Can China Become a Cooperative Global Economic Leader?

CSIS hosted a debate between two leading economists examining whether China can work with the United States to provide global economic leadership.

What does it mean for a nation to be a global economic leader?

One answer is simply that a country is one of the most affluent entities in the global market. But one of the consequences of having immense financial power is the power to govern. Over the last century, we have seen countries with the deepest pockets at the helm of global market policy creation. Entities like the WTO and G7 have historically been able to protect and promote a safe global economy in hopes of mutual economic success.

But who should be considered a global economic leader?

Economists have conflicting responses to this question. However, most agree that China deserves a closer look when considered as a global economic leader. In the sense of GDP and purchasing power, China is the first real economic challenger to the United States in over 100 years.

But does China deserve a seat at the table for global market governance? 

The Center for Strategic and International Studies (CSIS) recently put that question to the test in a debate between their own Daniel Rosen and Dr. Fred Bergsten of Peterson Institute for International Economics.

Both economists agreed that China does indeed deserve a seat at the table, but they differed on whether China can function as a proper global market leader.

Rosen and Bergsten both acknowledged China’s history of not playing by the rules of international trade, from stealing intellectual property to manipulating their currency. There’s little doubt that China’s government has wronged the system.

In addition, a closer examination leads to some questioning of China’ perceived economic might. China’s renowned trade surplus has been financed through excessive debt investment led growth, and Rosen said he believes this is enough to dismiss the idea that China is a global economic leader.

“That approach brought them to the cusp of a financial crisis and, we are thinking about the implications of [that] virtually every day,” Rosen said.

By giving China a seat at the table, not only would the global leaders be rewarding an undeserving China, but its leaders would also not be able to properly fit the role, Rosen said. “The nature of modern global economic leadership is that you have to be willing to balance you own internal power and optionality with the interests of the world,” Rosen said.

The biggest responsibility of current global economic leaders is the wearing of “golden handcuffs,” meaning the ability to sequester personal motives to better protect the global economy. “Clearly neither Xi Jinping nor his colleagues in the party are prepared to do that,” Rosen added.

Even barring an empty promise of turning a new leaf on trade motivation, China isn’t interoperable enough to function as a global leader. Xi has not accepted the liberalization of its exchange rate, for example. The ability to work with other countries is how economic leaders can promote a global market, and the level of currency manipulation China operates with is not reflective of a global leader.

“It would invite chaos about what set of norms is really the rule book we’re going to fight for,” Rosen said.

But what can the United States do in the meantime to combat any potential “chaos” resulting from a nation like China? It starts at home, and ensuring our own economic footing is strong.

Recent moves by policymakers and the Biden administration to encourage domestic production is a step forward, Bergsten said. Any increased confidence in the U.S. is exactly what the global economy needs.

“The infrastructure investment bill, with the CHIPS [Act] and support for R&D with the Inflation Reduction Act supporting new investments in the U.S….  are essential to restore global confidence in the U.S.,” Bergsten said.

One interesting tidbit from the event: A pre-debate poll run by CSIS showed that 57% of respondents believed that China can work with the U.S. to provide cooperative leadership. Post-debate, the percentage fell to 53%.

The power of a global market leader cannot just be given, it must be earned. These immense powers in the markets come with equal responsibilities. Responsibilities that China doesn’t want; its leaders are simply power hungry.

“China clearly wants a seat at the table, and would like to do it with minimal acceptance of additional responsibilities,” Bergsten said.