IRIO Skills 2

Skills Paper
To what extent could the Rise of China harm the United States?

Name: Albert van den Pol

Studentnumber: 2009803
Group: 4
Words: 2468 (pp. 3-9)
Lecturer: Leandro Vergara-Camus

Table of Contents
Front Page...................................................................................................................................1
Table of Contents........................................................................................................................2
Introduction.................................................................................................................................3
How did the Rise of China develop and where is it leading to?.................................................4
What constitutes the United States as world hegemon and is this status declining?..................5
In which way is the economic relation between China and the United States developing?.......6
Continuation sub-question.......................................................................................................7
To what extent does the United States have to adopt to the upcoming Chinese power in the
international relations?................................................................................................................8
Conclusion..................................................................................................................................9
Bibliography..............................................................................................................................10

Introduction

2
The Rise of China is a development which concerns us all. China is a great power with around
1.3 billion inhabitants. When the economic development of China goes on at the high rate of the
last decade it will influence the world significantly. More economic wealth generally leads to
more demand and political power. With a nation as immense as China this could lead to
worldwide changes and, for example, have its influence on the climate, the world economy and
international security. Above this all, China is not a classic Western power, it has a different
culture and view than the global West on several subjects. Think about human rights or their
view on democracy. Furthermore a strong power in Asia could influence neighbouring
countries, possibly changing the position of powers like India, Japan or North Korea in the
international relations. But, the Rise of China can also be a significant threat to the position of
the post 2nd World War superpower: the United States. This paper is based on the question: To
what extent could the Rise of China harm the United States? In the several chapters the
following sub-question will be treated and form the fundament for my conclusion:

 How did the Rise of China develop and where is it leading to?

 What constitutes the United States as a world hegemon and is this status declining?

 In which way is the economic relation between China and the United States developing?

 To what extent does the United States have to adapt to the upcoming Chinese power in
the international relations?

3
How did the Rise of China develop and where is it leading to?

The Rise of China took off in the year 1979, when the first economic reforms were introduced.
China’s Gross Domestic Product (GDP) grew at an average annual rate of 9.7% till 2006. In
these years its economy increased over 11-fold, its GDP over 8-fold, and its world ranking for
total trade from 27th to 3rd.1 This development can be explained by a catch-up model which
narrowed the gap with developed countries in modernization. China has given this model,
setting the modernization process in a high pace, a new dimension. The catch-up of China is
based on macroeconomic indicators, for example China’s GDP which is now ranked second in
the world. The main factor making the catch-up possible is information. Technological
innovation was not important to China when its economy started its significant growth. China
profited from Research and Development done in the United States, Europe, and Japan. With
China’s accession to the World Trade Organization and the growing interest of Multinational
Corporations in the large Chinese market, Chinese companies could expand their local
knowledge and gain access to foreign technology. For these beneficial gains China had to adopt
a more open attitude in the International Political Economy. Factors making this kind of catch-
up model possible were the globalization of technology, IT and modularity. This also explains
why certain industries in China are far ahead of others, simply because these rely more on easier
accessible technology, for example electronics.2

The catch-up model is a general explanation for the Rise of China which influenced many
developments enhancing China’s economy. There are also more specific phenomena which
benefitted the growth. The industrialization process in China has brought the country to the
world’s first position when it comes to added values and the output of manufactured goods.
This industrial growth has been fundamental to the economic aggregation of China. Also the
growth of human capital, labour, capital stock and total facts productivity has been an important
contribution to the economic growth being 33-47%.3
1
Section used from the Summary on the second page.
Craig K. Elwell, Marc Labonte, and Wayne M. Morrison, “Is China a Threat to the U.S. Economy?,” CRS
Report for Congress, (January 2007), accessed December 11, 2010,
http://www.fas.org/sgp/crs/row/RL33604.pdf.
2
Section used from the Transcript.Xielin Liu, “China’s Development Model: An Alternative Strategy for
Technological Catch-Up,” RIETI, (March 2005), accessed December 11, 2010,
http://www.rieti.go.jp/en/events/bbl/05032201.html.
3
Angang Hu, ed. Economic and Social Transformation in China: Challenges and Opportunities (New York:
Routledge, 2007), 12-16.

4
The Rise of China consist of more than just economic growth. It is better explained by
Comprehensive National Power (CNP), the sum total of the strategic resources of a country,
consisting of: economic resources, human capital resources, natural resources, capital resources,
knowledge and technology resources, government resources, military power, and international
resources. This method for the calculation of a state’s power has been applied by leading
economist Hu Angang. He reached the conclusion that the United States is the world
superpower, followed by China. Interesting is that the gap between these nations has been
narrowed from 5 to 3 times over the past 2 decades, a major catching up with the leading nation.
Thus not only China’s GDP ranks high in the world, which is partly explained by the high
Chinese population. But also a more comprehensive method, like the CNP, clearly shows the
Rise of China. When the rise in economic strategic resources will continue at the same rate, then
China will have overtaken the United States in 2020. The biggest advantages in this calculation
is the Chinese domination in terms of population and total human capital.4

What constitutes the United States as a world hegemon and is this

status declining?

When you look up the word ‘hegemony’ in the Cambridge Dictionary it is defined as
“(especially of countries) the position of being the strongest and most powerful and therefore
able to control others.” This status is not unique, it has been around for as long as we got
knowledge of history. In the 20th century one can say that this position is applicable to the
United States. After 1945, the end of the 2nd World War, this nation-state became the world
leader in so many different fields, as stated by leading American social scientist Immanuel
Wallerstein. The US had military strength, economic capabilities and a status unparalleled by
any other nation. Therefore it was able to form and dominate important alliances, such as
NATO and the U.S.-Japan Defense Pact. The American culture crossed borders and its
influences are noticeable globally.5

From a realist point of view, in which international relations are mainly explained in terms of
power, the US hegemonic position in the late 20th century, can be acknowledged. American
intervention in the 2nd World War was determinative, just as its contribution to forming

4
Angang Hu, ed. Economic and Social Transformation in China: Challenges and Opportunities (New York:
Routledge, 2007), 35-47.
5
Immanuel Wallerstein, “US Weakness and the Struggle for Hegemony,” Monthly Review 55, no. 3 (July-
August 2003), accessed December 15, 2010, http://www.monthlyreview.org/0703wallerstein.htm.

5
successful Intergovernmental Organizations. But is the US power still significant enough to
control others? Power in terms of military strength is not the only determining factor in
international relations nowadays. International Organizations, such as the United Nations with
its Security Council, are there to preserve global security. It is the multilateral determination of
the post 2nd World War superpowers to preserve peace, not solely of the US hegemon. From a
realist point of view one should not only look at power in terms of military strength, but also in
terms of influence in International Organizations, the world economy and international
relations. Due to globalization interdependence has enhanced. If you look at the US power, not
just in military terms, then one can argue that this is not hegemonic enough to control others.
The European Union and North-East Asia have become economical and political powers to be
taken into account. The catch-up of economies worldwide, makes the United States stronger by
increased trade, but also more connected to others. I argue that in our century one nation has to
keep other nations interests and wishes into account. We live in an institutionalized world, in
which one can have more influence than others, but a hegemony is not applicable in our system
of economic and political interdependence. Thus, I argue that even though the US is still the
sole world super power, a hegemonic position, in terms of sole determining global influence,
has already faded.

In which way is the economic relation between China and the

United States developing?

The United States and China are both major players in the world economy. When a nations
export is more than its import, then it creates a surplus on the balance of trade. The market
system is based on equilibrium, but surpluses and deficits are no exceptions. When a nations
balance of trade is disrupted, the currency of that nation can be revaluated or devaluated to
decrease or increase demand. China’s currency, the Yuan, is pegged to the US Dollar and
thereby makes this mechanic impossible to function. This has given a lot of tension, because it
would keep the Yuan undervalued. The surplus of China has grown from approximately 8%
to more than 15% in the years 2000-2007 and the growth trend is still upwards.6 For the US

6
William R. Cline and John Williamson, “Estimates of the Equilibrium Exchange Rate of Renminbi: Is There a
Consensus and, If Not, Why Not?.”Paper presented at the conference on Debating China’s Exchange Rate
Policy, (October 2007): Table 1.

6
the picture is quite different, its current account shows a widening deficit that would have
risen from 5.7 percent of GDP in 2004 to 14 percent by 2024.7

A persisting and significant deficit has several negative effects for a country, most obvious the
interest costs and the redemption. Also slower economic growth, unemployment and a worse
bargaining position in the International Political Economy are likely consequences. Still one
should keep in mind that we are speaking about the position of the US, the founder of the
Marshall Plan and former leader of the gold-dollar standard. A nation with a strong reputation
in the world economy, and with strong trading ties all over the world. It is very unlikely that
such a nation will decay in the near future, this will have devastating consequences for all
trading partners, also China. Economic liberalism, generally sharing beliefs with liberal
internationalism in the possibility of cooperation to realize common gains, will approach the
US position from a constructive point of view.8 It is not in the interest of China and other
economic powers to outcompete the US, because common gains are realized by cooperation
mainly through comparative advantages. However, from a realist point of view, in which
relative power is a nations main aim, the decline of the US economy should be fuelled by
competitors. In the globalized and interdependent 21st century world market, this realism
approach would, in my opinion, not be beneficial in the long run, because trade is born out of
mutual interests.

To what extent does the United States have to adapt to the

upcoming Chinese power in the international relations?

Increasing importance of China has implications for the US in international relations, but to
which extent depends on the approach. Two main approaches to international relations are
idealism and realism. Realism’s foundation is the principle of dominance, power. For idealists
morality is the main principle. More important to examine the shift of nations influence in
7
William R. Cline, “Long-Term Fiscal Imbalances, US External Liabilities, and Future Living Standards,”
Peterson Institute for International Economics, (2010): 11-12, accessed December 15,
http://www.piie.com/publications/chapters_preview/4327/02iie4327.pdf.
8
Joshua S. Goldstein and Jon C. Pevehouse, International Relations, 5th ed. (London: Pearson, 2010), 165.

7
international relations is the view on the zero sum game. This theory, often accepted in
realism and denied by idealism, describes the following process: “in a zero sum game, one
player’s payoff is exactly the inverse of that of the other player.”9 This would mean that
China’s gains will be the loss of the US. It is valid to say that increased export by China will
fulfill more demands and therefore cost share for the US. Also, that increased trading ties will
make more countries dependent on China and therefore in some cases more supportive of it.
Think of the fact that several nations refused a meeting with the Dalai Lama, because they
would otherwise suffer economic sanctions from China. Though, in my opinion, it is not
valid to say that these issues weaken the US for the same amount. The world is divided in
many ‘players’ and therefore losses are taken globally. Also there are enough matters that
benefit all countries, there is not always a loser. In the case of the US there is also a lot of
benefit from an enhancing trading partner. The zero-sum assumption is too nearsighted, it is
unable to take all nations into account and to interpret that all developments can have a
snowball- and/or side-effects. Thus I argue that idealism, with a less nearsighted view on
international relations, is better to approach the effect of the Rise of China on the United
States.

From the Idealist assumption that human nature is good and international cooperation is
important, one can say that a stronger China is beneficial to the US. But the shift from a
unipolar system to a bipolar or multipolar system, in international power distribution, would
cost US influence. The US is struggling with this shift of power to the East. China refuses to
revalue its currency, and had more support than the US in the Group of 20 leaders summit in
Seoul on this matter. Also China is not as cooperative in the North-South Korea issue as
wished. In these issues you can see that the US does not have the ultimate power anymore. It
is said that Obama, bidding for a permanent Indian seat in the UN Security Council, is already
adopting new policy to diminish Chinese power in Asia. The US is forced to adapt to the new
power distribution system. As expert David Rothkoph states: “the United States is heading
into a future in which countries like China, with independent sources of power, are not reliant
on or easily influenced by the United States, and so are pursuing their national interests.”10

Conclusion

9
Internet Encyclopedia of Philosophy, s.v. “Game Theory,: accessed December 18, 2010,
http://www.iep.utm.edu/game-th/.
10
Helene Cooper, “Asking China to Act like the U.S.,” New York Times, November 27, 2010, accessed
December 18, 2010, http://www.nytimes.com/2010/11/28/weekinreview/28cooper.html?
pagewanted=1&_r=1&ref=unitedstatesinternationalrelations.

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The Rise of China’s main cause was a catch-up model. With an average annual growth rate of
9.7% for China’s Gross Domestic Product for about 25 years, China has become an important
economic player. Also in terms of Comprehensive National Power, a more comprehensive
method, China’s Rise is clearly visible and moving closer to the United States every year. The
United States has seen its post 2nd World War hegemon fading. In the 21st Century
Institutionalized world, in which economic and political interdependence form the basis for
international relations, an hegemonic position is inapplicable. China has become a strong
player and does not have to abide to United States policy. The fact that China refuses to set a
free floating Yuan, supported by a majority in the Group of 20 summit, shows that China is
strong and influential enough to put aside United States pressure. International relations are
not a zero-sum game, and the United States also benefits from a stronger Chinese trading
power. However, the United States has to adapt policy to keep grip on Asia. The shift from an
unipolar system to a multipolar system, when it comes to international power distribution,
will be changing the United States position in the international political and economical arena.

The basis of this paper is the question: To what extent could the Rise of China harm the
United States? My conclusion on this matter is that more Chinese economical and thereby
political power will harm the United States in a reasonable way. International relations evolve
and the upcoming of more nations is part of the process. It is true that the United States will
lose influence due to the shift to a multipolar system, but more power distribution can also be
beneficial to the United States in economical and political matters. I argue that the United
States is harmed in terms of loss of influence, but will not decay and affirm a strong position
in the new world system.

Bibliography

Cline, William R., and John Williamson. “Estimates of the Equilibrium Exchange Rate of Renminbi: Is There a
Consensus and, If Not, Why Not?.” Paper presented at the conference on Debating China’s Exchange Rate
Policy, (October 2007): Table 1.

Cline, William R. “Long-Term Fiscal Imbalances, US External Liabilities, and Future Living Standards.”
Peterson Institute for International Economics, (2010): 11-12. Accessed December 15,
http://www.piie.com/publications/chapters_preview/4327/02iie4327.pdf.

9
Cooper, Helence. “Asking China to Act like the U.S.” New York Times, November 27, 2010. Accessed
December 18, 2010, http://www.nytimes.com/2010/11/28/weekinreview/28cooper.html?
pagewanted=1&_r=1&ref=unitedstatesinternationalrelations.

Elwell, Craig K., Marc Labonte, and Wayne M. Morrison. “Is China a Threat to the U.S. Economy?.” CRS
Report for Congress, (January 2007). Accessed December 11, 2010,
http://www.fas.org/sgp/crs/row/RL33604.pdf.

Goldstein, Joshua S., and Jon C. Pevehouse. International Relations. 5th ed. London: Pearson, 2010.

Hu, Angang, ed. Economic and Social Transformation in China: Challenges and Opportunities. New York:
Routledge, 2007.

Internet Encyclopedia of Philiosphy. http://www.iep.utm.edu/game-th/.

Liu, Xielin. “China’s Development Model: An Alternative Strategy for Technological Catch-Up.” RIETI,
(March 2005). Accessed December 11, 2010, http://www.rieti.go.jp/en/events/bbl/05032201.html.

Wallerstein, Immanuel. “US Weakness and the Struggle for Hegemony.” Monthly Review 55, no. 3 (July-August
2003). Accessed December 15, 2010, http://www.monthlyreview.org/0703wallerstein.htm.

10