When China Rules the World

If relations between the US and China should seriously deteriorate, any attempt that might be entertained to exclude China from the present international economic system would simply not be an option. China has become so deeply integrated into global production systems that it would be well-nigh impossible to reverse that process. Chinese manufacturing has become a fundamental element in a complex global division of labour operated by the major Western and Japanese multinationals, which presently account for a majority of Chinese exports. The fact that the value added in China (30 per cent or less) is only a small proportion of the total value added because of the extremely low cost of Chinese labour means that any attempt to impose sanctions on Chinese exports, for example, would inflict far greater economic harm on the many other countries involved in the production process, especially those in East Asia, than on China itself. [1208] Powerful evidence of China ’s integration has been furnished by the global recession: from the outset its involvement was regarded as fundamental to any solution and its continuing rapid growth has been seen as vital in limiting the severity of the recession. One might add that the US ’s options are also limited in East Asia. If it decided to start pressurizing its East Asian allies – such as the Philippines, Singapore and Indonesia – to move away from China, it is not at all clear that it would meet with a positive response; indeed, it is conceivable that such a move might even be counter-productive because, in the event of being forced to choose, these countries might opt for China as the rising power in the region. Finally, if the United States chooses to become more confrontational with China and engages it in an arms race, this could well harm the US ’s global standing rather more than China ’s, which is what happened in the case of the invasion of Iraq; and China, for its part, might simply refuse to be drawn into such a military contest. [1209] The problem for the United States, meanwhile, is that China ’s relative economic power, on which all else depends, continues to grow in comparison with that of the US.

THE FUTURE OF THE INTERNATIONAL SYSTEM

A key characteristic of the world’s leading power is its ability to create and organize an international economic system to which other nations are willing or obliged to subscribe. Britain ’s version was the international gold standard system which, prior to 1914, encompassed a large part of the world in some shape or form. In the interwar period, as Britain declined, this gave way to an increasingly Balkanized system based on currency areas, protected markets and spheres of interest. After 1945 the United States became the world’s leading power and the new system that was agreed at Bretton Woods, and further elaborated in the years that followed, was essentially an American creation, made possible by the fact that the US economy was responsible for over one-third of global GDP at the end of the war. That system only became truly global when China joined the WTO in 2001 and the former members of the Soviet bloc queued up to join the international system following the collapse of the Soviet Union. With China’s growing economic power, the greatest single threat to the United States’ global economic pre-eminence, apart from its own decline, lies in China’s attitude towards the international system. [1210] Since Deng Xiaoping decided that the country’s interests would be best served by seeking admission to it, China has become an integral part of the international system, but China ’s attitude towards it will not necessarily always remain unambiguously supportive. [1211]