Changing Global Order: The United States & China

https://www.amo.cz/en/how-should-europe-handle-relations-with-china/

The most important theme for this decade will be the changing global order of our world. This process of change has already started long ago due to matters such as globalization, technology and emerging economies. It can be seen as a logical result of the world moving forward. The reasons, factors and variables affecting this process of change are plenteous. The effects and consequences caused by this process will be even of a higher magnitude. Regardless, the global order is changing rapidly, although this does not happen overnight nor without resistance. One core issue in this process of change can be described as the rivalry between the United States and China. 

The United States has been the dominant power in the world since the end of the Second World War and is, for the first time since the start of their hegemony, being challenged by a rising world power. The friction between the two countries has become increasingly noticeable on multiple levels. Not only economically, but also politically, militarily and technologically the tensions have been rising throughout recent years.

For India, as the direct neighbour of China, the stakes are high. Tensions between India and China have increased in recent months and the United States will likely be eager to seize any opportunity which might arise to strengthen its strategic interests on the Asian continent. Therefore, analyzing the rivalry between the United States and China will be crucial for a correct understanding of India’s position as well. 

In this series, I will analyze the political, economical, financial, and technological aspects of this critical point in history where the global order seems to be changing rapidly. The outcomes of this process will dictate the direction of the world for years and decades to come. 

To understand the current changes in the global order, we must look at history first to understand how we got to this point. Therefore, the first part of the series will be a brief history of the global world order as we know it today.

Reset of the Global Order

The global order as we know it today started after the Second World War. A heavily damaged world had to rebuild itself after the devastation the war had brought to many countries. Economies were destroyed and people lost their jobs, houses, and families. The end of the war meant that the global order had to be restructured to match the drastically changed international order of countries. The United States took a leading role in rebuilding and governing this new post-war world. 

This new international order was partially shaped by the creation of the United Nations under the leadership of the United States and the United Kingdom. After meeting with the Soviet Union and the Republic of China, they managed to agree upon the proposals which included the aims, structure, and functioning of the new organization with its main purpose of maintaining international peace and security.  Until today the United Nations remains an important pillar of the international global order. Several years later the North Atlantic Treaty Organization (NATO) was created to safeguard the freedom and security of its members by both political and military means. 

Next to rebuilding the international political order, the international monetary system also had a ‘reset’ at the end of the war. The Bretton Woods agreement of 1944 started a new era in world history with the creation of a renewed global monetary system with the United States as the dominant power in the world economy. The dollar became the leading global currency and keeps being one as of today. The dollar has been the main currency used for international trade, transactions and it is the most commonly held reserve currency. The agreement also created the International Monetary Fund and The World Bank, which both became crucial in the next few decades for the development of the world economy and monetary system.

The creation of these international institutions can be seen as the first steps in shaping the new global order. Along with a renewed monetary system based on the dollar, the first steps for a post-war world with the United States as the leading world power had been set.

Rebuilding Europe

After the destruction of the Second World War, the European continent was in high need of reparation and financial aid. The United States provided this aid to European countries with their Marshall Plan by handing out numerous grants and loans worth billions of dollars. The aim was to improve prosperity in Europe, modernize its industry and besides prevent communism from spreading. It also benefited the United States, because the European export market would later become crucial for their economic growth.

The financial aid was offered to the Soviet Union along with their allies, however, they refused to accept it. The satellite states of the Soviet Union (f.e. Poland, East Germany) were prevented from accepting it as well. According to the Soviet Union, it would allow the United States to have certain control over these communist economies. 

The Marshall Plan caused the first steps of European integration because it removed trade barriers and created institutions to coordinate the economy on a higher level. It can be seen as a political reconstruction of Western Europe and the beginning of Europe as we know it today. 

The creation of international institutions like the United Nations and the IMF can be seen as the first steps of creating a new global order. Rebuilding Europe under (financial) supervision of the United States can be seen as another important step in the process of rebuilding the post-war world as well. It allowed the United States to indirectly guide the development of the European continent as they desired by setting conditions for the financial aid given. 

Growth and Prosperity

This new post-war world would see a tremendous amount of economic growth and prosperity. The period is also known as the Golden Age of Capitalism. The Soviet Union, The United States, Western European countries, and most Asian countries all thrived with unprecedented high and sustained economic growth. Even heavy damaged countries like Japan, Germany, France, Italy and South Korea experienced significant economic growth. 

The United States, however, outperformed every other country in the world with their economic boom and has been the biggest economic and military power until today. Because of their position, the United States became a global influence in economic, political, military and technological affairs.

Below one can see the changes in GDP for all the major world powers. Since the end of the war, the United States remained the leading country based on its economic size, followed by the Soviet Union and Japan. After the dissolution of the Soviet Union, Japan became the second biggest world economy, followed by Germany. For over 20 years now, it has been China which has taken over the second place.

Source: ‘Statistics of World Population, GDP, and Per Capita GDP. 1-2008 AD; IMF

The Rise of China

In China, at the end of the Second World War, the civil war between the Chinese Communist Party (CCP) and the Nationalist Party was known as Kuomintang (KMT) continued immediately. In the end, the communist forces were victorious, and Mao Zedong established the People’s Republic of China (PRC) on 1 October 1949. Relations between the United States and the PRC remained mostly hostile, at least until 1972, when President Nixon visited China. The relationship between both improved over the years even though tensions and rivalry remained to a certain extent.

A critical turning point in history for the Chinese economy started with the ‘Opening of China’, the major economic reforms led by Deng Xiaoping. He is often referred to as the Great Architect of Modern China and launched a series of reforms to open up the country to foreign investments, allowed private parties to create businesses and started a massive wave of privatization. Before the reforms, most of the Chinese economy was state-owned and centrally planned. 

The series of economic reforms caused an unprecedented increase in economic activity and growth. The reforms greatly decreased poverty and increased average incomes. In 2001 China joined the World Trade Organization and the private sector has continued growing at a remarkable rate. In 2010, China overtook Japan as the second-largest economy in the world. In the last two decades, China has been catching up with the United States to become the biggest economy in the world. Latest estimates by the Centre for Economics and Business Research project that China will surpass the United States as the biggest economy in the world by 2028. Other estimates foresee that it will happen even sooner than that.

Source: World Bank and IMF

Escalating Rivalry

It is the first time since the start of the hegemony of the United States that another country will become the biggest economy in the world. Not only the size of one’s economy dictates whether or not a country is a great world power. Military power, being a financial centre, the amount of innovation and technology, the quality of education, and competitiveness also play a crucial role to be defined as a major world power. 

The conflict between the two is therefore not merely about the economic size. In the last few years, it has become clear that the United States is very much aware of its fading position as a major world power and seems to be trying to prevent this from happening. The tensions between the United States and China are increasing in recent years and encompass political, economical, financial and technological conflicts. 

A major rivalry between the two which has been covered a lot in the media is the so-called trade war between the United States and China. Since President Trump took office in 2016 there have been major conflicts between the two countries relating to trade, such as substantial export and import tariffs on goods. The trade-war seemed to be more of a political tool rather than pure economic logic, and it has become clear that applying these tariffs was not merely about money. National security, technology, intellectual property, and other non-financial matters seemed to be the focus of the deteriorating trade-relations.

It has become clear that especially the technology sector plays a crucial part in the rivalry between the two countries. The concerns about China battling for technological superiority seem to be a key issue, and a ‘technological cold war’ seemed to have emerged. One example is the semiconductor industry, which has been a vital component of the escalating trade war. The industry which produces microchips for cars, laptops, gaming consoles, and many more other important goods will be crucial for the economy of tomorrow. Artificial intelligence, big data, robotics, and similar high-tech technologies are reliant on this. To say the trade war is merely a trade war would be a great mistake. It is a strategic war where both countries are aware of the importance of technology, especially soon.

Conclusion

As one can tell, the rivalry between the United States and China is not just a regular rivalry between two different countries. It is the first time since the hegemony of the United States that another world power is emerging and it is causing a lot of conflicts. The rivalry entails a lot more than the economic trade-war and a battle surrounding technology. It also entails military competition, geopolitical tensions, and other issues. The rivalry can be seen as the most crucial factor in our changing global order. This will be covered in the upcoming articles under the series.

REFERENCES

Post-war

https://www.thoughtco.com/the-post-war-us-economy-1945-to-1960-1148153

https://study.com/academy/lesson/economic-political-reconstruction-in-europe-after-wwii.htmla

https://library.cqpress.com/cqresearcher/document.php?id=cqresrre1947101700

US

https://www.politico.com/news/2021/02/10/biden-pentagon-task-force-china-468413

https://www.cnbc.com/2021/02/11/biden-says-china-will-eat-our-lunch-on-infrastructure.html

https://www.cnbc.com/2021/02/06/op-ed-the-us-must-focus-on-three-enduring-issues-in-china-relationship.html?__source=sharebar|linkedin&par=sharebar

https://www.politico.com/news/magazine/2021/01/28/china-foreign-policy-long-telegram-anonymous-463120

China

https://history.state.gov/milestones/1945-1952/chinese-rev

https://www.everycrsreport.com/reports/RL33534.html

http://down.aefweb.net/AefArticles/aef050107.pdf

https://www.cnbc.com/2020/12/26/china-set-to-surpass-us-as-worlds-biggest-economy-by-2028-says-report.html

https://www.researchgate.net/publication/335319571_US-China_Trade_War_Chinese_Perspective

https://www.youtube.com/watch?v=h8IEtlOVzq4

https://www.youtube.com/watch?v=Mh0vEaac78U

https://www.youtube.com/watch?v=jJr3KVM3lBo

India

https://thediplomat.com/2020/07/this-time-the-us-is-taking-indias-side-against-china/

https://www.businessinsider.com/us-intelligence-sharing-with-india-helps-monitor-chinese-military-2020-12?international=true&r=US&IR=T

https://www.nytimes.com/2020/10/03/world/asia/india-china-trump.html

Technology 

https://www.forbes.com/sites/kenrapoza/2021/02/07/china-turns-semiconductors-into-the-new-oil-while-gm-runs-out-of-chips/

https://www.scmp.com/tech/tech-war/article/3120939/china-sucker-spending-billions-foreign-semiconductor-equipment

https://www.scmp.com/tech/tech-war/article/3120304/us-china-tech-war-china-stockpiles-chips-and-chip-making-machines

Other

https://www.defensenews.com/naval/2021/02/11/in-the-south-china-sea-its-meet-the-new-boss-same-as-the-old-boss/

https://www.scmp.com/economy/china-economy/article/3120986/us-china-trade-war-phase-one-trade-deal-largely-failure

https://www.youtube.com/watch?v=BHCkZbBwFyM&ab_channel=BloombergQuicktake

https://www.e-ir.info/2021/01/27/continuity-and-change-chinas-assertiveness-in-the-south-china-sea/#.YBbx9rpvu84.linkedin

https://www.cnbc.com/2021/02/06/us-calls-on-china-to-condemn-myanmar-coup-in-first-high-level-conversation.html?__source=sharebar|linkedin&par=sharebar

https://www.linkedin.com/pulse/chapter-7-us-china-relations-wars-ray-dalio/

https://www.scmp.com/business/markets/article/3120862/chinas-investors-are-flooding-hong-kongs-capital-market-search?li_source=LI&li_medium=homepage_int_edition_top_picks_for_you

https://www.researchgate.net/publication/339186234_Research_on_China-US_Economic_and_Trade_Relations

https://guilfordjournals.com/doi/abs/10.1521/siso.2021.85.1.82 https://muse.jhu.edu/article/771317/pdf

Jordy Beuving
Jordy works as a junior investment professional in the Netherlands. He writes mainly about investing, financial markets, global affairs, geopolitics and macro-economics. He is currently obtaining his Law Degree at Tilburg University. He is also an active board member and financial analyst at A&F Investments.