This week the Trump Administration called for tariffs on up to $60 billion in Chinese imports, and China swiftly responded with its own list of U.S. goods to target with tariffs. Leaving aside the question of whether or not the Administration made the right move, it is it is important to examine the deeper U.S.-China strategic competition, and why economics—and especially business—may be the main arena in which this competition will play out.
In order to understand the stakes of this competition, the United States needs a new George F. Kennan moment. In 1946, shortly after the end of the Second World War, Kennan sent his famous “Long Telegram” from Moscow back to Washington. The document, which described the essential Soviet worldview and its strategic objectives, contributed to a series of critical American decisions in the early Cold War. While the term “Cold War” itself wasn’t coined until a year later, it was Kennan who told the United States that it had a problem on its hands, and who detailed that problem in full. For the next 45 years, the United States was able to play—and ultimately win—a deep, protracted, long-term strategic competition against an expansionist superpower rival. Above all, Kennan defined the problem. What would have happened if America had waited too long to understand the problem?
China, like the USSR, is an expansionist, superpower rival. However, the United States has never witnessed, let alone played ball, against a rival like China. The USSR walled itself off economically in an ideologically driven economic strategy of trade amongst other Socialist and Communist states. While it was a major military power, with global ideological influence that is hard to imagine today, its economy trailed behind America’s, eventually contributing to its demise. But China has done the opposite by taking a leading role in the world economy, surpassing the United States in trade relationships region by region around the world. And its ultimate objectives are on a scale perhaps even greater than the Soviet Union’s.
Envisioning the “great rejuvenation of the Chinese nation,” Chinese leaders have mobilized their diplomats, businesses, scientists, technologists, entrepreneurs, military, financial apparatuses, intelligence services, universities, research institutions, and all other instruments of state and society to carry out a global program aimed at making China, in the words of official propagandists, “regain its might and re-ascend to the top of the world”. Guided, like the USSR, by a sense of historical destiny, China’s “rejuvenation” is based on what its leaders call the “invincible force of more than 1.3 billion people.” China’s leaders have stated that we are now in “a new era,” and that “we have an infinitely vast stage for our new era, a historical heritage of unmatched depth, and incomparable resolve . . . to forge ahead.” China’s military expansion is already evident. In addition to territorial claims in the Himalayas and South and East China Seas, its strategic program is of an ever-evolving geographic scope.
The South China Sea: Only the Starting Point
Chinese economic strategists envision three “blue economic passages” linking the globe back to China via the South China Sea: “the China-Indian Ocean-Africa-Mediterranean Sea Blue Economic Passage,” “the China-Oceania-South Pacific Blue Economic Passage,” and “one that will lead to Europe via the Arctic Ocean.” In other words, the three major intercontinental maritime trading routes that link the Eurasian-African-Indian Ocean super-continental structure. These great trade routes will ultimately be defended by an expanded Chinese military that is “built to fight,” “able to win wars,” and “world-class” in both size and technological prowess. China’s military strategists envision an “arc-shaped strategic zone that covers the Western Pacific Ocean and Northern Indian Ocean” into which they will be able to project military power. The country has already begun to build up a blue water navy that, along with the rest of China’s armed forces, is tasked to “safeguard the security of China’s overseas interests.”
Moreover, while China makes substantial gains on both military and economic objectives every day—for example, deploying rail guns on its ships ahead of the U.S. Navy, launching the world’s first quantum communications satellite, and arguably taking the lead on critical technologies such as artificial intelligence—its strategic objectives are established on a nearly unlimited timeframe, which means that they will continue to evolve. China’s current leaders have inherited a mission to “resurrect the Chinese nation” by the year 2049, the centennial of the founding of the People’s Republic of China. While this date sounds far off and perhaps impossibly vague on an American time frame, for China it is both an important ideological guidepost and a concrete concept against which the Chinese Communist Party can define, plan, and coordinate the execution of its objectives. In short, in the words of its own leaders, Chinese strategy is the application of an “invincible force” to “an infinite stage.”
With this in view, three core problems exist in the American approach to China.
First, the United States is not, or at least is no longer, used to thinking about economic, diplomatic, commercial, financial, and military strategy as intertwined.
Second, the United States is saddled with competing visions of how to deal with China, namely “engagement,” “accommodation,” and “competition”. These competing visions constrain the United States from taking clear and decisive strategic action in the policy domain.
Third, the United States lacks a clear-cut assessment of China that stretches across enough domains relevant to national power in a free country. Without such an assessment, the United States cannot take action. For example, while the U.S. national security establishment has rightly, in my view, assessed China as a dangerous strategic competitor, the business world takes the opposite approach. The website of UBS (to be sure, a Swiss rather than American bank) states that China “is on the path to become the world’s leading superpower,” while offering its advice on how to “help you uncover opportunities.” In an article called “The CEO guide to China’s future,” specialists at McKinsey & Company offer recommendations which they believe will help China sustain economic growth and build a more advanced economy. Even as the Committee on Foreign Investment in the United States (CFIUS) expands its remit and both Congress and the White House consider punitive actions for Chinese trade abuses, the disconnect between global business and national security is the heart of America’s problem. It is also why our strategic competition with China is, until major corrections are made, a losing game for the United States.
The problem is that China’s path to dominance will be made by economic power. As China gains in economic and technological stature, national security is handed a harder and harder challenge, one which ultimately is a losing game. To compete with China militarily is one thing while the United States is the world’s largest economy, but to do this as China becomes an equal, and eventually larger economy than the United States, as analysts far and wider expect it to do, is quite another. The path to China’s economic supremacy is the path to China’s rule in this century. It is a path that must be blocked.
In other words, U.S.-China competition is, above all, an economic game. And by an economic game, this has perhaps less to do with policy, and more to do with commerce and finance. The central question hinges on the fact that American commerce, unlike that of China, is private and not an instrument of state. China’s state-owned-enterprises make up the lion’s share of its presence on the Fortune Global 500. Indeed, China has a thriving private sector that includes large corporations that compete with America’s own leading companies. However, as demonstrated by the recent Chinese government take-over of Anbang Insurance, famous for its ownership of the Waldorf Astoria in New York, the Chinese government can seize assets and even entire multi-billion-dollar private corporations at the drop of a hat.
In America, meanwhile, the entirely private sector companies of the Fortune 500 represent two-thirds of U.S. GDP. Operating on quarterly-earnings cycles, and in response to generally short-term shareholder demands, U.S. companies have absolutely no national security mandate. For American companies—and for companies across the world’s democracies—geopolitics is a risk to be managed, not a game to be played and won. But what if this were to change?
American companies need to understand a document called Made in China 2025. This vision statement by China’s State Council, which explains that China will become the “global manufacturing leader,” is one of China’s primary strategic documents. In essence, the document reflects the sum of the past decade of technology transfer, cybertheft, and espionage, all of which have put global companies at risk in the Chinese market while building major competitors for U.S. companies that are now going global themselves. Made in China 2025 states that China is aiming for mastery of major sectors including information technology, robotics, shipping, aerospace, and biotechnology. Non-Chinese companies involved in the sectors listed above are likely to be used and abused through predatory joint ventures and other methods—in preparation for their Chinese counterparts heading out into the world to compete against them.
Just as the U.S. military and strategic community must now deal with the consequences of China’s choice to militarize rather than to liberalize, American companies are dealing with Chinese state-backed firms that are employing unconventional methods to attain advantages ranging from state-supported financing to state-supported espionage, not only in China’s own market but also in an increasingly complex and competitive global marketplace.
This is all part of a long-term strategic vision in which China not only builds infrastructure connectivity through the “Belt and Road” but also uses its influence to build markets for Chinese products and services, thus making a play to continue China’s long-term economic rise. U.S. businesses will be casualties of this process—perhaps eventually on a large scale. The lifespan of the average company on the Fortune 500 list has been shrinking for decades. As AEI’s Mark J. Perry points out, of the Fortune 500 firms in 1955, 88 percent are no longer on the list. A good deal of this is due to technology—Perry cites “creative destruction”—but the continued rise of China as an economic superpower with global ambitions is likely to be a “disruptor” on at least the scale of any emerging technology.
American companies must learn to play the game. In the same way that carrier groups and other military forces are primary assets in U.S. hard power, America’s companies and businesses, both public and privately held, are the main actors in our economic future. If our companies are allowed to be thrown out of sectors and outcompeted by their state-backed Chinese counterparts, then the United States will continue to lose the game, and Chinese economic growth will pave the path for military ascendancy and expanded influence—namely, “the great rejuvenation of the Chinese nation.” The 2018 unclassified Summary of the National Defense Strategy explains China’s path with clarity:
As China continues its economic and military ascendance, asserting power through an all-of-nation long-term strategy, it will continue to pursue a military modernization program that seeks Indo-Pacific regional hegemony in the near-term and displacement of the United States to achieve global preeminence in the future.
Such is the prospect of China’s “new era” and its “infinite stage.”
It is time for the United States to play to win. Commerce and national security must be aligned in a way that sustains and secures America’s future. Perhaps it is appropriate that Sun Tzu’s The Art of War, a strategy manual written by a Chinese military commander 2,500 years ago, is one of the most popular books among American businesspeople. Today, the triumph of American commerce is vital to this new competitive game. Perhaps our businesses have never known just how important they are. Let’s hope that Sun Tzu has left them well prepared.
Xinhua New Agency, “Commentary: Milestone congress points to new era for China, the world,” October 24, 2017.
The Science of Military Strategy 2013 (战略学2013年版), Academy of Military Science (军事科学院), quoted in Andrew Erickson, “Doctrinal Sea Change, Making Real Waves: Examining the Maritime Dimension of Strategy’, in Joe McReynolds, ed., China’s Evolving Military Strategy (The Jamestown Foundation, 2017).
China’s Military Strategy, State Council Information Office of the People’s Republic of China, 2015.
Editor’s note: See Charles Edel, “Limiting Chinese Aggression: A Strategy of Counter-Pressure,” The American Interest, February 9, 2018.