The Peaceful Rise Of

A Growing Threat

By Charlie Martin

“China has between 100 and 160 cities with populations of 1 million or more (America by contrast has 9, while Eastern and Western Europe combined have 36)” (Fishman 1 1).  These urban centers, most of which have not been heard of outside China, are the breeding grounds for the potential economic superpower of the future.  The power of the Chinese economy is growing so strong that its “economic output is expected to triple in 15 years, overtaking the United States by 2039” (Katel 2 2).  Another stunning example of China’s growing dominance is the debt the United States currently owes the Chinese; at the end of 2005 it had reached 820 billion dollars.  The U.S. currently relies on the Chinese to buy its bonds and “if China stopped buying U.S. securities, or even started dumping them, that would not only make imports more expensive, but also could push interest rates up, end the housing boom and… tip the U.S. economy into recession” (Powell 2 3).  These undeniable facts make it impossible to deny China’s looming threat to the U.S. security when faced with such clear undeniable truths.  Although many agree that China is becoming an increasing threat to U.S. security, none of the proposed short-term solutions is adequate to solve the problem.

            China’s growing economy, controlled by its authoritarian government, results in a transfer of wealth and power from the U.S. to China.  The primary mechanism behind this shift is the Chinese government’s manipulation of its currency, which feeds a growing trade imbalance with the U.S.  The Chinese government then uses its growing wealth to enhance its political and military power.

            The yuan, China’s currency, is made artificially low by its authoritarian government so the country can easily gain in price-competitive trade.  China, like many other Asian countries, primarily Japan and South Korea, relies greatly on its exports for economic growth.  The government purposefully keeps the value of the yuan low and pegs it to the dollar so that in international trade its prices are irresistible to any economically powerful country.  Businesses in the U.S. and those in Western Europe simply see a much lower price in China than those in their own countries from which to buy their goods, and from each purchase, China benefits.  In fact, it has benefited to such great extent that “the country is closing in on a thirty-year run during which its economy has doubled nearly three times over.  The surge has no equal in modern history” (Fishman 12 4).  When China’s currency appreciates too much against the dollar, which causes damage in its ability to export goods, the government uses its large reserve of foreign currency to buy up American debt.  This purchasing of U.S. bonds pushes the yuan lower and therefore allows for China to continue with its trade imbalances.  When the country began its new pegged form of economic policy in the late 70’s and early 80’s, many of the powerful and rich countries did not criticize China.  The economy was too small and was not increasing at any rate that would warrant concern.  In the early 90’s when many of the stronger Asian powers were experiencing financial troubles and some collapsed, China’s dollar peg policy allowed it to continue growing and many praised the country for stabilizing the Asian economy.  Many economists were surprised that China did not fall into a hole like other countries, because they too had similar policies.  China’s economy has been somewhat of a marvel because in its thirty years of terrific growth it should naturally have fallen into several recessions or experienced a stock market crash or something that would hurt it someway, but every time it seems like it is going to fall it rises up more powerful than before.  In recent years, however, those who once congratulated China’s growth changed their opinions.  Many foreign critics, primarily U.S. domestic manufacturers, believe “China fixes its exchange rate too far below what it would be if the yuan were allowed to be traded freely on world currency markets” (Fishman 260 5).  It is true that China’s exchange rate is quite low in comparison to what it would be if the currency were allowed to fluctuate, but it is unknown how large the gap is.  The uncertainly sized gap does not, however, quell any of these angry critics.  The fact that a gap exists and that China easily gains in any sort of trade with foreign countries only further infuriates them.

China’s monetary manipulation is claimed to violate the trade laws of the World Trade Organization (WTO), the same association that China begged to join and promised to comply with.  Many of the critics that argued against China’s exchange rate are the same ones that make this argument.  It was believed that “the concessions China made to foreign investors and corporations in order to gain entry to the WTO show[ed] a readiness to play by the established rules of the game” (Skidelsky 30 6).  Critics say that the economic policy of pegging the yuan to the dollar has passed the point of casual disregard and that China should change its policy so that it would agree with the WTO.  Fixed economies were abandoned primarily in the 50’s and complete fluctuation was established for all the powerful countries of the world.  None of the members of the WTO embrace monetary manipulation for their own economies and therefore many believe that China should not be allowed to do so.  However, China has grown in such economic and political power that enforcing any sort of law that is referenced would be extremely difficult and hazardous to the organization.  Critics push the violation because of the severe problems the manipulation caused in their own countries.

            The trade imbalance between China and the U.S. negatively affects the latter country through job loss and debt accumulation. How large the imbalance actually is and how much the yuan is actually pushed down, as opposed to letting it freely fluctuate or float, is said to be almost guesswork.  Many U.S. domestic manufacturers “argue that China artificially depresses the value… by as much as 40 percent” (Fishman 260 7).  This bargain bin of an economy, that the Chinese government formed, causes foreign companies to take work from their lands and give it to the Chinese.  The shipping of jobs oversees is a problem that is becoming more and more prevalent in U.S. politics and is not an unjustified problem.  It is well known that “U.S. manufacturing employment [alone] by 2010 will have been reduced by 500,000 jobs – equivalent to about .3 percent of the total US labor force” (Briton i 8).  The job losses are not the only things that result from the trade imbalance and plague the U.S. economy.  Because of China’s efforts to fix the yuan to the dollar, China has accumulated over 820 billion dollars in American foreign debt.  Foreign countries own a higher percentage of U.S. debt now than ever before, and only Japan, with ten billion dollars more than China, surpasses all others.  There is some good for the U.S. economy that comes with the purchasing of bonds by China.  For China, the bonds help it keep the level of its yuan low, but at the same time China buys them to help stimulate the U.S. economy and its keep interest rates low.  If China were to use the reserves and spend all the dollars, there would be a surge of money thrown into markets, which would cause the dollar to drop quickly in value.  A decline in the value of the dollar would ruin both the American and Chinese economies because the Chinese have their yuan pegged to the dollar and need “America as a major export market to fuel its own economic growth” (Powell 2 9).  Instead of “selling” its dollars, China lends them to the U.S. through the buying of bonds.  If China continues to be a major lender to the U.S. then Americans can continue borrowing money at low rates.  The bad part of owing the Chinese 820 billion dollars is that the U.S. owes the Chinese 820 billion dollars.  Americans, generally speaking, “pay out greater dividends to foreigners than they take in, [and] now live in the world as renters rather than as landlords.  Renter nations live precariously” (Fishman 269 10).  If the country continues spending and cutting taxes thus throwing it further into debt, the U.S. may soon find that many Asians will pull out of our markets and look to others.  If that does indeed occur then the U.S. will be facing a crisis that will take years to repair.  America and China have become economically interdependent.  We are involved in a loop where “without the United States to buy Chinese goods, China cannot sustain growth; without China to lend money to the United States, Americans cannot spend” (Fishman 269 11).  The two countries are holding each other up as they walk into the future, but if one of them trips there won’t be anyone around to keep the other from falling.  The immense amount of debt that China owns provides the U.S. politicians with varying arguments about what is good and bad about it, what can be done about, and what is being done with it.

            By using the wealth that the Chinese government has obtained it can help fund many firms, especially government owned firms, that try to take control of markets.  The Chinese government tries to use its money to get involved in the big markets that also have the most political power.  The CNOOC (China National Offshore Oil Corportation) offered some 18.5 billion dollars in 2005 for the oil producing company, Unocal.  It was the biggest takeover offer by a Chinese firm ever, and it was suspected to generate opposition in Congress.  Indeed it did and the issues discussed ranged from China’s trade surplus to U.S. oil security.  The state controlled CNOOC looked to purchase the company to satisfy the oil-thirsty Asian markets and thereby take control of at least one large part of the oil business.  It already shares ownership with Shell of the 4.3 billion dollar Daiyu Bay petrochemical plant.  The country seeks to involve itself in all the economically and politically powerful markets while still portraying a receptive and friendly appeal to the world.  China calmed its surrounding neighbors “into a sense of confidence that China meant well and was not a threat, even as its growing economy drew away investment and capital from the rest of Asia” (Vatikiotis 2 12).  China is focused on getting power in one form or another and the acquisition of huge markets is a large step.  The more oil rights the Chinese corporations buy and control, the more political power they can have over all their rival neighbors.  “China is the world’s largest producer of coal, steel and cement, the second-largest consumer of energy and third-largest importer of oil” (Katel 2 13).  The more the Chinese take control of the major Asian markets, the more difficult it will be to keep them from overpowering the States.  “Changes in… global wealth, even if peacefully achieved, are bound to have implications for the distribution of global power.  If China rises economically, America falls politically” (Skidelsky 30 14).  If the Chinese firms do take control of the markets and the Chinese government retains control of the firms, the authoritarian Chinese regime would have control of the markets.

            The Chinese government purposefully controls the economy so as to gain more political and military power.  Even so, there are many civilians that support the government’s power and some that wish it had more.  Some of the country’s avid comrades, or “modern republic civilians,” believe in this “socialist market economy” and even support the government with formulas like “capitalism for now, socialism for later.  Capitalist development means more inequality.  Socialism will be needed to correct it.  Much better to have the Communist Party in power through both stages than have another revolution” (Skidelsky 34 15).  The Chinese government provides the people with the ability to make money and to do what they want with it, and the people praise the leaders that let them have this freedom.  Once capitalism has worked in their mind, however, the government must still retain power to avoid revolution.  This, of course, gives the government the right to keep a tight whip on any intellectuals who attack the problems with the current political situation by sending them to prison, reeducation camps, and detention centers.  If these people stir up talk of revolution and try to take down the government, then the government would no longer be able to control the fluctuation of the yuan, thereby causing the country to lose its price-competitiveness, which would cause the country to lose its economic growth, thus leading to a catastrophic revolution that would make Tiananmen Square look like “a vicar’s tea party.”  This series of events, deduced by the current government in power, would cause the ruin of China, and, therefore, China’s authoritarian government has concluded it cannot be allowed.  The controlled economy provides the world with prices and efficiency that could never be reached in a free democratic society and still allow China to be able to have growth beyond any others’ wildest dreams.  Many countries therefore applaud it.  The support of this command economy, and therefore support of the regime by foreign nations, only adds to the power that the government already obtains from the rising economy.  “France regarded its relationship with China as a bulwark against world dominance by America.  [President] Chirac made clear that he would not publicly criticize China’s human rights record” (Fishman 286 16).  Many European nations have despised America’s control over the world economy and apparently are willing to give their support to a Communist government that controls all aspects of the media and communication in the country and are willing to throw people in jail for suggesting political reform.  “China is being wooed by those who want insurance against American domination; in turn it plays host to such unsavory characters as Robert Mugabe, president of Zimbabwe, and Islam Karimoc, the brutal president of Uzbekistan” (Skidelsky 30 17).  It should be unsettling to U.S. officials to know that in certain conditions there are some Western European democratic leaders that fall into the same support group as two of the most horrible leaders in modern history.  Obviously, many of these countries that have some sort of working democratic system in their current governments would be more willing to support the U.S. in situations of crisis or even war, but the power that China’s government run economy holds over capitalist countries is becoming more apparent everyday.

            As the Chinese government grows in power, it will naturally seek to maintain that power as well as add to it.  Those who are in power want to stay in power more often than not and this is the case with China.  “China is an authoritarian regime and a non-market command economy still controlled by the Communist Party.  The central goal of its leadership is maintaining power, at all costs” (Gaffney Jr. 2 18).  As the influence and command of China begins to grow so does the desire of its government to show what it is capable of.  Taiwan has ignored China’s rule for too long in the regime’s mind and it “has spelled out a broad range of circumstances in which it would launch an attack [against Taiwan]...  Among them are a formal declaration of independence by Taiwan, an intervention in Taiwan’s internal affairs by a foreign power, and the advent of civil unrest on the island” (Fishman 292 19).  These assertions prove to be very threatening to the U.S. government which has backed Taiwanese independence for many years.  The U.S. is put into a very difficult position between which side should be taken if war does indeed break out; should it be the small country fighting for freedom and democratic ideals or the large authoritarian country that provides the U.S. with economic stability.  Either choice ends with severe problems for the U.S.  The more economically involved the U.S. and China become, the more sway China has over the issues.  Like the Unocal takeover, the U.S. simply could not risk allowing China to take control over any part of U.S. oil or national security would be in jeopardy.  The main reason that Congress almost passed a bill against the purchasing of Unocal by the CNOOC was that “the Chinese [would have] ‘monitoring capabilities’ for U.S. military installations near drilling sites in Alaska and the Gulf of Mexico” (Hiebert 2 20).  Chinese economic involvement in the U.S. has caused enough security to be at stake, but allowing the Chinese to have the ability to check on military bases would be unwise, to say the least.  Because the government controls the companies and economy, every single Chinese merger or acquisition of an American company puts the U.S. more at risk.  China, however, as mentioned before, is the second-largest consumer of energy and third-largest importer of oil, which, if the country wants to continue its 9 percent growth per year, will unquestionably secure those numbers and try to get more.  “Its energy needs are strategic so it is hard to imagine Beijing being unprepared to defend lines of supply aggressively” (Vatikiotis 2 21).  If the regime seeks to keep itself in power it simply cannot endanger its economic growth rate in any way, which produces a fine amount of danger for U.S. security.

            In sum, China’s controlled economic growth presents a real threat to U.S. security that should not be ignored.

            To enhance U.S. security, U.S. government officials and economic experts have proposed various short-term solutions; including: pressuring China to permit its currency to float and imposing higher tariffs on all Chinese imports.  Others have urged that China’s economic development be encouraged with the hope that it ultimately will lead to greater political freedoms and resultant weakening of the authoritarian regime.  Sadly, each of these approaches has inherent flaws that would result in more harm than good.

            Some economists have argued that the U.S. should pressure China to let the yuan fluctuate naturally, which would bring business back to the States, albeit at higher prices.  More likely, however, such pressure would cripple both economies.

            The U.S. and China’s economies are so intertwined now that a sudden rise in Chinese prices would throw the U.S. into a recession, not out of one.  The issues of outsourcing and job loss have made themselves so apparent in U.S. politics that many people focus only on giving workers back their jobs without thought to the consequences that that reemployment could lead to.  The arguments made when “U.S. lawmakers accuse China or other countries of illegally manipulating their currencies, … often allege a violation of vaguely worded U.S. laws, rather than any multilateral agreement” (Fishman 261 22).  Many of the critics look to the World Trade Organization (WTO) to help fix these upstart Chinese, but the problem is the WTO has no law against command economies.  Neither is there any sort of written regulation that is part of the rules of the International Monetary Fund (IMF), another group that is looked to to take some power from China.  The people that make these arguments simply do not evaluate the importance of China to the U.S. economy.  Though the Chinese government purchase U.S. debt to push down its own yuan, the benefits to the Americans of this process is enormous.  “By buying vast amounts of Treasuries, Asian central banks are delaying the rise in U.S. yields that would typically accompany a falling currency.  If Asians pull the plug, U.S. rates could skyrocket” (Pesek Jr. 2 23).  The Chinese, being the second largest owner of U.S. debt, give America the money that its people use to buy the Chinese goods.  Once the process of keeping the Chinese yuan purposefully low began, the U.S. experienced interest rates that were below anything they had seen in years and have since gotten used to it.  These critics simply do not understand that “if you force China to change it will hurt the U.S.  You destroy a goose that will give you a golden egg” (Fishman 261 24).  Evidence does support, however, that in a short-run situation, yuan fluctuation would greatly benefit the U.S., but when looked at from the long-run the evidence is the exact opposite.  Not only do the Chinese keep the U.S. economy from falling into a recessionary hole that would take generations to climb out of, but also they provide many benefits to the average consumer.  Since the two major countries are so dependent on each other for survival, observations must be made on what good China provides, not simply what it takes away.

            China provides the U.S. with goods and services that are essential to U.S. security and well-being, and those benefits must be adequately identified.  “Consumers worldwide have enjoyed a higher standard of living in recent years thanks to cheap Chinese prices for everything from underwear to televisions.  And China has been plowing its billions of dollars in export receipts into U.S. Treasury bonds, helping to stabilize the U.S. money supply and keep the lid on inflation and interest rates” (Katel 6 25).  Yuan fluctuation at this point in the relationship between these two nations would destroy them both.  Because they are now two of the most powerful economies in the world, the world relies on them and potentially could go down with them.  The critics simply ignore economic analyses from companies like OEF (Oxford Economics Forecasting), “which suggests that both U.S. producer and consumer prices are being pushed down significantly, in aggregate, as a result of China’s WTO entry” (Britton 23 26).  The Chinese government will not make drastic changes at all for fear of economic destruction, so the problem that is now at hand is convincing the naysayers to actually recognize the consequences of the actions for which they are fighting.  Once the positive features of U.S.-China trade are fully understood, then they cannot be denied or dropped for only a brief period of benefit.

Accordingly, although a fluctuating yuan might be positive for a short time for the U.S., it cannot be demanded, or the U.S. will lose long-term benefits, seriously damaging its economy.

            Alternatively, if yuan fluctuation is not possible, some argue that the U.S. should impose higher tariffs on all Chinese goods so as to even the trade imbalance, despite all the positive aspects that come with trade in China.  Although a rise in tariffs is a safer means of evening out the imbalance than currency value fluctuation, it still has the potential to have the same effects, plus it would ideally help only a small amount of the population.  “Congress should consider ‘an immediate, across-the-board tariff on Chinese imports’ unless China[‘s yuan rises] … in value by at least 25 percent against the dollar” (Lohr 2 27).  Many of the politicians in Washington have grown very annoyed with America’s disadvantaged position in the price-competitive trade with China.  These frustrations are only further elevated by situations with the CNOOC that uses the money the U.S. lost to them to buy up its gas companies.  Because massive yuan fluctuation is impossible without economic destruction, politicians put up bills calling for a, “27.5 percent tariff on Chinese imports unless China lets its currency float more freely” (Lohr 2 28).  By “more freely”, many of those who realize the difficulties behind a free yuan mean to say further fluctuation than is currently experienced.  They suggest lower currency value rises, but even that is difficult for the Chinese economy to allow at the moment.  However, in many cases “China’s trade surplus ‘is not a problem for the U.S.’ said Connolly.  ‘It’s a problem for those politicians who represent certain manufacturing interests’” (Bloomberg 2 29).  Many of those who harass the international groups that do not force China into submission are the ones that are “owned” by companies that are losing to the Chinese.  Only a small amount of the actual workforce is affected, but many of those have the money to stimulate political feuds.  There is no way to correctly even the imbalance, and tariff rises will only lead to downfall both politically and economically for the two countries.

No ideal solution is possible for ending the trade problems; even so valuable aspects come from the trading.  Low level and low training jobs are the ones that are mostly being taken from the United States by China, but that does not have to be considered negative.  “Allowing low-cost Chinese workers to manufacture products makes goods cheaper worldwide, boosts the wealth of the Chinese and allows developed nations, such as the U.S., to concentrate on high-paying industries and services” (Bloomberg 2 30).  Even though the human rights aspects of China’s workforce are quite dreadful, they do allow for low prices around the world.  If foreign countries cannot change the Chinese people’s rights, why not enjoy the luxury?  Low prices are not necessarily a bad thing.  If the United States does not have as many low-ended jobs then that forces many of our people to search for more difficult and productive ones.  A tariff will cause the loss of many of the long-term benefits that result from trade in China.

            Many economists and professors believe economic relations with China should increase due to the desire of liberty and democracy that often comes with economic independence, but it is unclear if the Chinese want democracy on any level.  Economic freedom does, in many cases, lead to political freedoms that could not otherwise be achieved in weakening countries or in tense foreign trade.  History shows that when the people are given the right to do what they want with their own money then they will become “greedy,” in a sense, and demand more rights, political and more.  “People who in other circumstances would try to kill each other for worshipping the wrong god… were perfectly polite and civil when they met each other as potential trading partners” (Delong 21 31).  Capitalism has an amazing ability to bring out the demands and freedoms that people desire their entire lives.  It allows a civility that cannot be found otherwise.  “Where growth is rapid, the movement toward democracy is easier and societies become freer and more tolerant” (Delong 21 32).  China is experiencing growth beyond the belief of many economists and therefore is diving faster into a process of political freedoms.  According to this theory, China should be on the verge of political upheaval and the U.S. must encourage growth so that we can therefore benefit from the friendship that will later ensue.  The United States should expect that the “rapidly growing, prosperous middle class will be interested in liberty and opportunity” (Delong 24 33).  America must therefore continue to help China along by further economic relations and be ready to help the rising public overthrow the horrible authoritarian regime.  The biggest problem, however, with this theory is that it does not take into account all the characterizations of China.  “Which exactly of the world’s large, highly nationalistic, dictatorial, Communist-capitalist countries offer a historical analogue?  Answer:  There is no other such country” (Fishman 283 34).  What is currently happening in China has never in all of modern history happened before.  The Communist lead China allows its citizens to create their own futures in business as well as let them decide what to do with their own money.  The theory that economic freedom brings liberty is very nice, but in China it appears not to be working. 

Not only is the theory that economic independence leads to democracy an unreliable theory, but also many of the Chinese people would rather avoid political freedoms.  More often than not, the rise to a democratic government and liberties and opportunities for the public is accompanied by dangerous times of revolution and social upheaval.  The Communist-capitalist stand that the government has taken has caused “a lot of Chinese [to] feel… that if political reforms and democracy mean confusion and chaos, they’d rather just forget democracy and, instead, just keep getting rich” (Margonelli 40 35).  For all appearances, the theory seems to be shot.  If the people have been repressed for years and simply do not miss having the same freedoms as a Western democratic citizen has, then America’s wish for an economically strong and just China is nearly lost.  Economic relations must continue despite the fact that the chances of revolution drop, but sadly “many, perhaps most, Chinese reject, that is, the assumption that economic integration with Western countries will inevitably lead to the establishment of the political norms of Western democracy” (Skidelsky 34 36).  America cannot expect that increased economic relations with China will ensure that a future democratic China will exist which will be more monetarily friendly.

Many of the solutions proposed, though generally intelligent and well thought out, do not properly address and solve the looming threat of China on U.S. national security.  Knowing what it does at this time, the U.S. must consider taking advantage of current trade situations with China while dealing with domestic problems to remain as politically/globally powerful as it is.  To survive internationally the U.S. must focus domestically.  China’s rising power clearly threatens the United States’ security, but worst of all, if China is able to find another way to grow other than pegging its currency to the dollar and plowing all its money into the U.S. treasury, then America is sure to fall.  U.S. politicians are constantly focusing on what China is doing to the U.S., what China is taking away from them and their “standard solution is to beat the Chinese over the head until they comply” (Lohr 2 37).  America has gone unchallenged as the world leader for too long, and consequently its foundations are slipping.  It needs to view the problem with China as friendly competition rather than usurpation.  There are obvious trade benefits that the U.S. can utilize and it must remember, “the two largest economies on earth should place the highest priorities on relations to each other” (Hiebert 3 38).  There is no one country that can effectively contain China’s growth, not even the U.S., and therefore the U.S. should concentrate on what can be gained from the relationship and how to best stay ahead of them on every level.  The benefits that come from the “lower-priced Chinese imports also have the indirect effect of boosting U.S. competitiveness, as U.S. producers are forced to become more productive so they can reduce their prices to compete” (Britton 23 39).  Jobs may be outsourced and lost by Americans, but that should not be seen as a problem, but rather an advantage so that they can focus on more superior jobs.  The 500,000 manufacturing jobs lost to China are made up by an “equivalent 500,000 increase in U.S. service jobs, in industries including distribution and financial services, by 2010” (Britton i 40).  As long as the U.S. can continue its growth and technological innovation that made it an example to the rest of the world, then it can continue to be the greatest nation on earth.  But to do this the country must focus on its domestic problems.  “Remaking every laborer into an advanced knowledge worker is an impossible dream.  Yet creating an American education system that produces the most knowledgeable workers possible is not a dream, but … a matter of national will” (Fishman 280 41).  A complete domestic renovation of the country is needed for proper development to continue.  The country cannot focus on holding back the Chinese, but rather on improving itself.  China is a threat to the U.S. because it tests the country’s abilities to keep its skills, sophistication, and imaginative power world-class and have it remain so day-by-day. The twenty-first century is being proclaimed China’s century, and it will be if the United States cannot adapt to the greatest superpower of the very near future.