By Arvind Subramanian, Peterson Institute for International Economics
Article in Foreign Affairs, Volume 90, Number 5, September/October 2011.
August 23, 2011
Is China poised to become economically dominant over the United States? This is an essential question, and yet it has not yet been taken seriously enough in the United States. Many believe the threat from China is not so imminent, so great, or so multifaceted that it can push the United States out of the driver’s seat. But such views underestimate the probability that China will be economically dominant in 20 years. And they reveal a one-sided, US-centric perspective: that world dominance will be determined mostly by the actions of the United States, not those of China. In fact, the outcome of this race is far more likely to be shaped by China. Even if China is unlikely to soon muster the kind of dominance that naturally inspires or might be necessary to build international systems and institutions like those the United States created after World War II, Beijing is already exercising other forms of dominance. For example, it can require that US and European firms share their technology with Chinese firms before granting them access to its market. And it can pursue policies that have systemic effects, despite opposition from much of the world. Its policy of undervaluing its exchange rate is a classic beggar-thy-neighbor strategy that undermines the openness of the world’s trading and financial systems while also creating the conditions for easy liquidity, which contributed to the recent global economic crisis. Chinese dominance is not looming. In some ways, it is already here.
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