China’s Economic Reckoning
The Price of Failed Reforms
In the heady aftermath of the Cold War, American policymakers pronounced one of the fundamental concepts of geopolitics obsolete. Secretary of State Condoleezza Rice described a new world “in which great power is defined not by spheres of influence . . . or the strong imposing their will on the weak.” Secretary of State Hillary Clinton declared that “the United States does not recognize spheres of influence.” Secretary of State John Kerry proclaimed that “the era of the Monroe Doctrine is over,” ending almost two centuries of the United States staking claim to its own sphere of influence in the Western Hemisphere.
Such pronouncements were right in that something about geopolitics had changed. But they were wrong about what exactly it was. U.S. policymakers had ceased to recognize spheres of influence—the ability of other powers to demand deference from other states in their own regions or exert predominant control there—not because the concept had become obsolete. Rather, the entire world had become a de facto American sphere. Spheres of influence had given way to a sphere of influence. The strong still imposed their will on the weak; the rest of the world was compelled to play largely by American rules, or else face a steep price, from crippling sanctions to outright regime change. Spheres of influence hadn’t gone away; they had been collapsed into one, by the overwhelming fact of U.S. hegemony.
Now, however, that hegemony is fading, and Washington has awakened to what it calls “a new era of great-power competition,” with China and Russia increasingly using their power to assert interests and values that often conflict with those of the United States. But American policymakers and analysts are still struggling to come to grips with what this new era means for the U.S. role in the world. Going forward, that role will not only be different; it will also be significantly diminished. While leaders will continue announcing grand ambitions, diminished means will mean diminished results.
Unipolarity is over, and with it the illusion that other nations would simply take their assigned place in a U.S.-led international order. For the United States, that will require accepting the reality that there are spheres of influence in the world today—and that not all of them are American spheres.
Before making pronouncements about the new rules of geopolitics, post–Cold War U.S. secretaries of state should have looked back to the final months of World War II, when U.S. policymakers were similarly resistant to accepting a world in which spheres of influence remained a central feature of geopolitics. Competing views on the issue lay at the core of a debate between two top Soviet experts in the U.S. government.
On February 4, 1945, President Franklin Roosevelt met with Soviet leader Joseph Stalin and British Prime Minister Winston Churchill at Yalta. At Roosevelt’s side was his translator and principal adviser on the Soviet Union, Charles Bohlen. Just that morning, Bohlen had opened an urgent private missive from his close colleague George Kennan in Moscow. Kennan correctly forecast that the Soviet Union would attempt to maintain control of as much of Europe as it could. The question was what the United States should do about that. Kennan asked, “Why could we not make a decent and definitive compromise with it—divide Europe frankly into spheres of influence—keep ourselves out of the Russian sphere and keep the Russians out of ours?”
The United States must realize that there are spheres of influence in the world today—and that not all of them are American.
Bohlen was appalled. “Utterly impossible,” he erupted in response. “Foreign policy of that kind cannot be made in a democracy.” Reflecting on this moment later, Bohlen explained: “The American people, who had fought a long, hard war, deserved at least an attempt to work out a better world.” Between 1945 and 1947, Bohlen worked alongside other leading figures in the Roosevelt and then the Truman administration to realize their “one world” vision, in which the allies who had fought together to defeat the Nazis would remain allied in creating a new global order. But he ultimately resigned himself to the world as it was—in short, Kennan had been right. “Instead of unity among the great powers on the major issues of world reconstruction—both political and economic—after the war, there is complete disunity between the Soviet Union and the satellites on one side and the rest of the world on the other,” Bohlen acknowledged in the summer of 1947 in a memo to Secretary of State George Marshall. “There are, in short, two worlds instead of one.”
When he finally came to share Kennan’s diagnosis, Bohlen did not shrink from the implications. His memo to Marshall concluded:
Faced with this disagreeable fact, however much we may deplore it, the United States in the interest of its own well-being and security and those of the free non-Soviet world must . . . draw [the non-Soviet world] closer together politically, economically, financially, and, in the last analysis, militarily in order to be in a position to deal effectively with the consolidated Soviet area.
This conviction became a pillar of the United States’ strategy for the coming decades, and it rested on the acceptance of spheres of influence. There would be areas that would be subjected to Soviet domination, with often terrible consequences, but the best course for the United States was to bolster those powers on the periphery of this Soviet sphere while reinforcing the strength and unity of its own sphere.
For the four decades that followed, the United States and the Soviet Union engaged in the great-power competition that we know as the Cold War. In the Soviet sphere, the captive nations of Eastern Europe remained under the boot of an “evil empire.” American presidents faced repeated crises in which they had to choose between sending troops into Soviet-dominated nations to support freedom fighters seeking to exercise rights that the American creed declares universal and standing by as those freedom fighters were slaughtered or suppressed. Without exception, U.S. presidents chose to watch instead of intervene: consider Dwight Eisenhower when Hungarians rose up in 1956 and Lyndon Johnson during the Prague Spring of 1968 (or, after the Cold War, George W. Bush when Russian troops attacked Georgia in 2008 and Barack Obama when Russian special forces seized Crimea). Why? Each had internalized an unacceptable yet undeniable truth: that, as U.S. President Ronald Reagan once explained in a joint statement with Soviet leader Mikhail Gorbachev, “a nuclear war cannot be won and must never be fought.”
This bit of Cold War history should serve as a reminder: a nation that is simultaneously idealistic and realistic will always struggle to reconcile rationales and rationalizations of purpose, on the one hand, with realities of power, on the other. The result, in the foreign policy analyst Fareed Zakaria’s apt summary, has been “the rhetoric of transformation but the reality of accommodation.” Even at the height of U.S. power, accommodation meant accepting the ugly fact of a Soviet sphere of influence.
After nearly half a century of competition, when the Cold War ended and the Soviet Union disappeared, in 1991, the United States was left economically, militarily, and geopolitically dominant. In the first two decades of the post–Cold War era, U.S. defense spending exceeded the defense budgets of the next ten nations combined (five of them U.S. treaty allies). Operationally, that meant that, as Secretary of Defense James Mattis’s 2018 National Defense Strategy put it, the United States “enjoyed uncontested or dominant superiority in every operating domain. We could generally deploy our forces when we wanted, assemble them where we wanted, and operate how we wanted.” The United States and its allies could welcome new members into NATO, applying to them its Article 5 security guarantee, without thinking about the risks, since the alliance faced no real threat. In that world, strategy in essence consisted of overwhelming challenges with resources.
But that was then. The tectonic shift in the balance of power that occurred in the first two decades of the twenty-first century was as dramatic as any shift the United States has witnessed over an equivalent period in its 244 years. To paraphrase Vaclav Havel, then the president of Czechoslovakia, it has happened so fast, we have not yet had time to be astonished. The U.S. share of global GDP—nearly one-half in 1950—has gone from one-quarter in 1991 to one-seventh today. (Although GDP is not everything, it does form the substructure of power in relations among nations.) And as the United States’ relative power has declined, the menu of feasible options for policymakers has shrunk. Consider, for example, the U.S. response to China’s Belt and Road Initiative. With currency reserves of almost $3 trillion, China can invest $1.3 trillion in infrastructure linking most of Eurasia to a China-centered order. When Secretary of State Mike Pompeo announced that the United States would increase its own investments in the Indo-Pacific in response, he was able to come up with just $113 million in new investments.
China has, of course, been the chief beneficiary of this transformation. In the past generation, its GDP has soared: from 20 percent of the U.S. level in 1991 to 120 percent today (measured by purchasing power parity, the metric that both the CIA and the International Monetary Fund use to compare national economies). Although China faces many internal challenges, there are more reasons to expect this basic economic trend to continue than to bet that it will stop soon. With four times as many citizens as the United States, and if Chinese workers become as productive as Portuguese workers are today (that is, around half as productive as Americans), China will see its GDP rise to double that of the United States.
In Asia, the economic balance of power has tilted especially dramatically in China’s favor. As the world’s largest exporter and second-largest importer, China is the top trading partner of every other major East Asian country, including U.S. allies. (And as an aggressive practitioner of economic statecraft, Beijing does not hesitate to use the leverage this provides, squeezing countries such as the Philippines and South Korea when they resist Chinese demands.) Globally, China is also rapidly becoming a peer competitor of the United States in advanced technologies. Today, of the 20 largest information technology companies, nine are Chinese. Four years ago, when Google, the global leader in artificial intelligence (AI), the most significant advanced technology, assessed its competition, Chinese companies ranked alongside European companies. Now, that state of affairs is barely visible in the rearview mirror: Chinese companies lead in many areas of applied AI, including surveillance, facial and voice recognition, and financial technology.
China’s military spending and capabilities have surged, as well. A quarter century ago, its defense budget was one-25th that of the United States; now, it is one-third and on a path to parity. And whereas the U.S. defense budget is spread across global commitments, many of them in Europe and the Middle East, China’s budget is focused on East Asia. Accordingly, in specific military scenarios involving a conflict over Taiwan or in the South China Sea, China may have already taken the lead. Short of actual war, the best tests of relative military capabilities are war games. In 2019, Robert Work, a former U.S. deputy secretary of defense, and David Ochmanek, one of the Defense Department’s key defense planners, offered a public summary of the results from a series of classified recent war games. Their bottom line, in Ochmanek’s words: “When we fight Russia and China, ‘blue’ [the United States] gets its ass handed to it.” As The New York Times summarized, “In 18 of the last 18 Pentagon war games involving China in the Taiwan Strait, the U.S. lost.”
Russia is a different matter. Whatever President Vladimir Putin might want, Russia will never again be his father’s Soviet Union. When the Soviet Union dissolved, the resulting Russian state was left with less than half the GDP and half the population and saw its borders rolled back to the days before Catherine the Great. Yet Russia remains a nuclear superpower with an arsenal that is functionally equivalent to that of the United States; it has a defense industry that produces weapons the world is eager to buy (as India and Turkey have demonstrated in the past year); and it boasts military forces that can fight and win—as they have demonstrated repeatedly in Chechnya, Georgia, Ukraine, and Syria. On a continent where most of the other nations imagine that war has become obsolete, and maintain military forces more for ceremonial than combat operations, military prowess may now be Russia’s major comparative advantage.
The claim that spheres of influence had been consigned to the dustbin of history assumed that other nations would simply take their assigned places in a U.S.-led order. In retrospect, that assumption seems worse than naive. Yet because many U.S. analysts and policymakers still cling to images of China and Russia formed during this bygone era, their views about what the United States should and should not do continues to reflect a world that has vanished.
Over the course of centuries of geopolitical competition, policymakers and theorists developed a set of core concepts to help clarify the complexities of relations among states, including spheres of influence, balances of power, and alliances. These concepts must be adapted to take account of specific conditions in the twenty-first century. Yet they remain the sturdiest building blocks available for understanding and constructing international order.
Where the equilibrium of forces between one state and another shifts to the point where the first becomes predominant, the resulting new balance of power casts a shadow that becomes, in effect, a “sphere of influence.” That specific term entered the vocabulary of diplomacy in the early nineteenth century, but the concept is as old as international relations itself. (As Thucydides noted, after the defeat of the Persians in the fifth century BC, Sparta demanded that Athens not rebuild the walls around its city-state to leave itself vulnerable.) Traditionally, great powers have demanded a degree of deference from lesser powers on their borders and in adjacent seas, and they have expected other great powers to respect that fact. Recent actions by China and Russia in their respective neighborhoods are just the most recent examples of that tradition.
Spheres of influence also extend beyond geography. When the United States led the world in the creation of the Internet, and the hardware and software that empowered it, the United States enjoyed what Michael Hayden, a former director of the National Security Agency, later called a “golden age of electronic surveillance.” Since most countries were unaware of the surveillance capabilities revealed by the former NSA contractor Edward Snowden, the United States had an unparalleled ability to exploit technology to listen to, track, and even influence them. But post-Snowden, many states are resisting the current U.S. campaign to prevent them from buying their 5G wireless infrastructure from the Chinese telecommunications giant Huawei. As the leader of a country currently considering the choice recently put it, Washington is trying to persuade other countries not to buy Chinese hardware because it will make it easier for China to spy and instead to buy American hardware, which would make it easier for the United States to spy.
From the perspective of American interests and values, the consequences of increases in China’s and Russia’s power relative to that of the United States are not good. As great powers, China and Russia can use their power to suppress protesters’ freedom in Hong Kong or block Ukrainian membership in NATO. The South China Sea is likely to become more like the Caribbean than the Mediterranean—that is, China’s neighbors in Southeast Asia will be as beholden to China as Latin Americans have been to their hemispheric hegemon. Ukraine will have to get over the loss of Crimea as countries in Russia’s “near abroad” learn to be both more fearful of and more deferential to the Kremlin.
For many other nations and individuals around the world who have found shelter under the American security umbrella and found inspiration in a vision of an American-led international order that safeguards core liberties, the consequences will be tragic. Recent events in Syria offer a preview of what’s to come. As the Arab Spring erupted in late 2010 and 2011, Obama famously declared that Syrian leader Bashar al-Assad “must go.” But Putin had other ideas, and he was willing to act on them. He demonstrated that a nation Obama had dismissed as a “regional power” could use its military forces to defy the United States and help the Syrian leader consolidate his control.
This has been a horror for Syrians, and the millions of displaced people have had a major impact on neighboring countries and Europe. But did Obama, or, later, President Donald Trump, conclude that this outcome was so costly that it would be better to send large numbers of U.S. troops to fight and perhaps die in Syria? Can Americans sleep soundly in a world in which Putin and Assad now smile when they ask visitors who is gone and who is still standing? U.S. inaction speaks for itself.
Sadly, Americans will come to accept such outcomes as good enough—at least for the foreseeable future. Like Assad’s atrocities, Russia’s absorption of Crimea and China’s militarization of the South China Sea are now facts on the ground that no one will contest militarily.
Washington can shape other countries’ strategies through nonmilitary means.
Acknowledging that other powers have spheres of influence does not, of course, mean that the United States can do nothing. It is a reflection of the recent overmilitarization of U.S. foreign policy that restraint in the use of military force is often equated with acquiescence. Washington has other ways in which it can shape other countries’ calculations of costs and benefits: through the condemnation of unacceptable actions; the denial of legal status; the imposition of economic sanctions on countries, companies, and individuals; and support for local resisters. But such tools can rarely decisively alter a decision another power has made when interests it sees as vital are at stake. And it is worth remembering how often a refusal to recognize and accept realities on the ground in the shadow of other powers has led to major U.S. policy failures. From General Douglas MacArthur’s rush to the Chinese border during the Korean War (which triggered Chinese intervention and a bloody, inconclusive war) to George W. Bush’s insistence that NATO offer membership to Georgia and Ukraine (which led to Georgian overconfidence, ending in the country’s partial dismemberment by Russia), a stubborn disregard of brute facts has been counterproductive.
When it comes to doing what it can, Washington should focus above all on its alliances and partnerships. If China is destined to be “the biggest player in the history of the world,” as the longtime Singaporean leader Lee Kuan Yew once claimed, the United States must work to assemble allied powers who together will constitute a correlation of forces to which China will have to adjust.
This logic is most evident in the economic arena. Before the Trump administration ended U.S. participation in the Trans-Pacific Partnership, that trade agreement promised to bring together countries accounting for 40 percent of global GDP under a common set of rules on everything from tariffs to state-owned enterprises to labor and environmental standards—providing a counterweight to Chinese economic might that could have made Beijing a rule-taker rather than a rule-maker. Thanks to the efforts of Japanese Prime Minister Shinzo Abe, the TPP is now a reality—but without the United States. If American policymakers could find a way to allow strategic interests to trump politics, the United States could rejoin the TPP. If that new TPP were combined with the parallel trade agreement between the United States and the European Union that was being negotiated at the end of the Obama administration, nearly 70 percent of the world’s GDP could be on one side of the balance, versus China’s approximately 20 percent on the other.
Washington will need partners that bring more in assets than they introduce in risks.
In the military arena, the same logic applies, but with more complexity. Washington will need partners—but partners that bring more in assets than they introduce in risks. Unfortunately, few of the United States’ current allies meet this standard. The U.S. alliance system should be subjected to a zero-based analysis: every current ally and partner, from Pakistan, the Philippines, and Thailand to Latvia, Saudi Arabia, and Turkey, should be considered in terms of what it is doing to enhance U.S. security and well-being, and with what risks and costs. Alliances are not forever. Historically, when conditions have changed, particularly when a focal enemy has disappeared or balances of power have shifted dramatically, so, too, have other relationships among nations. Most Americans today have forgotten an era in which NATO had a counterpart in Asia, SEATO (the Southeast Asia Treaty Organization), and even an analogue in the Middle East, CENTO (the Central Treaty Organization); both of those are now artifacts in the museum of retired national interests. As Kennan noted, “There is more respect to be won . . . by a resolute and courageous liquidation of unsound positions than by the most stubborn pursuit of extravagant or unpromising objectives.”
To understand the risks entailed in the inheritance of current U.S. alliances, consider two scenarios U.S. defense planners worry about today. If, watching China’s suppression of protests in Hong Kong, Taiwan should make a dramatic move toward independence that leads China to react violently, would the United States go to war with China to preserve Taiwan’s status? Should it? On the European front, if in response to an uprising of ethnic Russian workers in Riga’s shipyards, the Latvian government cracked down on ethnic Russians and sparked Russia’s annexation of a swath of Latvia—Crimea 2.0—would NATO launch an immediate military response, in accordance with its Article 5 guarantee? Should it? If the answer to any of those questions is not a straightforward yes—and it is not—then the time has come for an alliance-focused version of the stress tests for banks used after the 2008 financial crisis.
Such an approach is all the more important given the realities of nuclear weapons in this new world. Both China and Russia have reliable second-strike nuclear capabilities—that is, the ability to withstand an initial nuclear attack and conduct a retaliatory strike that could destroy the United States. Accordingly, not only is nuclear war not a viable option; even a conventional war that could escalate to nuclear war risks catastrophe. Competition must thus be tempered by caution, constraints, and careful calculations in risk taking. For a nation that has accumulated a long list of entanglements with nations that may have, or may imagine they have, a blank check from Washington, this creates a big problem. The line between reassuring an ally and emboldening its leadership to act recklessly is a fine one.
If the balance of military power in a conventional war over Taiwan or the Baltics has shifted decisively in China’s and Russia’s favor, current U.S. commitments are not sustainable. The gap between those commitments and the United States’ actual military capabilities is a classic case of overstretch. What a zero-based assessment would mean for the current alliance system, and for U.S. relations with each of more than 50 treaty allies and partners, should emerge as a result of an analysis of the evidence. But it would likely lead the United States to shed some allies, double down on others whose assets are as important for U.S. security as U.S. assets are for them, and radically revise the terms of each commitment to make obligations and restraints as prominent as reassurances and guarantees.
This process would also enhance the credibility of the commitments that the United States chose to renew. While the veterans of the Cold War rightly claim that NATO has been the greatest alliance in the history of the world, neither Trump nor Obama before him was convinced. Tellingly, American military commanders doubted that the North Atlantic Council would authorize a military response to the Russian annexation of Crimea or that the U.S. government would be able to make a decision about how to respond before the event was over. Rethinking the United States’ commitments to its allies would enhance American security and make these same pacts stronger.
Strategy is the purposeful alignment of means and ends. Among the many ways in which a strategy fails, the two most common are mismatch—when the means an actor can organize and sustain are insufficient to achieve the stated ends—and vision blindness, when an actor is mesmerized by an ideal but unachievable end. The United States’ twenty-first-century wars in the Middle East offer vivid examples of both.
Going forward, U.S. policymakers will have to abandon unattainable aspirations for the worlds they dreamed of and accept the fact that spheres of influence will remain a central feature of geopolitics. That acceptance will inevitably be a protracted, confusing, and wrenching process. Yet it could also bring a wave of strategic creativity—an opportunity for nothing less than a fundamental rethinking of the conceptual arsenal of U.S. national security.
The basic view of the United States’ role in the world held by most of today’s foreign-policy makers was imprinted in the quarter century that followed the U.S. victory in the Cold War. That world is now gone. The consequences are as profound as those that Americans confronted in the late 1940s. Accordingly, it is worth remembering how long it took individuals now revered as “wise men” to understand the world they faced. Nearly five years passed between Kennan’s “Long Telegram,” an early warning of Cold War competition, and the policy paper NSC-68, which finally laid out a comprehensive strategy. The confusion that reigns in the U.S. foreign policy community today should thus not be a cause for alarm. If it took the great strategists of the Cold War nearly five years to forge a basic approach, it would be beyond hubris to expect this generation to do better.