Chapter IX power, Wealth and Interdependence in an Era of Advanced Globalization

TABLE IX.9 Projecting U.S. and Chinese Power

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TABLE IX.9

Projecting U.S. and Chinese Power⁶¹
2013 2033
Real GDP PPP (2013 $)
US $16 trillion $26.2 trillion
China $10 trillion $32.0 trillion

% World GDP
US 22.8% 18.7%
China 14.2% 22.8%

Military Spending
U.S. $618.7 billion $1.15 trillion
China $171.4 billion $1.12 trillion

There is considerable value in examining different assumptions as the basis for making projections. What are the consequences of making alternative assumptions?

TABLE IX.10
Projecting U.S. and Chinese Power
Alternative Scenario
2013 2033
Real GDP PPP (2013 $)
US (1.5-3.5% $16 trillion $21.5 - $31.8 trillion
China (3%-5%) $10 trillion⁶² $18.1 - $25.5 trillion
% World GDP
US 22.8% 15.3% - 22.7%
China 14.2% 12.9% - 18.2%
Military Spending
US (3.5% GDP) $618 billion $ .946 – $1.4 trillion
China $157.6 billion $ .633 - .893trillion

These calculations show the substantial variance that can result from making seemingly small changes in assumptions. But the conclusion from this data, where we have the highest confidence, is the unlikely outcome of either U.S. or Chinese dominance. If we accept the combination of the most favorable U.S. scenario with the most unfavorable China scenario, the result is a replication of GDP and military spending and proportion of global GDP similar to the present. To the extent the U.S. is dominant today, we can expect that to continue into the future. But this scenario combination is exceedingly unlikely and would require dramatic and long-term shifts from present trends. Nonetheless, this outcome is not impossible. The most pessimistic growth rates for China – 3% - are much higher than growth rates for Japan from 1990-2012 – about 1%. The assumed high range growth rate for the U.S. – 3.5% - is probably the least likely, but not inconceivable. What makes this scenario most improbable is the combination of two low probability events: high U.S. growth and low Chinese growth.

The combination of the most favorable growth rates: for China – 7% - and least favorable for the U.S. – 1.5% - creates a scenario is only slightly more likely. Here the result is wide Chinese advantages in GDP, global proportion of GDP and military spending. This scenario comes close to simply projecting recent trends across the next two decades. Though this is not impossible, there are good reasons not to expect this to happen. Most important, rapid Chinese growth will be difficult to achieve without at least significant U.S. growth. This makes the combination of high Chinese growth and exceptionally low U.S. growth a low probability outcome. But even here, can we impute Chinese dominance to a situation where the U.S. is spending nearly $1 trillion on defense?
The most likely outcome is a world in which China’s GDP is larger than that of the U.S. by about 25%, with a per capita income less than one-half that of the U.S., and with military spending roughly equal to the U.S. China will likely have closed part of the technology gap with the U.S. but a significant difference in economic and military capability favoring the U.S. will likely persist. China will certainly have risen, but it will not be dominant. A much more probable outcome is a rough equality of capability, with each nation enjoying advantages in some areas and also dealing with important areas of disadvantage as well. Moreover, several other nations will possess significant global economic power, including Germany, Japan Britain, and India, and perhaps Brazil and Russia. Economic capabilities will likely be even more widely distributed across many states, which will possess a variety of specializations that feed into global production systems and global innovation systems. With no nation possessing more than one-quarter of global GDP, the world of 2033 will be multipolar in terms of the distribution of power resources. If we use this conclusion as a baseline for analysis, what are the consequences for global power relations, conflict and peace?

Power, Wealth and Conflict
The wealth of nations and the power relations among them are closely related and in constant flux. Growth rates through time vary considerably and power capabilities typically mirror these changes. Somewhat more unusual are persistent variations among the largest nations that lead to significant shifts in the economic, military and political capabilities affecting global systems. In the past two centuries, we have witnessed several such transformations. Between about 1800 and 1850, Great Britain emerged as the nation with the greatest economic and military power and stood as a hegemonic force in global affairs. Between 1870 and 1945, three nations – Germany, the United States and Japan – grew rapidly and achieved positions of great global power. Horrific wars were part of this global shift and from this the United States emerged as hegemonic. Though the Soviet Union seemed for a time to challenge the U.S., by the mid-1980s the U.S. stood alone as the dominant state. Over the past 20 years, the growth of China has transformed this nation from economic and military insignificance into a new potential challenger to the U.S.
China is an exceptional case of a rising state; the only really comparable example is the United States from about 1870-1950. The combination of rapidly rising wealth, large geographic size and large population is very unusual. A similar situation is the rising Soviet Union from 1935-1975. But in some important respects China is unique. Its population, at about 17% of world population, is much greater than for the U.S. or Soviets. The rate of growth in its economy also exceeds that of any large state in history, propelling China from desperate poverty to moderate wealth in three decades. In one other sense is China unique. Neither the U.S. nor Soviet Union were deeply connected to the global economy during the period of rapid growth; China has rapidly deepened its connection to the global economy and in some respects is as globally integrated as any other nation. Finally China has reached a point where it has begun to close the absolute gap in its economy with the U.S. At 7% growth, China adds $700 billion to its productive wealth each year; at 2% growth, the United States adds $320 billion in productive wealth each year.
Scholars have devoted considerable attention to this process of rise and fall, developing theories and examining evidence designed to understand the political implications of economic change.
“Of the various international relations theories, power transition theory is probably the most widely used by scholars seeking to better understand the likely dynamics and consequences of the rise of China in the contemporary global systems”⁶³
The theory of power transitions focuses on the shift from one hegemon in relative decline to another hegemon in relative expansion and the effects of this transition on the potential for war and peace. The theory makes somewhat specific predictions concerning the circumstances in which the process of transition is likely to lead to war or intensified conflict.⁶⁴
The essential proposition of power transition theory is the process of a rising power overtaking a declining hegemon creates considerable potential for conflict and war, especially if the rising power is very dissatisfied with the nature of the global system created by the incumbent hegemon.⁶⁵ In these circumstances, conflict and even war are seen to arise in several ways. The rising power, with expectations for gains from creating a new global system based on its preferences, acts to hasten this through war against the hegemonic state in decline. By contrast, another path to war comes from the declining hegemon acting to initiate preventive war while it still retains an advantage. This outcome is tempered and even eliminated should the rising state and declining hegemon share common values and similar preferences for the nature of international order.
It is not difficult to find cases that correspond to the situations described by power transition theory. The aforementioned cases of rising powers in Germany, Japan and the United States present trajectories that seem to correspond to the basic facts of power transition theory. The rise of the U.S. to economic preeminence between 1880-1940 did not result in a war between the U.S. and Great Britain, presumably because these nations held very consistent preferences for the nature of global political economy. By contrast, the rise of Germany from 1870-1940 and of Japan from 1900-1940 did result in global war provoked in large part by these nations. Germany initiated war against Britain and its allies twice between 1914 and 1939 in a reach for global dominance and as a way to overturning the British-American global order. Japan initiated war against the United States in 1941 hoping to achieve regional dominance in Asia and thereby create a Japanese economic zone to match that of the United States.⁶⁶ Importantly, neither Germany nor Japan at the point of initiating war had achieved parity with their adversaries, especially the coalition of states allied with their adversaries. Rather, both Germany and Japan saw war and conquest as the means to achieving parity or even superiority against those adversaries.
Power transition theory provides an important framework and set of propositions for thinking about exceptionally powerful rising and falling states. At the same time, there is considerable ambiguity about the circumstances that lead to war during the process of power transition.⁶⁷ At what point does a rising state initiate war: To hasten the shift in power as it approaches parity with the hegemon or after it has already achieved dominance? How do we know a priori whether a rising state is satisfied or dissatisfied? Do characteristics of global weapons systems affect the calculations of costs and benefits of war? For example, is it reasonable for power transition theorists (and neorealists) to discount the role of nuclear weapons in affecting the calculations relating to war? Can we imagine a set of circumstances where Chinese and U.S. leaders would opt for a nuclear war as a rational act?
Perhaps most important, power transition theory makes assumptions about the incentives for war that are too simple, ignoring too much the role of economic interdependence in generating reasons for avoiding war and discounting the role of nuclear weapons. And finally, the theory fails to consider how relationships within one region, such as among China, the U.S. and other Asian states can influence outcomes in the broader global system. A resolution of potential hostilities in East and Southeast Asia, or the breakdown into war, can affect significantly the global relationship of China and the U.S.
Too much of the thinking about this process comes from simple calculations of power relationships defined too narrowly, and with incentives defined by judgments of gains from military conflict. Far too little of the analysis examines the calculations based on the multiple and complex dimensions of global systems, from complex conceptions of power relationships and from the gains and losses from the many interactions other than military conflict.⁶⁸ These arrangements generate an array of very important incentives affecting national calculations. To its credit, power transition theory does acknowledge the degree to which a rising power is satisfied with the system, but gives little guidance as to where this comes from or how to integrate this into calculations based on traditional power relations. Dividing states into satisfied and dissatisfied is too simple and offers little guidance as to how we judge China in the present and over the next several decades. We have indications of satisfaction-dissatisfaction as being the result of the level of congruence of political economies of the various states, a version of the democratic peace theory.
So the really important question is whether China could become so dissatisfied as to engage in war or the risk of war to change that system. Is the power relationship with the U.S the only calculation that will affect this judgment? Could China design a military strategy that would permit it to defeat the U.S. and all its allies, and then redesign a global system in China’s own image? Are the power relationships among the various states such that chances for success for this kind of global strategy can be high? Perhaps most important, does the vast global structure of institutions and economic interdependence affect the decisions of states to initiate war in order to resolve conflicts?
Expectations of a Conflict-Prone World
Closely related to the analysis of power transition theory are the ideas of traditional realist and neorealist scholars, who generally find the coming era of power shifts to be ominously one of rising conflict. Two important thinkers providing such an analysis are Aaron Friedberg and John Mearsheimer. Friedberg sees the U.S. and China locked in an “increasingly intense struggle for power and influence” driven by the confluence of a power shift from a democratic dominant state to an authoritarian rising state.⁶⁹ A rising state, like China, will reject and resist the existing international order created by the dominant hegemon, like the United States. Further, as China’s power grows relative to that if the United States, its leaders will expansively define China’s interests to include a much larger influence over Asia and over access to vital resources around the world. These efforts will likely meet resistance from the established power, and nations have historically settled such conflicts with force. Adding to the conflict and inhibiting the creation of trust that might ameliorate the differences is the liberal democratic political order of the United States and the authoritarian political order of China. U.S. leaders fear the aggressive potential of an authoritarian state and Chinese leaders fear the aggressive U.S. efforts to contain and remove their regime. Friedberg believes that best chance for reducing conflict between China and the U.S. is a regime change to a democratic China.
John Mearsheimer seconds Friedberg’s worries with the view that power shifts favoring China and unfavorable to the U.S. will create a significant potential for rising conflict, predicting that “China cannot rise peacefully”.⁷⁰ This is because the nature of international politics – with no international government or police to maintain peace - leads nations in a rising-falling relationship to distrust each other, work to build offsetting military force, see even the defensive actions of each other as adversarial and threatening, and develop goals consonant with their respective power positions. The critical factor will be a Chinese effort to achieve regional dominance, which requires the United States as the current dominant power in Asia to give way. That, according to Mearsheimer, cannot happen peacefully. Discounting the importance of political differences and of economic interdependence, Mearsheimer forecasts a bleak future, especially as the Chinese military begins to achieve parity with the U.S.
An especially strong and important counter to the pessimism of these realist scholars comes from other realists who focus on the revolution in military relationships brought on by nuclear weapons. Robert Jervis has stated the conclusions of many when he asserts that the combination of society-killing destruction from nuclear weapons and the inability to defend against their use makes war among heavily armed nuclear states very difficult to imagine.⁷¹ The high level of conflict between the United States and the Soviet Union during the Cold War did not lead to actual war between these nations. This can be attributed in part to the restraining effect of nuclear weapons. Both the United States and China possess nuclear weapons and each nation is able to inflict horrific damage on the other. The United States possesses by far the larger and more sophisticated system of nuclear weapons and delivery systems. Nonetheless, China’s nuclear capabilities are more than sufficient to provide an effective deterrent against nuclear attack, even by the United States.⁷² Such capabilities provide a major barrier to war, because even in a conventional conflict the risk of escalation to nuclear war is significant and operates to prevent one nuclear nation from much more than minimal risk taking.

V. Global Interdependence, Power and Conflict
An examination of global economic systems can provide a more complete understanding the broader array of incentives affecting the way national leaders assess their international environments and the calculations relating to strategy and war. Nearly four decades ago, in the early days of the current wave of globalization, scholars began to reformulate many of these concerns in terms of the relationship of power and rising global interdependence.⁷³ At that time, the ties among nations were overwhelmingly concentrated in already wealthy nations. What we think of today as emerging economies, in nations like Korea, Taiwan and especially China and India, were just a small feature of the reality of interdependence at that time. Can the nature of global economy, especially the complexity and depth of interdependence among nations, affect the outcome of the rise of China?
Scholars have long and often examined the impact of economic exchange on the propensity for international conflict, but have not agreed on just what about economic exchange affects the chances for war, nor how this happens. Open markets, high levels of exchange, foreign investment, contact and communication, and achieving the gains from trade all in some fashion contribute to interdependence and create a set of incentives to those engaged in these activities to prefer peace over war. Some of the assertions claim that economic interdependence influences mainly those actors directly engaged in economic exchange, who then must influence national decision makers regarding conflict and war. This strongly suggests that some form of democracy is a necessary condition for interdependence to constrain conflict. But some propose that interdependence affects national choices and policymakers more directly by changing the strategic incentives relating to choices about war and peace. Many scholars see the need to include the effects of the system of global institutions and shared assumptions held by global political and economic elites, both of which can serve to reinforce or undermine the effects of economic interdependence. Finally, understanding the impact of interdependence on conflict is not likely to hold under all circumstances and time periods. Spelling out when, where and why this happens is vital to judging the role of interdependence on conflict in the 21^st century in a situation of shifting power relationships.⁷⁴
For our discussion, we will focus on interdependence as a type of complex global system, with a number of interacting elements that change through time. Trade has an important impact on interdependence, not just from the volume of trade but also from the structural connections associated with product development, production and distribution on a global scale. But, interdependence is more – much more – than trade. It also includes financial flows and holding of foreign currency, ownership and investment patterns, and knowledge, innovation and technology capabilities and flows. Interdependence also includes the norms and institutions created to facilitate and enhance global political and economic interactions. The working assumptions about global relations – often shared by leaders and elites across many nations – deeply affect and frame issues and options.⁷⁵ And finally, interdependence includes the feedback relationships among the various elements of interdependence – the system effects that reinforce arrangements through increasing returns, or that can reduce or nullify connections through decreasing returns. This means we must consider whether the elements of interdependence are reinforcing each other or whether these elements neutralize each other.
Thus, interdependence is best understood as a complex system with multiple components involved in dynamic relationships that generate differentiated incentives for states over time. What are the characteristics of global interdependence that are likely to have the largest impact on national decisions about conflict and war? We should expect complex interdependence to generate strong and consistent incentives against military conflict and in favor of cooperation when this entire combination of systemic characteristics is present:
Economic relationships among nations are defined by multiple layers of differentiated but reinforcing forms of interaction, including trade, investment, knowledge flows, and strongly complementary and globalized systems of specialization and innovation.
Institutions and norms relating to the global economy are strongly and consistently biased toward cooperation to achieve mutual gains; norms and institutions relating to global security are consistent with and reinforce cooperative gains and discourage efforts to achieve unilateral relative gains.
Feedback relationships between economic exchange and institutions/norms are positive.
This argument identifies a large number of variables that could potentially compose a system of interdependence. However, we can hypothesize that certain values for these variables tend to correlate and cohere as a result of various forms of feedback and thereby produce a typology of systems of global interdependence. For purposes of example, we can define variation in global systems of interdependence that generate three types corresponding to the historical system of 1813, 1913 and 2013.⁷⁶ How are these systems of interdependence different and how do they influence war and international conflict?⁷⁷

FIGURE IX.3

Global Systems of Interdependence

1813, 1913, 2013
Economic Exchange Institutions/Norms Feedback
1813

Shallow and simple Informal Institutions Low and

interdependence Strong Security Norms Negative
1913

Extensive and shallow Strong expectations Positive

Interdependence for economic and military

conflict

2013

Complex, deep, distributed Strong & Mutually Strong

interdependence Reinforcing for Positive

Cooperation

AU: Place next section with a different font in a text box

1813

The system of 1813-1820 was based on new thinking about the nature of international relations and the value of defining regular procedures and forums for resolving international conflicts through the norms of political concert, equilibrium, and mutual restraint on the use of military power to achieve gains. Perhaps most important for this era was the emergence of systemic thinking in relation to international security, which provided a normative and political base for interdependence.⁷⁸

In contrast to the new thinking in political relations, economic interdependence in 1813 was based on trade embedded in mercantilist and protectionist behaviors and norms. This meant the effects of economic interdependence were small but did not reinforce the emerging thinking regarding the need for managing the security relations of Europe. Though interdependence was shallow and had limited effects, these norms and behaviors provided negative feedback in relation to the much stronger security regime norms. Overall, interdependence in 1813 was mixed though successful in limiting the use of military force among the great powers for at least the next forty and perhaps one hundred years.

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