Two world powers, with two distinctly different political philosophies, proceed in world affairs on strikingly different courses. China has chosen to flex its economic muscle while America's strategy is based on using military might in pursuing its agenda.
On the surface the relationship between the U.S. and China, its designated manufacturer, seems to be going quite well but beneath the surface there is a fierce rivalry that is growing in intensity. The Chinese government is quite clever and also very patient. For the time being it is quite content to just continue to be our prime supplier of products and our favored source for borrowed funds. It knows very well that America is its cash cow, at least for the time being. But we better think again if we believe that it does not have an alternate long-term strategy to fall back on when and if their cash cow defaults on its debts.
The U.S. and China, with their huge economies, are totally dependent upon a steady, guaranteed supply of petroleum into the future. While supplies of oil have been very plentiful for many decades, that situation is beginning to rapidly change. Our very painful experience with $147 per barrel of oil in 2008 may have dissipated for now but experts predict that, in the not too distant future, the world will experience huge escalations in prices as supply will not be able to keep up with demand.
China has been very active in recent years in establishing relationships with nations all over the world, including Russia, Iran, Venezuela, Brazil and several nations in Africa. This past August Iraq and China signed a $3 billion contract to develop a large Iraqi oil field, the first major commercial oil contract Iraq has made with a foreign company since the 2003 U.S.-led invasion. How ironic is that? The U.S. invades and occupies Iraq and then, after most of the blood has been mopped up, the Chinese arrive to partner with the Iraqis.
These two powerful nations are making their presence known over the entire globe but they are doing it in dramatically different ways. In the quest to acquire precious natural resources, primarily oil, the world watches as the Chinese appear before nations with contracts in hand while the U.S. appears before certain selected nations with bullets and bombs in hand. That is certainly a unique example of contrasting methods of persuasion.
This difference in strategies was stated in similar terms when, writing in The Nation 11/17/09, Robert Dreyfuss quotes a high Chinese official who said, "When America talks about strategy, it implies military, security, confrontation. In China, we have a much broader view of the idea of 'strategy.' We mean something that is long-term and systematic." He could not have portrayed the situation any better.
So, given this overall scenario, what will the future bring as America and China pursue their individual strategies to achieve their goals? Right now I would say the advantage is with China; it is not mired down in any foreign wars, it is the fastest growing economy in the world, they have no great national debt, no substantial trade deficits. Conversely, the U.S. current national debt stands at about $12 trillion; total foreign ownership of that debt is about $3 trillion, including $800 billion with China and $724 billion with Japan.
China's growth rate, even in these dire economic times is robust, about 9% at the end of 2008. The U.S. at that time was 1.1% but currently is running a negative 2.3%. While China is the third largest economy in the world, following the U.S. and Japan, it is quickly closing the gap.
China has no great unemployment problems; the U.S. has lost millions of jobs. China manufactures and exports products all over the world while the U.S. is outsourcing more and more manufacturing jobs to other nations. This entire situation is getting very bizarre indeed; we import massive amounts of products from China and then borrow the money to pay for them from China and other nations, a very dangerous vicious circle.
America now faces dire economic issues. Consider our current massive rate of borrowing from other nations, together with a $1 trillion annual defense budget, and a GDP plunging due to our continuing economic crisis. Could it be that at some point in the future the U.S. may be forced to default on its debts? This is not a doomsday prediction or scare tactic, but it could very well happen if we continue on our present course; on-going wars, outsourcing more manufacturing and growing deficits.
That word default (on debt) has been taboo, unthinkable in the American economic community but here is what Greg Ip said in a Washington Post article Jan. 11, 09. "We're borrowing like mad. Can the U.S. pay it back?" And, "Yes, default is unlikely. But it is no longer unthinkable." He concludes, "The chances of default remain pretty remote. But remote does not mean impossible."
Assuming that China and the U.S. continue to follow their current strategies and directions, and there is no reason to think that they won't, China seems to be heading into the position of dominance. Right now China is making domestic and foreign policy moves that are based on growth and solidifying its economic foundation. On the other hand, the U.S. is pursuing strategies that have no clear formulas designed to spur growth, but, rather, strategies that are severely eroding our economic base.
There is a point in the future where these two strategies will meet head on and then we will see which will prevail; economic power or military power.