The US accuses China of threatening democracy by not conforming to the post-World War II global order. But why should it? That system was meant to sustain America’s global dominance and suppress developing countries’ economic, technological and military development, including China’s, after all.
Yes, some Asian countries – Japan, South Korea and a few others – managed to attain developed-economy status, but only because they subjected themselves to American hegemony. But if any country believed it was in a position to challenge the US, it would and did face Washington’s wrath.
A case in point is Japan. Its remarkable economic rise from the ashes of World War II, in large part, was brought to a halt in 1985 when the US forced it to sign the Plaza Accord, culminating in decades of deflation and weakening its technological and manufacturing stature. It will likely be a long time, if ever, before Japan can reclaim its past economic and technological glories.
Back to the postwar US-imposed world order. Near the end of World War II, it was a foregone conclusion that the US-led Allied Powers would win the conflict against the Axis Powers consisting of Germany, Japan and Italy. That prompted the soon-to-be-victorious Allies to convene the Bretton Woods Conference in 1944 to chart a postwar global order.
It became apparent that the postwar world was to be dominated by the United States, which would write the rules and regulations on economics, financial ideology, and other issues.
The US representative to the conference, Harry Dexter White, rejected the UK’s proposed bancor as the world’s currency for international trade and other financial transactions. That eventually led to the US dollar becoming the global reserve currency largely because of American pressure.
The US, of course, was also the world’s largest creditor and trading nation, giving it considerable influence over global economic and financial affairs. The US also promised to buy any amount of gold at a fixed price, which helped because, in a period when the world was under the gold standard, the greenback was considered as “good as gold.”
The world-currency status afforded US extraterritorial power, allowing it to interfere in other countries’ internal affairs by denying them access to the dollar through sanctions. Since the US dollar is the international medium of exchange and settlement of debts, sanctioned nations faced economic disruptions, inflicting considerable hardship on people’s lives, as countries like Venezuela and Iran can attest.
The US was never shy about using extraterritoriality, sanctioning multiple countries, including Chinese officials and corporations, for “misbehavior” or not toeing Uncle Sam’s line.
The sanctions were meant to deny governments or individual officials access to the dollar, freeze their assets, and so on, the purpose of which was to incite internal dissent or revolt. Inability to do business or trade would disrupt economic growth, leading to poverty and misery, so it was hoped that the people would rise up against their government or force regime change.
While sanctions worked in smaller nations, they backfired with respect to China. The Asian country is simply too big, and the Chinese yuan is increasingly being accepted to settle trade and investment transactions, diluting the effectiveness of US sanctions. What’s more, the US and Chinese economies are deeply intertwined.
Indeed, former US president Donald Trump’s sanctions against Huawei and other Chinese technology firms hurt the US as much as China. While the sanctions slowed down China’s technological advancement, they put US technology companies in financial disarray and risked firms such as Apple being blocked from the huge Chinese market, which contributes a big chunk of US companies’ revenues.
The US tightened its global dominance further with the creation of the International Monetary Fund (IMF) and World Bank (WB) at Bretton Woods. The US became the majority shareholder of the newly established international financial institutions, holding more than 16.5% of shares and voting rights. Requiring an 85% majority to turn proposals into policies, the US could in effect dictate the institutions’ lending and operating policies.
A case in point is Argentina’s economic decline in the late 1990s. Near economic collapse forced Argentina to turn to the IMF for help, receiving a US$7.2 billion loan conditional on the government adhering to fiscal austerity. But those conditions only exacerbated the country’s economic malaise, raising Argentina’s indebtedness and financial burden.
The “Washington Consensus” loan conditionality imposed on Argentina thus turned out to be a “debt trap.” But Argentina wasn’t alone; indeed, other developing nations regularly found themselves obliged to secure more loans just to service earlier ones, thus forever indebting them to the US and other Western countries by virtue of their control of the IMF and WB.
However, the US itself routinely resorted to deficit financing to reverse economic downturns. In the aftermath of the 2008 financial crisis, the US turned to quantitative easing (QE), the process of the Federal Reserve, the United States’ central bank, printing money to buy sovereign debt and bonds.
The proceeds raised via QE were spent on bailing out businesses and banks deemed too big to fail, allowing them to continue operating. In this sense, the US was not practicing what it preached, strengthening the argument that it had set up “debt traps” as a way to prevent developing economies from developing.
A case in point is the US banning its technology firms from selling advanced chips to China, citing national-security reasons. The real motive, however, was to slow down if not kill Chinese technological progress. No country had ever complained about Chinese products posing a national-security threat until Trump decided to make it one, solely based on unproven or speculative evidence.
All said and done, China is right not to follow the US-imposed postwar world order. Indeed, it could even be argued that the communist country became what it is today because China defied US-style rules and values. For this reason, China will likely continue adhering to “socialism with Chinese characteristics” as its economic development and ideological architecture.
Ken Moak taught economic theory, public policy and globalization at university level for 33 years. He co-authored a book titled China’s Economic Rise and Its Global Impact in 2015. His second book, Developed Nations and the Economic Impact of Globalization, was published by Palgrave McMillan Springer.