This is Part 1 of three.
Most of the literature on Sino-American relations focuses on conflicting policies (for instance, over the South China Sea or intellectual property) or on characteristics of the international system (such as multipolarity, hegemony, or the Thucydides Trap). But conflicts also arise because domestic problems become internationalized.
In particular, while economic development typically leads eventually to domestic stability, geopolitical influence and mutual benefits with other countries, it also creates difficult challenges.
The US economy is shifting from a manufacturing workforce to a services workforce, mainly because of technological advance. But US politicians of both parties have found it more convenient to blame China for the decline of manufacturing jobs than to make difficult decisions at home.
Likewise, as China develops, its originally simpler economy and society become complex and it faces predictable economic problems and political challenges. Beijing has sought to suppress the ramifications of social differentiation rather than accommodate them. This results in ever tighter political controls at the cost of future economic growth.
Political leaders can find it convenient to blame the resultant stresses on foreigners. Misidentification of the problems leads to exaggerated fear of potential nearby color revolutions and to a mistaken sense that Russia shares the same problems as China.
When China was poor and weak, as with other poor, weak countries, the developed world tolerated intellectual property theft, predatory industrial subsidies and denial of market access. Now, China’s economy is very large and these same behaviors create massive global distortions.
Meanwhile, the US overreacts to the emergence of new and challenging powers, exaggerating their prospects and the dangers they pose. This exaggerated status anxiety and fear typified the US response to the Soviet Union and Japan and now typify its response to China.
Development and security
The relationship between development and security is very complex. Development means GDP growth, widespread improvement in living conditions, and technological advance. Long-term, those who develop successfully tend to become more secure at home and more influential abroad. Economic success is the prerequisite of both domestic consolidation and geopolitical influence.
Economic success has consistently been crucial to the attainment of international respect and power. Economic success has also improved domestic stability. Likewise, in the long term, successful economic development in one country should benefit other countries and create a sense of mutual benefit as has happened among Japan, the US, Europe, China, and most of the rest of the world.
But it also brings changes in relative power, dependencies, conflicts over resources, and other problems. This paper will focus on two ways in which development has exacerbated Sino-American tensions:
- In both the US and China, development has created domestic social stresses that leaders have found convenient to blame on the other country.
- In addition, it has created changes in international roles that neither country has handled well.
The consequence has been rising hostility rather than a focus on mutual benefit. These are far from the only reasons for rising Sino-American tensions, and they are not the only security problems caused by development, but they are important and neglected.
US blame of China for workforce evolution
Successful development means the US is experiencing a transition from a manufacturing workforce to a services workforce. The principal driver of that transition is productivity improvement, which enables more work to be done by fewer workers.
The rate of decline of manufacturing jobs has been very steady since 1947. Manufacturing jobs are disappearing the way agricultural jobs once disappeared and for the same reason. Just as large combines replaced armies of farmers in harvesting crops, now automation means that far more cars can be manufactured by far fewer employees.
Just as the agricultural workforce once transformed into a manufacturing workforce, now the manufacturing workforce is transforming inexorably into a services workforce.
This transition causes social stress that, if not managed through retraining and relocation and reassurance, can be politically disruptive. The US has recently experienced social dislocation and political stress, most notably a surge of populism, as this process has recently displaced several million workers who have not been adequately helped by their government.
US manufacturing employment as a proportion of total non-farm employment, 1947-2016, dropped from one-third to about 8%, according to the St. Louis Federal Reserve’s FRED figures.
China managed a decline of nearly 45 million state enterprise jobs in the single decade between 1994 and 2003 by helping manufacturing workers move into the services sector and giving double pensions to the minority incapable of transferring. Most of those jobs were in the manufacturing sector and most workers had to move to non- manufacturing jobs.
But the much more gradual US transition has proved disruptive, bringing social dislocation and even a decline in support for democracy. The reason is that in the US, neither political party has smoothed the transition.
The Democrats depend on the manufacturing unions, so they cannot advocate policies that would help the workers out of manufacturing; instead, they speak fatuously of bringing manufacturing jobs back.
Similarly, the Republicans’ primary constituency is wealthy groups who want smaller government and lower taxes, so they will not give the government the authority and budget to smooth the transition.
Both parties find it convenient instead to blame China, globalization, and neoliberalism for what is actually an inexorable domestic trend.
The macro-idea of a China shock that cost millions of jobs above what was happening from normal development conflicts with the evidence that the decline of manufacturing jobs was steady from 1947 to 2009. The numbers imply that either the jobs would have been “lost” in some other way or that there were offsetting developments.
More recent research shows that although the direct impact of trade with China costs US jobs, that trade also reduces the costs of intermediate goods used by US firms and as a result indirectly increases US jobs. Contrary to what most Washington politicians say, the net effect is an increase of US jobs.
Moreover, the opening of the Chinese market to U.S. automobile manufacturers at the begin- ning of the new century saved General Motors from insolvency. Profits from China offset chronic GM losses in the US and EU and made it possible for GM to be rescued a few years later.
The US automobile market employs 17.9 million people and GM is by far the largest among the small number of employers. It is unlikely that, absent profits from the China market, any other firm would have been able to buy GM and then save all or most of the jobs.
It is even possible that the jobs saved by the opening of the China market mostly or completely offset the number of jobs lost elsewhere in trade with China.
While the constant repetition by leading unions and by politicians of both parties that China is responsible for massive job losses is persuasive to workers, those workers are quite conscious that neither established party is providing effective assistance.
The result of this US political dysfunction is a decline in support for democracy, an explosion of angry populism that carried Donald Trump to the presidency, a partial shift of traditional high school graduate worker support from the Democratic Party to the Republican Party and a gratuitous increase in the already difficult tensions with China.
The Trump-Biden pretense that their sanctions on China will bring manufacturing jobs back likely will lead eventually to disastrous disillusionment. Policies presented to workers as intended to help them often actually harm them. For instance, Trump-Biden tariffs on steel, aluminum and solar panels alone are costing many tens of thousands of jobs.
NEXT: Part 2, China’s war against social complexity
William H. Overholt (William_overholt@harvard.edu) is senior research fellow at the Harvard Kennedy School’s Mossavar-Rahmani Center for Business and Government.
This article, first published in the China International Strategy Review, is slightly abridged (primarily via removal of the footnotes) and republished serially under a Creative Commons Attribution 4.0 International License.