Monday 23 May 2022 | 23:53 | SYDNEY
Monday 23 May 2022 | 23:53 | SYDNEY

US-China: The risk of market failure


Hugh White

This post is part of the What is the US consensus on China? debate thread. To read other posts in this debate, click here.

21 July 2011 10:32

This post is part of the What is the US consensus on China? debate thread. To read other posts in this debate, click here.

Geoff Garrett is quite right that economic interdependence between the US and China provides major incentives for both sides to avoid strategic rivalry and conflict. But I'm not as confident as he seems to be that these incentives will be strong enough to counteract the pressures the other way.

Of course it would not be in either side's interest for rivalry to escalate. But this doesn't make it impossible or even very unlikely. People and countries do things against their own best interests all the time. That happens because people do not always see where their actions might lead. And that is why I think Geoff is wrong to say that people who warn about the risks of rivalry between China and America make it more likely.

In fact I think Geoff's optimism is more likely to lead us into trouble than my pessimism, because it encourages the agreeable illusion that nothing needs to be done, and no sacrifices need to be made, to create a stable and peaceful relationship between the US and China in future. 

To see why, we need to consider how economic interdependence reduces the risk of escalating rivalry. 

I think economic interdependence makes it more likely that Washington and Beijing will make the compromises necessary to negotiate a stable relationship reflecting their changed power relativities. Optimists like Geoff seem to think it makes negotiation and compromise unnecessary. Their confidence in Adam Smith and Immanuel Kant provides an agreeable illusion that the invisible hand will keep the peace, so politicians do not have to bother. And that makes it less likely that they will make the compromises necessary to avoid escalating rivalry, and hence more likely that the rivalry will indeed escalate.

Or perhaps optimists like Geoff believe that no compromises are necessary because peace and order between the US and China can be maintained indefinitely on the basis of the old understandings that were reached in 1972. So either they think that relative power plays no very great part in shaping such relationships, or they do not think that power has shifted much in the past 40 years.

I think Geoff is in the second camp. The giveaway is his reference to American decline and Mark Twain. Of course he is right, American decline is greatly exaggerated. But the story of shifting power is not about America, it is about China. America's decline has been exaggerated, but China's rise has not. Or perhaps Geoff thinks it has? I’d be interested to know.

Finally, if Nicholas Burns perceived a consensus among Australia’s 'chattering classes' that Australia must 'come to terms with a China-dominated region', he was deeply mistaken. Very few people in Australia think that. Some people think we have to come to terms with a region which is no longer dominated by the US, but that is not by any means the same thing.

In fact trying to understand and explore the difference between a region no longer dominated by America, and one dominated by China, is what the debate in Australia should be all about. Australia's future security and prosperity depends on the evolution of a new order in Asia which is dominated neither by the US nor by China, but by peaceful coexistence between them. I'm afraid Nicholas Burns didn't have much to offer on this, except to remind us how hard and urgent the task is, and how likely it is to fail. 

Photo by Flickr user monojussi.