02:10 - Source: CNNMoney
Trump vs China: Tensions over trade

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Minxin Pei: China may be big, but is still a relatively poor country

If President Trump makes good on his America First rhetoric, China could come to dominate the Asia-Pacific

Editor’s Note: Minxin Pei is a professor of government at Claremont McKenna College and author of “China’s Crony Capitalism.” The views expressed are his own.

CNN —  

Earlier this month, the Pew Research Center released the results of a survey asking the citizens of 38 countries to name a major threat to their nation. This is the first of a special series of op-eds that also appear in Fareed’s Global Briefing looking at the top perceived threats among Americans. You can sign up for the Global Briefing newsletter here.

In his widely reported recent interview with the American Prospect magazine, Steve Bannon, President Donald Trump’s former chief strategist, sounded apocalyptic on China. “We are at economic war with China,” Bannon reportedly warned. “One of us is going to be a hegemon in 25 or 30 years and it’s gonna be them if we go down this path,” predicted the champion of American economic nationalism.

Bannon may seem over-the-top, but his dim view of China actually reflects a widespread fear in the United States about that country. Indeed, according to the Pew Research Center’s latest global survey of perceived threats, China ranks as the fifth most serious threat to the US, topped only by ISIS, cyberattacks, climate change, and Russia. In contrast, of the 37 other countries surveyed by Pew, only six placed China among the top five threats. Notably, all the others – India, Japan, Vietnam, Australia, South Korea, and the Philippines – are located in China’s immediate neighborhood. Four of them have territorial or maritime disputes with China.

This could lead you to conclude that fears over China’s military power – the source of anxiety about Beijing among its neighbors – also lie behind Americans’ threat perception.

But Americans are actually far more worried about the economic threat posed by China than the country’s military prowess, a point underscored by another Pew survey in April. In that poll, a majority of Americans surveyed (52%) said they were concerned about China’s economic strength, while only 36% said they were concerned about its military power. Among the top five issues of concern, meanwhile, three were economic: The first was “the large amount of American debt held by China,” while the fourth and fifth were, respectively, “the loss of US jobs to China” and “the US trade deficit with China.” (The second and third top concerns were “cyberattacks from China” and “China’s impact on the global environment.”)

These conflicting views raise an obvious question: Is the real China threat its growing economic power or its military capabilities?

The reality is that China’s neighbors seem to have a much better grasp of the real China threat than average Americans. The biggest threat posed by China is its potential domination of the Asia-Pacific – if Trump makes good on his “America First” foreign policy.

It is easy to understand why the US public would see China primarily as an economic threat. If anything, the 2016 presidential campaign only deepened popular misunderstanding of international trade and finance. Candidate Donald Trump framed international trade as a zero-sum game and persuaded many Americans that the trade deficit is a symptom of national weakness and that free trade – especially with China – is a job-killer.

But when you do a simple calculation, the economic competition from China hardly amounts to an existential threat to American prosperity.

China may be big, but is still a relatively poor country, with a per capita income of around $15,000 (in purchasing power), which is about a quarter of that of the US. It will probably take decades for China to be as wealthy as the United States. Its exports – $2.1 trillion in 2016 – make the country the world’s biggest exporter by volume. But a third of this amount was “process trade” – China assembles imported hi-tech parts, then exports the finished products. In other words, China’s technological sophistication lags far behind the US.

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The only area where China appears to pose a threat to the US is in manufacturing, because most US-China trade is in manufactured goods. But the US is a predominantly service-based economy, with manufacturing accounting for only 12 million out of 140 million non-agricultural jobs in the US (in 2014) and about 12% of GDP today (measured in terms of value-added). Since China doesn’t send its lawyers, accountants and plumbers to the United States, most Americans are insulated from Chinese economic competition.

Contrast all this with China’s neighbors (all of which do the biggest share of their trade with China) and the threat is almost exclusively military and regional. Protected by the world’s most powerful military and with the Pacific Ocean as a buffer, most Americans do not lose sleep over China’s military threat.

But if you live next to the Asian behemoth, then you are much more likely to be afraid. And perhaps with good reason. The current occupant of the White House, encouraged by the just-departed Mr. Bannon, is an “American Firster.” That typically entails, among other things, seeing US security commitments in Asia as costly and unnecessary burdens. If that is what President Trump truly believes, then the fears of China’s neighbors – even more so than those of Americans – could prove to be justified.