China added U.S. TreasuriesChina's U.S. Treasury holdings are up to $1.3 trillion. That's not only the most of any foreign investor, but also a near record for China itself, almost matching the $1.31 trillion the country held back in 2011. These holdings have grown even as yields on the 10-year bond still trade near a pitiful 2.8%. The U.S. government shutdown this year and murmurs of a Congress-led U.S. default spurred talk of China selling chunks of its massive stake, maybe putting those dollars to work elsewhere. It wasn't to be. The big picture is pretty clear: China's weak currency helps exports to places like the U.S., and it's left holding U.S. dollars. That's a net gain for China, despite holding greenbacks whose value are in part tied to the loose cannons in Congress.
If you ask an average American citizen how he feels about the country’s standing in the world, he’ll likely paint a bleaker picture than what we would have offered just a few years ago. A Pew Poll conducted last year found that that only 28% of Americans believe that their “country stands above all others.” This is down 10 percentage points from just three years earlier.
As Harvard government professor Joseph Nye points out in his recently published book, Is the American Century Over?, Americans aren’t alone with their doubts. “In recent years, polls showed that in 15 of 22 countries surveyed, most respondents said that China either will replace or has already replaced the United States as the world’s leading power,” he writes.
For those who believe that China will replace the U.S. as the world’s most powerful nation, there is more economic—rather than military or diplomatic—evidence to support this position. After all, the U.S. military is still state-of-the-world, and America outspends China militarily by roughly 4 to 1. Furthermore, China can’t compete with the U.S. when it comes to America’s military footprint around the globe, with its numerous bases and significant presence in places like South Korea.
But in economic terms, things look more competitive. By some measures, China’s GDP has already surpassed the U.S., and China’s huge population makes it the largest market for certain products. China, for instance, boasts the largest number of Internet users in the world. Fortune asked Nye to offer his take on the great economic battle between these two nations, and whether Americans should be worried about an ascendant China. The interview has been edited for clarity and length.
As you point out in your book, worrying about the decline of the United States is a great American pastime. Is there something about this particular moment that makes people believe in American decline?
It goes through cycles, as I say in the book. I think the latest turn of the cycle was the Great Recession and the downturn of the economy. And the slow recovery gave rise to a spurt of declinism.
It’s also just a matter of conventional wisdom. If you asked in the 1980s a similar question about decline, many Americans, particularly in the rustbelt, felt that Japan was surpassing us—they were going to eat our lunch. It wasn’t true at the time, but once it became the conventional wisdom, it was easy to tell a pollster that that’s what you believe.
You focus on China in particular. Much of the media, and popular imagination, is also focused on China. Is it unique to this point in history that the battle for geopolitical supremacy is so dependent on economic strength?
There’s a long history of views that when a rising power challenges an established power that this can lead to conflict. This goes back to Thucydides and the Peloponnesian War, but a more recent example is the rise in power of Germany and the fear that it created in Britain. Historians and analysts often use that analogy and apply it to China. I don’t think that fits because Germany had already passed Britain in terms of industrial production by 1900. And if you believe the analysis in my book, the Chinese aren’t there. They won’t be equal to the U.S. in overall power even in a couple of decades.
You point out in the book that 19 of the top 25 brands are American and that Americans own 46 of the top 500 top transnational corporations. How important are these statistics to American strength and does this represent soft power?
It’s partly soft power. Soft power is the ability to get what you want through traction rather through coercion or payment. And these corporations and brands tend to make America more attractive—that’s the soft power part. But also their economic capacity provide for American hard power.
There seems to be a disconnect between how Corporate America is faring and how the median American is faring. This is manifesting itself politically. Take, for instance, the trade deal being negotiated right now between America and Pacific Rim nations: there is suspicion on both sides of the aisle that it won’t be good for American workers, yet Corporate America remains staunchly behind it.
There is concern about that. It’s also true that many of the benefits of technology and globalization have accrued to a smaller portion of the population. But Larry Summers had a good piece recently in The Financial Times in which he pointed out that you want to distinguish between trade and trade deals. Trade is going to occur anyway. And the inequality effects are going to occur whether we secure a trade deal or not. The question is whether our government is able to shape the terms of this trade.
Should the median American voter be supporting the kind of policies that bolster American power? Does American power help the Average Joe?
Trade and an open economy help the American economy grow. It’s true that that growth might not be distributed as equally today as 40 years ago, but it’s still better to have a growing economy than not. The idea of closing ourselves off or turning away from an open economy is a recipe for stagnation, and that doesn’t help the average American in the long run.
You predict in the book that the American Century will last for at least another couple decades at least. Is it possible to have a peaceful transition between the American Century and whatever comes next? Or do these eras tend to end because of wars and violence?
I think you can imagine a peaceful change. One thing is that great power wars are extraordinarily expensive in the nuclear age. There are also a number of common interests that we share with great powers like China. For instance, financial stability, pandemics, terrorism, and climate change: these are areas where there are common interests and where we benefit from cooperation. In addition, it’s worth noticing that people learn. The Chinese have spent a lot of time looking at what they call … lessons from history and trying to avoid repetition, and that means that they are aware of falling into the sort of traps that Germany fell into 100 years ago.