The U.S. has identified China as a competitor with a drastic change in her China policy from friendly engagement to targeting China as a threatening competitor. This shift has resulted in today’s trade war and technology sanctions, neither one of which is guaranteeing a clear benefit to the U.S. The fundamental reason is that the current Administration is defining her China policy based on legacy views which are outdated and lack of scientific in-depth economic analysis. Ironically, old book such as Death by China by Peter Navarro (Director of White House Trade Council) is floating in the White House influencing our China policy. Such a book may fit for a movie script but it can hardly stand the test of a rigorous economic analysis on US-China competition. Only a serious analysis should be the basis for defining a reasonable and beneficial China policy facing the ‘China’ competition.
This author is not an economist, but as a scientist trained with an analytical mind, he can see that there is a terrible misunderstanding of the competition between the U.S. and China. Unfortunately this misunderstanding is driving a wrong China policy hurting both nations with no benefits to the entire world. In this article, we shall point out the obvious and urge our economists to follow up with a serious analysis to understand the real cause of competition between the two countries and to formulate a sound strategy and policy to deal with the Competition.
The U.S. China experts tend to interpret the issues between the two nations being the result of our ideological and political structural differences. I would suggest that the root cause for China’s rise and competition is not due to political forces but due to natural factors, such as human population, geological resources and historical culture. These factors influence China’s development regardless of her political system whether or not embracing communism, capitalism or socialism. It happens that these three basic natural factors are so different between the U.S. and China so the two countries followed different development paths. For anyone to wish the other to change and conform to a same system is illogical and unreasonable.
China has a population of four times that of the U.S., she has always been the biggest nation in the world for thousands of years with a large portion of her population being peasants working on very limited arable land. Hence land and earth resources are valued highly by the Chinese. Historically, all Chinese governing systems must accept this fact that China has more peasants for their arable land and unfortunately most arable land are hills and valleys not like the great plains of the U.S. These natural factors made Chinese a peace loving and home bound people. History has shown that Chinese (other than the Mongolian horsemen) had never waged a war invading others nor occupied any colony even when Ming Emperor made seven successful sea explorations with world’s most advanced maritime fleet in the 15th century. Chinese peasants are hard working people but they operate as small entities, never was industrialized.
For example, tea is a famous highly-demanded agricultural product of China but the Chinese never monopolized the tea industry worldwide. It was the West eventually had control over the international trade of tea. The communist government in China today, although made a drastic land reform to make the government the only land owner, it still has to accept the fact that China has hundreds of millions of peasants working on small plots to produce crops. Therefore, China is an agricultural importer to provide sufficient food on her citizens’ tables. Her dependence on U.S. soy bean, corn and cattle meats were clear evidence that Chinese people have to work very hard in agricultural and other industrial areas. To put it simply, a large population and limited arable land and resources force them to work hard to compete – this is the source of competition.
The communist government experimented with communism and failed now they are embracing capitalism gingerly to make China as a hard working world factory making small profits (the assembly factory of Apple’s phones makes $10 out of a phone selling for $500 to 1000, a similar situation like Chinese farmers selling teas to East Indies). The Chinese government realized that it could not organize the Chinese farmers to a few farm corporations to compete in production efficiency (compared to U.S. farmers) due to the natural limitations. They cannot even manage food standard with millions of peasants like the USFA can on American food producers. Therefore, the government is focusing on manufacturing and export initially leveraging on inexpensive labor force, then gradually elevating in technology and eventually making industry transformation and stimulating domestic consumption.
The U.S. is very different from China; she has less population and vast areas of arable land and rich resources. Americans do not have to work as hard as Chinese to have food on the table. These natural factors have made the government and Americans moving away from manufacturing to financial industries, a blue collar to white collar shift (whereas China has a grey collar to blue collar shift poised to shift to white collar). This transformation has been successful as the U.S. has dominated the finance, banking, investment and insurance industries but the transition created an ‘unemployment problem’. While the U.S. can depend on cheap products imported from the world, she cannot offer enough meaningful jobs to the deposed workers. Blaming this problem to China and other importers (claiming dumping or stealing technologies and drumming up national security threat) are all excuses for government not able to have right economic policies.
China has a far worse problem and a bigger challenge to manage her industrial transformation than the U.S. does. China would like to see the U.S. staying strong in her economy since she depends on the U.S. in agricultural products and advanced luxury goods and as a market for importing Chinese goods. (Note though the Chinese export to the U.S. is only about 4% of her total export to the world) The U.S. has a challenge to manage her economical transformation but in a lesser degree compared to China’s. The competition between the U.S. and China really is: Which country can manage her economy and industrial transformation better.
The current tariff war and technology sanction seemed to hinge on a strategy of slowing down China’s economical and industry transformation, however, no assurance of success for U.S. economical development. First, the trade war has forced China to stop buying U.S. agriculture products hurting the U.S. farmers. China may have to push back more workers to agricultural industry, but the outcome may be more advanced agricultural solutions such as making huge desert and salt water land arable for producing crops than returning workers back to small farms. In contrast, the U.S. may lose the agriculture market permanently further hurting the U.S. economy.
The technology sanction measures are also ill-thought-out plans. This not only disrupts the supply chain that the U.S. needed (such as Apple phone) but it also forces China to accelerate her industry upgrade and transformation to be self sufficient. On the other hand, the U.S. must recreate her own supply chain which may generate some jobs but it is a reverse technological movement nevertheless. This may damage the U.S. lead in advanced technology. These policies do push each country to move closer to isolationism. Granted the U.S. has less population, more arable land and resources, thus she may survive as an isolationist. However, standing on the trajectory of civilization in 21st century, it is almost certain that the U.S. may be left behind as a weakening giant if the Asian nations continue to thrust on their progressive, collaborative but competitive development.