DRAFT: This module has unpublished changes.

International Relations Perspective on the Influence of Money on Contemporary Political Regimes:

China versus United States

          The United States and China, the largest economic powerhouses, have taken differing paths on their rise to economic success. The United States and capitalism are often equated with each other, resulting in the conclusion that democracy and capitalism go hand in hand, but China has posed as an alternative to this theory. China has taken on a different form of capitalism, one that promotes state led capitalism, which has proven to be successful. These two countries reveal that economic success can be driven by a multitude of factors, but can drive major political development, even if this development means communism and democracy. As a result of this major political and economic development, these two countries are some of the major players in the international economic realm as they compete to be the hegemon, a major point of research since the economic downturn of 2008.

            In his work, “Liberal Leviathan: The Origins, Crisis, and Transformation of the American World Order” John Ikenberry outlines important notions regarding international relations and the motivations of major hegemons. Ikenberry defines a hegemon as a country which creates order and law in the international realm, aspiring to live and carry on its respective values. This long-term agenda required to allow hegemonic values to last can easily be shattered by other rising hegemons and in this time period the turn over is high. The classic hegemonic approach was the empire, where military force was the name of the game and the emphasis was placed on hard power. Paul Kennedy, a fellow international relations researcher, in his work “The Rise and Fall of the Great Powers” differentiates between hard power, including the military and those limited resources which drain the economy, and soft power, a more ambiguous power including the influence of culture. As the turn over ratio for hegemons increases and countries become interdependent the role of soft power has become more prominent and the presence of empires have disappeared and therefore hard power finds itself in a new role.

            While Ikenberry explores the characteristics of classic hegemons he also examines the U.S. and their different hegemonic rise to power. Instead of placing emphasis on military force, the U.S. promoted liberal values. Instead of causing war, they aimed to manage crisis and ultimately wanted to watch the economy prosper. In theory, if the U.S. had a prosperous economy, a spill over affect would occur, allowing all other countries to become prosperous. This then, would be the ultimate form of power created by the interdependence within the international realm. Within an interdependent international field, soft power plays a major role and different economies and cultures all have an influence over each other. In Ikenberry’s conclusions he also recognizes the rise of China within the world order and questions what this will mean for the future and the mission of the U.S. to carry on their liberal values.  

            Ikenberry and Kennedy’s research and conclusions are especially relevant when discussing the interactions between China and the U.S. Over the past decade as China has continued to rise, the fear has also risen that China may become the new hegemon. China’s major soft power asset, their economy, is continuously discussed in relation to the economy of the United States. Although the U.S. was founded on capitalistic values, encouraging its rise to hegemonic power, China has adopted an altered version of capitalism, too helping its rise.

            In Huang’s article, “China and the U.S., Capitalism’s Odd Couple he outlines the relationship between these two countries, making the conclusion that where China falls short, the U.S. comes out on top and visa versa. This is a result of their different forms of capitalism, where the U.S. maintains a market led capitalism versus the Chinese state led capitalism. Although both economies have proven successful, there are clearly downfalls as well, which Huang argues are amplified by globalization. “Ultimately, both the US and China need to find the right mix between the invisible hand of the market and the visible hand of the state.” While Huang upholds a fairly neutral argument that both the U.S. and China have their strengths and faults, making them an interesting “international couple”, Tony Karon argues “Why China Does Capitalism Better than the US.” Karon’s argument surrounds the economic downfall of 2008, where the U.S. was not able to meet the coming challenges, but where he argues China was. Furthermore, he argues that the U.S. falls short because “money has emerged as the electoral trump card in the US political.” In this context if money serves as the “electoral trump card”, then subsequently the political system and its objectives become inefficient. This inefficiency has surfaced as a prominent feature within the U.S. in the context of the debt ceiling.

            Karon’s argument concerning the inefficiencies within the U.S. and China’s success over the U.S. is upheld by several articles which estimate the continued rise of Chinese power. During December of 2012 the National Intelligence Council conducted a study which predicted that China will be the leading economic power by 2030, but it also notes that there is potential for a growing political partnership between the U.S. and China. Although researchers estimate China surpassing the U.S., others analyze this bilateral relationship as a whole. Dan Ikenson on “Soured U.S.- China Relationship Approaches Inflection” argues that this relationship is mutually beneficial, but also notes that “most bilateral economic frictions are magnified through the prism of those geopolitical and philosophic differences, making controversies seem larger and more intractable.” The question now arises of the nature of the China - U.S. relationship. Ikenson comments that “the confluence of media hypervention over China’s inexorable rise to global preeminence of the U.S. politicians’ habits of scapegoating China for their own failures spawned a popular impression of China as a zero sum game.” By examining this relationship as a zero-sum game, policy questions arise and many begin to wonder what the next move for the U.S. will be.

            The U.S. is characterized by market led capitalism, while China has adopted state led capitalism, a version of capitalism Richard D’Aveni analyzes in his article, “How America Can Beat China’s State Capitalism.”  D’Aveni also argues that this relationship is characterized by a zero sum game, which is a result of China’s state capitalism. This variation of capitalism is not one which upholds cooperation and a free marketplace, which are values that stand in strong opposition to the liberal order that the U.S. has attempted to build. In order to maintain this liberal order, the U.S. has to respond appropriately to China’s state led capitalism and ultimately adjust with the changing international economy.

            Since the U.S. and China compete heavily within the international realm, both upholding capitalism in their own right and standing as the strongest economies, examining their relationship is key, but even more so for the U.S. because of China’s holdings of U.S. securities. While these Chinese holdings is only one aspect of the complex U.S.-Chinese relationship, it is a key one for the U.S. to examine if it hopes to continue its hegemon of liberal order. The Congressional Research Service prepared a report on “China’s Holdings of U.S. Securities: Implications for the U.S. Economy” exploring the codependent relationship. In 2011, the U.S. was the largest importer of foreign capital, while China was the largest exporter of capital, revealing the dependence the U.S. has on foreign capital and China’s major investment interests. With the current state of the economy, this unique relationship has become a hot topic as concerns rise regarding the exposure of the U.S.. Although China has a large amount of foreign exchange reserve holdings in the U.S., other options are limited and in fact “any attempt by China to sell off a large share of its current holdings would diminish the value of its remaining holdings and further destabilize the global economy”. Therefore arguments can be made that this relationship is at a standstill, where risk lies if either country makes a drastic move, both for the countries themselves and the global economy as a whole.

            Analysts have examined multiple perspectives concerning China’s holdings of U.S. securities, outlining the effects if these holding are reduced, possible leverage opportunities and how this may alter dynamics within the global economy. Although a clear cut answer does not exist to what China’s holdings of U.S. security means for China, the U.S. or the global market, considering the constant evolution of the market, it is apparent that this relationship is meaningful and complex, one which should be constantly examined. Only predictions can be made for the future of the global economy and the Chinese- American relationship, but the rising influence of Chinese power is apparent. The changing dynamics of the global economy and the complex and codependent relationship between the U.S. and China, two countries who can arguably thank different forms of capitalism for some of their success, now questions the traditional notions of what defines a hegemon. 

DRAFT: This module has unpublished changes.