USA and China – the superpower stuggle

I wrote two books around the turn of the twenty first century about the changing shape of great power politics. The first, "Stars and Strife" (2001) predicted that the European Union’s attempt to rival the USA would peter out, both because the population numbers of the EU would fall and because the EU would be unable and unwilling to spend enough on military technology and hardware to back up its foreign policy. The foreign policy too, would remain dogged by disagreements and differing national interests amongst EU states. Whilst the EU would become a substantial and more integrated economy with its own currency for most of the members, it was no contest when it came to superpower politics. Its economy would also continue to underperform the USA owing to the choice of a high tax high regulation model.

The second, "Superpower Struggles" (2005), predicted that the USA’s true long term rival would be China. I concluded "One day China will turn her new found economic power into military power as well. For the time being her success will be heavily concentrated in industrial products and product markets,and her main impact on the west will be felt in the rising price for commodities as Chinese demand surges. Unlike Japan, she will not remain neutral and lightly armed.As her economic success develops so too will her military and political might" (Rise of China)

I now realise that the rise of China is happening much more rapidly even than I thought a couple of years ago. China has accelerated her path to great power status by two main means, both related to her grasp of the capitalist system and her generation of huge surpluses on trade account. By the end of this year the Chinese trade surplus will be running at over $500 billion a year, and China will have foreign exchange reserves in excess of $1500 billion. She is using these surpluses to buy herself a strong position in parts of Africa, Asia and South America where there are important natural resources. China wants more control over and access to the raw materials that are needed to feed her powerful industrial machine. She also sees the political leverage this gives her over the nations that produce the commodities, creating a new kind of Chinese empire based on Chinese contracts to buy the commodities, and Chinese investment in extracting the materials from the ground.

China is also now in a position to demand a place at the table of the rich west, as she can have an important impact on the value of the dollar and the interest rate on dollar bonds. Her large holdings give her the power to support or undermine US markets by buying or selling clumsily. The large dollar and Euro reserves also enable China to buy any freely quoted company in the west she chooses, enabling China to buy technology and management by takeover of the whole company that has them. This is in addition to the wide variety of partnerships, investment contracts and other negotiated deals which give China access to Western technology at home as she invites in an increasing number of western companies to help develop the Chinese economy.

This has come about because China has been allowed to keep her currency relatively low for a long period, giving Chinese goods an even greater competitive advantage in world markets. At a comparable stage in Japanese development there was intense pressure for greater upwards movement in the yen. The USA has understood this issue, but has proved unable by diplomatic means to get a sufficient revaluation of the Chinese exchange rate.

We see the way this economic power is translating into political power. China has shown her ability to influence North Korea, and the USA has accepted China’s position in dealing with this difficult country. One day, after the Olympic games have revealed the extent of China’s economic transformation to the world, China will up the pressure to take over Taiwan. This issue may prove to be the test of the political maturity of both China and the USA. China has to judge if and when the USA will no longer think she can protect Taiwan from Chinese takeover and no longer has the will to do so, and the USA will have to judge if and when they reach the point where trying to keep Taiwan independent is unrealistic.

This entry was posted in Blog. Bookmark the permalink. Both comments and trackbacks are currently closed.

One Comment

  1. Neil Craig
    Posted November 9, 2007 at 6:31 pm | Permalink

    While I agree that China & perhaps the USA are on target to be players I don’t think the cause of EU failure is anything to do with either lack of military power or declining population. China is also an economic rather than military power (such military power as it has is merely what is inevitable in such a wealthy economy) & has gone to great lengths to prevent population growth.

    I think the problem is purely that China has made growing its economy their absolute goal putting ideaology back in the box whereas the EU countries, including ourselves, rarely mention growth, even more rarely doing anything & are much more concerned about political correctness & Ludditism.

    It need not be that way if people really understood how strongly compound growth works.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

  • John’s Books

  • Email Alerts

    You can sign up to receive John's blog posts by e-mail by entering your e-mail address in the box below.

    Enter your email address:

    Delivered by FeedBurner

    The e-mail service is powered by Google's FeedBurner service. Your information is not shared.

  • Map of Visitors

    Locations of visitors to this page