the Biden Administration reversed that position during its early days. President Trump apparently opposed any new increases in IMF quotas, opting instead to provide the Fund with needed resources through national lines of credit, at least partly to preclude the opportunity for a further increase in China’s voting share (Sobel 2019).
A subtle but politically significant clash arose over the scheduled annual meeting of the Inter American Development Bank in Beijing in 2019. The contentious issue was the representation of the government of Venezuela. Host China invited the sitting regime of Nicolas Maduro, but the United States and a number of other member countries rejected him in favor of the appointee of Juan Guaido, whom they recognized as the legitimate leader of the country. The result was a cancellation of the meeting, an unprecedented event in the history of the MDBs. It could be a harbinger of future disputes over national representations as China acquires increased clout in the operation of the different institutions (and the Taiwan issue remains a “core interest” of the mainland, which insisted on excluding the island nation from WHO deliberations on the coronavirus, despite its outstanding success in responding to it).
A much more important case is China’s BRI. This far-flung scheme, whose projects aim to reach $1 trillion or more, clearly promotes China’s commercial interests by providing new markets for the excess capacity of many of its capital goods industries; its financial interests by offering more productive use of its high savings and large foreign exchange reserves; and its foreign policy interests by strengthening its ties to (and potential influence over) a large number of participating countries and indebting them to Chinese lenders. Its financing is often devoid of the traditional economic and values conditions required by Western foreign aid programs. It has been criticized as creating “debt traps” and political liabilities for its recipients. It thus fits less comfortably within the current system, functioning without new multilateral or institutional machinery and with much greater political overtones.