The Chinese economy is growing at or close to 10% annual GDP rate and China is investing about 4% of total GDP in its military. However, that assumes the 4% is accurate and many Western experts believe China spends much more than the public rate. US growth is at or near zero, although we also spend approximately 4% of total GDP on our own military.
Whether real Chinese military investment is 6% or 8% is on a macro level not important. If trends continue the Chinese economy will pass the US economy in size and China will become a military rival. The Chinese growth rate merely determines whether this is a ten or twenty year event. And even that type of micro prediction is subject to basic assumption changes. If the US returns to a 3% growth rate, then the timeframe lengthens.
But what matters is the macro point that China is taking the steps to become a military rival.
It is common within the United States to see Chinese holdings of US debt as a threat. From serious foreign policy analysis to television commercials, China is portrayed as using the debt to bend the United States to its will as a vassal state. Given the Chinese only hold 16% of total US debt, China does not have such power today.
But what are the effects of the debt on the two countries in a crisis? There are a variety of potential geographic hotspots around the world that could through a series of 1914 misunderstandings lead to at least a limited engagement between China and the United States. Perhaps an escalating regional conflict over islands in the South China Sea or an extraordinary crackdown in Tibet on the Syrian model, but a conflict with Taiwan is the most likely spark of such a conflict.
China has spent the last decade increasing its capabilities against Taiwan. It has developed and deployed in large numbers ballistic missiles capable of hitting Taiwan. These missiles and their variants also have the capability of endangering US carrier battle groups in the Taiwan straits. Once the US loses air and sea superiority in the straits, the Chinese can use their new naval and air forces to defeat the Taiwan. A very unlikely event, but what would happen in such a conflict?
We know from recent times that any future war has a huge cyber warfare component. The wars in Iraq and Afghanistan have revealed the value of unconventional warfare in both special forces units and technology such as drones. But economic warfare had modest effects on the failed central planning in Iraq or the medieval Taliban economy in Afghanistan.
In a war between the United States and China economic warfare would be an enormous factor. China would lose its biggest customer and the United States would lose an important customer. China might be able in the short to medium term to resupply an invading army in Taiwan across the straights under a missile umbrella, but US submarines could hunt and sink any Chinese flagged ship worldwide, and embargo third-party ships bound to China with oil and raw materials.
What would the US do with China’s holdings of US debt during a war? In this type of setting is it better to be the holder or the issuer of sovereign debt? For example, could the United States declare Chinese holdings void or just default on them? Is a victorious war the one circumstance where a creditor nation could cancel its debt without negative consequence in international markets?
In essence, do Chinese holdings of US debt act inversely to the theory that Chinese holdings allow China to dictate to the US. What would a Chinese premier do with a shooting war, a cutoff of raw materials, and the threat from the United States to wipe out two generations of Chinese wealth?
What Chinese trade and lending demonstrates is the binding together of national interests between countries is much stronger than in the 1930s era of protectionism and capital flow restrictions. It took the Allies five and half years to destroy Germany’s economy and capacity to make aggressive war in World War II. The Germans of the early 1940s could survive in isolation and on conquered resources. In the era of globalization it is hard to understand how a country cutoff from vital commodities and capital could sustain a major war.
While China will become a military rival in the future, globalization dictates we focus on attempting to bring China closer not push it away. It is tempting for Americans to see China through a Korean War and Cold War lens and for the Chinese to see Americans as part of the foreign oppression of the late nineteenth and early twentieth centuries. But there is another shared history between the two countries.
American missionaries were welcomed in various medical and other volunteer capacities in China before World War II. Most importantly Chinese troops fought alongside Allied troops and at times under American command against the Japanese. They fought well throughout the war, but particularly when the Allies were apply to supply them with modern weapons, logistics, and provide air support. It was a strong partnership that included Allied forces deploying into China to assist the Chinese in liberating their country.
While we rightly focus on Chinese economic and military competition we should not forget that our joint past is not all negative. Europe finally resolved Germany’s place in Europe not by war, but by embracing Germany in the European Union. The debt, the history, China’s continuing political development, and trade point to the United States and China pursuing greater ties not war.