By Judd Gregg - 06/23/14 06:00 AM EDT
America needs to develop a game plan regarding how it should approach China.
China is a startling place. Its rate of change, its size and the way in which it is governed are difficult for us to comprehend.
There is no “old money” in China, just a huge number of people who now have some level of wealth. It is only since 1992 that people in China have even been allowed to accumulate personal property. The implications of this cultural shift are vast not only for China’s future but also for the rest of the world.
China has a billion more people than live in the United States. It has a middle class, as it defines it, that already exceeds our population. Its economic growth rate is extremely high.
Within the foreseeable future, China will be able to sell its products and services to its own people and not be dependent upon exports.
This changes a great many things, especially for us. China has always been one of the largest purchasers of our debt. We have financed our growth and our government by borrowing. China has been inclined to assist us so that it could sell its goods to Americans.
When, at some point, China is no longer reliant on our market for selling its goods but can rather rely on its domestic market, then it will be free to ask a key question: Is American debt a good investment?
At that point, selling our debt may become a lot more problematic.
The growth of the domestic market in China also has dramatic implications for American companies that do business there.
For example, beginning six years ago, China committed huge resources to developing a commercial-passenger aircraft industry. They did this because they will need thousands of new aircraft just for their domestic travel needs. Domestic Chinese needs will likely be met by domestic Chinese production.
The potential consequences for foreign producers of aircraft are vast. This puts at risk a market of 1.3 billion people and creates a new major international competitor.
The same pattern holds true in numerous other areas.
One of the ironies of China is that it is an autocratic yet capitalist nation. The government dominates all levels of life but encourages the ability to make money. It is a trade-off that Westerners, especially Americans, find difficult to accept.
The Communist Party does not allow the core elements of individual freedom and democracy that drive our way of life and define liberty.
At the same time, China has embraced a market economy with more gusto than have some Western liberal democracies.
The Chinese pursue industrial-policy goals with exceptional singleness of purpose. Their approach is not driven by the politics of political correctness, as it is here, but by the desire to get economic advantage and results.
This makes China a formidable competitor whether in local industries, or in Africa and Latin America.
Then there are the geopolitical issues.
China essentially has no neighbor with which it does not have serious disputes, often over tiny, apparently unimportant islands. At the same time, it has not had a tradition of territorial expansion beyond those areas it deems to be historically part of China.
Its military capabilities are growing, and the purpose of this growth is not clear. This is the second largest economy in the world with the largest army. That should set off a few red flags — no pun intended — for us.
The basic fact of the matter is that the United States and China will be the two most significant powers in the world for the foreseeable future.
We need to get our house in order as to how we proceed with this relationship.
We need to begin by accepting the reality of where China is headed, and the inevitability of its strength.
We also need to understand that it will soon not need us as a trading partner in the same way it has in the past. This will significantly reduce our leverage over the country. Meanwhile, if we continue to run a debt-driven government and economy, China’s leverage over us will increase significantly.
This administration has fewer than three years left to run. Our need for a coherent approach to China will endure for decades.
We need to get started. President Obama should lay out what he thinks is the best approach, something he has not done yet.
Independent of all his other faults, President Nixon got it right when he opened up the relationship with Communist China and went a large distance toward settling the Taiwan issue.
Obama’s suggested path forward will probably be adjusted over time. But laying out such a path would at least address the essential need for a national policy on how we deal with China.
It is a nation whose future is intertwined with our own.
Judd Gregg is a former governor and three-term senator from New Hampshire who served as chairman and ranking member of the Senate Budget Committee and as ranking member of the Senate Appropriations subcommittee on Foreign Operations.