If you want to understand why China presents a threat to American power and prosperity, don’t ask the Pentagon. The Pentagon is populated by people who think constantly about weapons and war, so it will point to indicators of China’s growing military prowess, like investment in new submarines and anti-ship missiles. But the reality of China’s recent military buildup is that it is relatively modest for a country of China’s size and security concerns. After all, China has been occupied by foreign powers for much of its recent history, and Chinese industry today is heavily dependent on overseas markets and resources. China’s leaders believe their country is surrounded by potential enemies, and the historical record tends to support that view.
Increased military expenditures by Beijing are a trailing indicator of the real Chinese challenge to American power. The real challenge, in the oft-repeated phrase of James Carville, is “the economy, stupid.” Simply stated, China’s economy has been growing ten-percent annually for decades, while America has produced very little in the way of durable economic progress. As Americans have busied themselves buying over-leveraged homes and making the world safe for snail darters, China has surpassed the U.S. in the production of virtually every industrial commodity. The Chinese have accomplished this through a combination of hard work and unfair trading behavior that worked so well it now threatens to depose America from global economic primacy. It took a while for U.S. politicians to grasp how Chinese economic performance was transforming the world, but the change is becoming too obvious for even the insular U.S. political culture to ignore.
There is nothing inevitable about U.S. decline. We still have many advantages over China in our resource endowment, our economic flexibility and our scientific achievement. A study several years ago found IBM was generating more important patents than all of China. But U.S. power and prosperity rests on a foundation of economic success that is gradually eroding. Both political parties will need to rethink their approach to trade and domestic economic policy, starting with the extensive array of impediments that the federal government and localities impose on manufacturing. The Chinese government has been pointing this out to Americans for years, but we were too busy jockeying for internal political advantage to listen. Now that the consequences of our distraction have become clear, perhaps a bipartisan initiative to revitalize industry through tax cuts and reduced regulation can be fashioned. The Obama Administration is already showing strengthened resolve to prevent further Chinese trade abuses, which have severely harmed U.S. manufacturers.
However, there is something else Washington will need to do that very few politicians are yet willing to embrace. The government will need to spend a lot less money so it can reduce its dependence on China and other offshore lenders to cover the cost of federal programs. That includes the Pentagon, which acts like its two-billion-dollars-per-day spending habit has nothing to do with the current federal fiscal crisis. The widespread view among defense leaders that deficit reduction must come almost entirely from entitlement reform is politically naive and arithmetically untenable. Defense will have to do its part to put federal finances back in order, so the current position of Secretary Gates & Company about the need to hold defense spending stable is irresponsible. When Pentagon leaders assert they need more money to deal with the challenge posed by China, what that tells you is that they don’t understand the nature of that challenge, and are unwittingly contributing to the problem.
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