There can be a silver lining from US-China rivalry within the US and for poorer countries around the world.
Let us start with the US. There are many concerns regarding US decline. Studies point to US drops in key global indicators regarding education, healthcare, and infrastructure, while inequality has soared. Yet, the rivalry can incentivize broad-based government investments in these fields, each of which are public goods.
The rivalry will benefit Americans more broadly than the elite who profited from integrating the US and Chinese economies — which some referenced as “Chimerica” — that benefited US capital and top wage earners while incomes of the middle and working classes stagnated and jobs became precarious.
Now the Biden administration describes its trade policy as “worker-centric.” It focuses on generating good jobs and combatting economic inequality. A new G20 tax agreement can increase tax revenue for programs while constraining companies’ ability to play states off each other in a race to the bottom. Already with the USMCA, the Trump administration bolstered labor provisions to provide for claims by unions and workers, which the Biden administration has pursued against GM Mexico. It is not enough, but it is the start of a new vision for the economy.
The rivalry has undermined neoliberal opponents to state investment in infrastructure, industrial policy, and active labor and welfare policies. In a politically polarized US, there was bipartisan support for the Biden administration’s 1.9 trillion stimulus package signed in March. In June, the Senate passed the United States Innovation and Competition Act of 2021 to spur investment in research and higher education. The US now is poised to enact the largest industrial policy bill in US history, all in the name of “countering China.”
For poorer countries, there are new opportunities too. China bolstered its foreign aid and financing of infrastructure worldwide as part of its Belt and Road Initiative. Chagrined, the United States created a new International Development Finance Corporation under the “BUILD Act” to catalyze loans, guarantees, investment funds, and risk insurance for investment in developing countries. The European Union is gearing up as well, as is India. G7 leaders agreed to coordinate a Build Back Better World Initiative to mobilize private-sector capital and offer new financing, once more because of competition with China.
Poorer countries are now less dependent on one great power for finance and infrastructure. The same holds true for trade, enhancing their bargaining power.
In the process, the US-China rivalry can spur the provision of public goods. Take vaccines. China, Russia, the US, and Europe are promising vaccines to exhibit leadership and generate positive PR on global public health. The US even supports a waiver of patent protections under the WTO TRIPS agreement. Chalk that up to great power competition. It is the rivalry with China that best explains this radical US shift.
Regarding climate change, the US and China also compete in developing green technologies. China has the clear lead, which has generated political support for a US response. One might think that it is enough that climate change could destroy the earth as we know it. But what convinces many is that the US cannot let China lead technologically.
Providing public goods is typically viewed as a problem of cooperation. The pursuit of self-interest can destroy “the commons” — the climate, sea, soil, and air — for everyone. Yet competition and rivalry can also solve public goods problems. Developing a vaccine and inventing green technologies are two examples.
We risk a dystopian future. The so-called Thucydides trap of inevitable war is just one facet. Yet rivalry also creates opportunities. Competition motivates. It can spur innovation and the production of much-needed public goods here in the United States and around the world. Let’s use that rivalry constructively where we can, while not losing sight of the need to manage conflict with China so that it does not trigger racist, nationalist responses that spiral out of control.
Gregory Shaffer is Chancellor’s Professor at the University of California, Irvine, and author of Emerging Powers in the World Trading System: The Past and Future of International Economic Law, Cambridge University Press, July 2021.