The decline of America and the ascendancy of China has become a popular theme, and nothing seemed to provide a clearer marker to those disposed to the idea than the financial crisis of 2008 and the great recession that followed. America, larded with personal debt, saw the jewel in its empire, Wall Street, stumble and fall, while China, its great factories spewing exports across the Pacific, became America’s lender, holding more than $2.5 trillion of foreign exchange reserves, much of it in U.S. bonds.
Russian President Dmitri Medvedev warned that the United States’ global leadership was nearing an end, while Goldman Sachs even proposed a specific date – 2027 – by which China’s economy would overtake the United States.
As I argue in my new book The Future of Power, one should be wary of extrapolating long-term trends from cyclical events. While few expect China to surpass the United States in military power in the next two decades, many still see the crisis as transformative in economic and soft power relations. It is important, therefore, to focus on the implications of the crisis in order to analyze the power relations between China and the United States.
China has amply demonstrated its interest in the idea of soft power – the expression of power through attraction rather than coercion – with President Hu Jintao using the phrase in a speech to the country’s Communist Party Congress in 2007. And not surprisingly China has invested heavily in soft power. From the 2008 Olympic Games to the Shanghai Expo to the creation of a 24-hour news channel, from the establishment of hundreds of Confucius cultural centers across the world to the creation of world-famous universities, China both created an impressive record of accomplishment and sold a compelling narrative of a country on the rise. It has also adjusted its diplomacy, joining global and regional organizations, playing important roles in international negotiations, and offering goodwill gestures, such as the rebuilding of the Cambodian Parliament.
But limits to that soft power have quickly become apparent, as evidenced by the jailing of Liu Xiaobo, the 2010 recipient of the Nobel Peace Prize. Similar actions such as the locking up of human rights lawyers after the recent events in the Middle East have the effect of undercutting China’s soft power in democratic countries such as Europe, Japan, India and the US.
American soft power rests on a variety of resources that range from Hollywood to Harvard; from Madonna to the Gates Foundation; from Martin Luther King’s speeches to Barack Obama’s election. It is not easy for governments to sell their country’s charm if their narrative is inconsistent with domestic realities. Despite its perceived role for the financial crisis in 2008, the United States’ soft power remained greater. According to a poll by the Chicago Council on Global Affairs, China’s image in most of the Americas, Asia and Europe is neutral or poor, and only Africa and some parts of Asia see it positively.
China’s impressive economic growth has added to its soft power, and obviously to its hard economic and military power. Analysts point to China’s seemingly unstoppable growth and its holdings of United States dollars. But they fail to take into account the role of symmetry in interdependence in creating and limiting economic power. If I depend on you more than you depend on me, you have power. But if we both depend equally upon each other, there is little power in the relationship.
Some observers have described this as a great shift in the global balance of power because China could bring the United States to its knees by threatening to sell its dollars. But in doing so, China would not only reduce the value of its reserves as the price of the dollar fell, but it would also jeopardize U.S. willingness to continue to import cheap Chinese goods, which would mean job loss and instability in China. If it dumped its dollars, China would bring the United States to its knees, but might also bring itself to its ankles. The situation, analogous to the Cold War’s balance of terror, where the price of aggression was the inevitable destruction of both sides, has both sides eager to maintain the balance of interdependence even as they continue to jockey to shape the structure and institutional framework of their market relationship.
Given the challenges they face, both countries have much to gain by working together. As the largest and second largest economies in the world, the U.S. and China have a responsibility to provide such international public goods as financial stability and less carbon intensive growth. But hubris and nationalism among some Chinese, as well as unnecessary fear of decline among some Americans, make it difficult to assure this future. Extrapolating the wrong long-term projections from short-term cyclical events like the recent financial crisis can lead to costly policy miscalculations. The last two years provide ample evidence of misperceptions and policy failures. Let us hope the Hu Jintao’s state visit in January has begun the process of putting US-China relations on a more fruitful track than in the period right after the financial crisis.
Joseph S. Nye, Jr. is University Distinguished Service Professor at Harvard and author of The Future of Power