Brian M Downing
Competition between the United States and China has not been put on hold for the duration. The two rivals are and will be vying for leadership through dissemination of information, promising medical treatments, and economic aid for global recovery one day. Dynamics are underway, on stock and bond markets and in security and finance bureaus, that will be central to the Sino-American rivalry.
Markets
Stock markets have plummeted due to tremendous uncertainty and the prospect of a depression. The Dow at one point was down one-third from a recent high. Other bourses have fared no better. Market downturns see money flee from stocks to the relative security of government bonds – most often, US government bonds.
This downturn has indeed seen a flight to US bonds, but a lot of money is going to Chinese government bonds. This is due only partly to higher returns. American bonds are not as safe as they once appeared. Political risk is looming over American investments.
Political paralysis
America has been polarized for several decades and the situation is worsening. Politicians no longer try for accommodation and compromise – that’s deemed betrayal of principles. Many citizens no longer see themselves as part of nation with a common past and future; they see themselves as members of subcultures, minorities, and interest groups.
Government is unable to hold meaningful debate, build consensus, or solve problems. A recent exception has taken place. A $2 trillion dollar stimulus package made it through both houses and was swiftly signed by the president.
Debt and the budget
While it may be heartening to see congress agree on a major issue for a change, the $2 trillion dollar addition to the $23 trillion national debt will present deep trouble in coming years, especially as three or four more such stimulus packages will probably be needed.
Interest rates are historically low but when the debt nears $30 trillion, private and public demand for money will drive up interest rates. The amount of money needed simply to pay the interest on existing debt will be about $1 trillion a year. This will bring fiercer paralysis, deepening polarization, and more impassioned antagonisms along political, regional, racial, and gender lines.
China
Beijing will be monitoring the situation for fissures and opportunities. Seeing Washington mired in political squabbling and the public rent by antagonisms, will be welcome. China may foresee a time when the American state is no longer capable of concerted action in the world.
A younger generation of Americans, knowing little of World War Two or the Cold War and focused far more on domestic issues, may come to question the usefulness of allocating so much money to the military and its far-flung bases. A retreat from globalism may be in the offing.
Beijing is positioned to aggravate the situation. Today, it buys huge amounts of American bonds. It does so mainly to bolster the dollar vis-a-vis its own renminbi and to keep its exports at attractive prices. In coming years, China may hold back from large purchases and perhaps even sell a cache of US securities. This will boost interest rates, perhaps at a decisive point in the rivalry with the US.
© 2020 Brian M Downing
Brian M Downing is a national security analyst who’s written for outlets across the political spectrum. He studied at Georgetown University and the University of Chicago, and did post-graduate work at Harvard’s Center for International Affairs. Thanks as ever to Susan Ganosellis.