Visions of Greatness (Part 5): A New Direction

How do you deal with a rising Great Power?

Photo: Victor Hancek. Source: Picjumbo

For decades, the US held a policy of “constructive engagement” towards China. By giving China “Most Favored Nation” status, encouraging trade and cultural exchange, Washington hoped to draw China into – if not the West – at least the broader family of nations. We would look the other way with human rights abuses, and try to avoid major trade disputes.

Now, four decades of constructive engagement led to a massive bilateral trade deficit, as China used favorable trade terms to bootstrap its economy up to from being a emerging economy to a middle-income nation. The rise of hundreds of millions of Chinese from subsistence farming to working-class manufacturing has been an economic wonder, and it has generated immense wealth along the way.

But it’s come at the cost of millions of manufacturing jobs elsewhere, from steelworkers in Middletown, Ohio to textile weavers in Mount Athos, Greece. Folks with modest skills living a middle-class, Western lifestyle couldn’t compete with Foxconn employees making $2.50 per hour. The displacement of middle-class men from manufacturing jobs has been cited as the cause of everything from the opioid crisis in America to Greek Euro-bond defaults. China’s trading prowess has even been blamed for Brexit.

Source: CDC, Wikipedia

Constructive engagement worked, perhaps too well. China is now a formidable manufacturing power. But the massive wealth their manufacturing prowess has generated has engendered corruption on a massive scale as well. China has always been a little corrupt. There are references to anti-corruption campaigns in Classical Chinese literature that are over 2000 years old. But if absolute power corrupts absolutely, immense wealth corrupts immensely.

China’s new leader, Xi Jinping, recognizes this problem – that corruption could tear China’s society apart. He wants to root it out by inserting the Chinese Communist Party more deeply into every aspect of society. Xi is willing to sacrifice some economic growth if it allows the Party to have a little more control. The West needs to understand that China isn’t just like us: many of their institutions and practices are antithetical to liberal democracy. Their surveillance apparatus, their censorship, their one-party system all challenge Western values.

The US needs to move past constructive engagement to constructive competition. China isn’t a partner in global development, they’re a rival. They have a radically different vision for what a successful society should look like. And they’re not going to be shy about promoting their vision elsewhere in Asia and Africa. In fact, it looks like they plan to have a strong naval presence in the South China Sea and in the Indian Ocean.

Other developing nations are curious. If China’s health care system can use artificial intelligence and remote data capture to deliver diagnosis and treatment to hundreds of millions of folks with no access to a doctor – without worrying about niceties like medical privacy and the Hippocratic Oath – why wouldn’t they try out a State-sponsored WeDoctor-like program? If the Communist Party can silence critics overseas by intimidating scholars or engaging students to spy on other students or using enhanced surveillance, why wouldn’t other developing nations try to increase their influence and power with the same strong-arm tactics?

Photo: Pawel Zdziarski. Source: Wikimedia

Constructive competition means we don’t patronize and we don’t disengage, and we recognize that the rest of the world is watching. There’s an open contest to see whether Western liberal democracy or China’s authoritarian development can more effectively improve people’s lives. Constructive competition means we respect our geopolitical rival. They’re not enemies, but they’re not partners, either.

We may believe that our values and mores are the most effective way to promote human flourishing. But it’s up to us to prove it.

Douglas R. Tengdin, CFA

Charter Trust Company

“The Best Trust Company in New England”

By |2018-05-04T06:00:58-04:00May 4th, 2018|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

Leave A Comment