The Optimist

Red Dawn

Why the United States should embrace, not fear, China's economic rise.

Henry Kissinger's 2001 book Does America Need a Foreign Policy? opens with the observation that "[a]t the dawn of the new millennium, the United States is enjoying a preeminence unrivaled by even the greatest empires of the past. From weaponry to entrepreneurship, from science to technology, from higher education to popular culture, America exercises an unparalleled ascendancy around the globe." One decade, two military quagmires, and an economic meltdown later, few authors would venture such a presumption -- not least Kissinger, whose most recent tome reflects the obsession of those who have come to realize that the post-Cold War world is not so unipolar after all. It's called On China.

But for all the urgent attention paid to China in recent years, we might actually be underestimating how fast the world has already changed. This is the argument that Arvind Subramanian advances in Eclipse, his new book on the Sino-American balance of power. "The economic dominance of China relative to the United States is more imminent (it may already have begun), will be more broad-based … and could be as large in magnitude in the next 20 years as that of the United Kingdom in the halcyon days of empire or the United States in the aftermath of World War II," he suggests. Subramanian, an economist at the Peterson Institute for International Economics (and also a part-time colleague of mine at the Center for Global Development), notes that by 2010 China had overtaken the United States as the world's largest economy in terms of purchasing power parity (a measure that accounts for the fact that many goods are cheaper in the developing world).

Historically, there has been far more to global power than brute output statistics, of course. In 1870, when Britain was undoubtedly the world's top dog, it accounted for 9 percent of global output. But the economy of the United States, still a geopolitical start-up and barely through its catastrophic Civil War at the time, was already almost the same size -- and China's share was nearly the size of Britain's and America's combined, amounting to 17 percent of global output. And remarkably, this was at the beginning of a period roundly considered to be China's historical nadir: Twelve years earlier, China had signed the Treaty of Tientsin, a humiliating ending to a war with Britain that forced the Middle Kingdom to open its borders to foreign goods, accelerating a decline that eventually earned China the pitying epithet "the sick man of Asia." Indeed, China has been the world's largest economy -- though not its richest -- for most of the last 500 years, according to data from late economist Angus Maddison, who collected historical statistics on the global economy for the OECD.

But the 21st century is not the 19th -- China's place in the world and the nature of its power are quite different. Not least, China's growing prominence extends beyond simple measures of output. While the United States and the European Union each had shares of world trade more than four times larger than China's as recently as 2000, by 2010, their shares were all within a percentage point of each other (and China had overtaken the European Union). In 2000, China accounted for only 4 percent of world net capital exports; by 2010, it had climbed to 18 percent.

And when it comes to the technological and educational underpinnings of modern growth, while the United States is still far ahead, China is fast gaining. The World Intellectual Property Organization reports that U.S. filings under the Patent Cooperation Treaty dropped from 51,000 to 45,000 between 2006 and 2010. Over the same period, China's international patent filings tripled from under 4,000 to over 12,000. According to Subramanian, in 2006 China was producing twice as many science and engineering graduates as the United States, and by 2008 the United States' lead in peer-reviewed scientific article publications had shrunk by more than half from the sixfold advantage it enjoyed in 2002.

By 2030, Subramanian predicts, China is likely to account for about a quarter of world GDP compared with America's 12 percent, and 15 to 20 percent of world trade compared with 7 percent each for the United States and the European Union. China's share of global trade and GDP will look similar to those for the United States in 1950, and its net capital exports share similar to America's in 1973.

But if the world is underestimating the accelerating speed of China's rise, Subramanian's analysis also suggests that we're overestimating the problems that an economically ascendant China will impose on the rest of us. The country's rise, he points out, has been intimately connected with globalization, including the expansion of trade under the World Trade Organization (WTO) umbrella as well as growing cross-border flows of finance and technology. In 1820, during the last period in which China was the world's economic heavyweight -- and a fiercely isolationist one -- exports accounted for 1 percent of global GDP and considerably less than 1 percent of China's economy. In 2008, the same statistics were 29 percent for the world and 35 percent for China. China is already a far more globally integrated economy than either Britain or the United States was in their respective heydays. In 1870, exports accounted for only 12 percent of Britain's output. In 1975, they accounted for a mere 7 percent of the U.S. economy. The same percentages for imports were 7 percent for the United States in 1975 and 25 percent for China in 2008. And the fact that much of today's trade is part of multicountry production processes for goods makes China even more bound to an open global economic system than the raw numbers would suggest.

Furthermore, China will become the dominant economic power in a period where the international trading regime appears likely to have weathered the threat of a retreat behind tariff walls that doomed the last great period of globalization during the Great Depression. And it will do so as an economy still benefiting from "catch-up growth" -- the low-hanging economic fruit that China, as a poorer country, can grab by adopting innovations already widely used in richer countries -- which, because it involves exploiting technologies and processes developed in those rich countries, demands a level of openness to the world. Both of these points suggest that China will remain a fair-dealing member of the WTO out of self-interest. Certainly, it is an active one. In 2009, half of the WTO disputes filed involved China on one side or the other. Most are still working their way through the settlement process, so it is too early to say with certainty how law-abiding China will be; nonetheless, Subramanian notes that the WTO has been a powerful mechanism for controlling the bullying instincts of economic heavyweights in the past. The United States, for example, has been subject to complaints in 88 WTO disputes, leading to findings of 33 violations, and the United States has complied or is complying in 26 cases.

Meanwhile, China's rise -- and the United States' concomitant decline -- is likely to increase the likelihood of the renminbi becoming a global reserve currency, a prospect that economic prognosticators have begun to consider with some seriousness since the 2008 economic crisis. But if anything, this shift -- if it happens -- is likely to mitigate some aspects of China's role in the global economy that the rest of the world finds most problematic. As Subramanian notes, China will have to develop financial markets that are deep, liquid, and open to foreigners. At the moment, the country's capital market is closed, the renminbi is undervalued and not fully convertible, and domestic financial markets are rudimentary. At the same time, there are signs that the government is responding to some of these challenges, for example by issuing 6 billion renminbi-denominated sovereign bonds to offshore investors in Hong Kong in 2009. And further steps in that direction would increase the export competitiveness of the rest of the world's goods as well as create an exciting investment opportunity for those few in the rich world still actually saving money.

In short, China will be a different kind of global power because the nature of global power has changed dramatically over the past two centuries. Geographical domination is no longer necessary; today a considerable part of power does not even involve physical goods, let alone land, but rather is tied up in finance, technologies, and services. Just as the United States demonstrated in its eclipse of Britain that a sovereign empire wasn't needed to dominate the world economy, China may not need even the military strength that the United States exercised for the last 50 years to remain preeminent. And China's reliance on global trade and financial links, underpinned neither by force of arms nor sovereign control, means the newly dominant power has considerable self-interest in maintaining multilateralism.

That suggests the more China embraces its role as economic heavyweight in an integrated world, the better for the rest of the world -- and perhaps in particular the United States -- in terms of national security and economic opportunity. Even for Americans who fear the rise of China, then, the best advice is to embrace the inevitable.


The Optimist

Cloudy with a Chance of Insurgency

Does extreme weather cause war? Don't count on it.

As the East Coast of the United States was pounded by a hurricane over the weekend, mere days after an earthquake had cracked monuments and upset lawn furniture from Virginia Beach to Baltimore, Mother Nature was once again front-page news across the country. So it was fortuitous that last week's issue of the scientific journal Nature included a much-talked-about article linking the wrath of nature to the wrath of man. "Climate Shifts Cause War" and "First Proof that Climate Is a Trigger for Conflict," the headlines suggested.

In the paper, Princeton University researcher Solomon Hsiang and colleagues argue -- as paraphrased by a Nature news article -- that "tropical countries face double the risk of armed conflict and civil war breaking out during warm, dry El Niño years than during the cooler La Niña phase." El Niño and La Niña (collectively known as ENSO, for the El Niño Southern Oscillation) are the warm and cool parts of the variation in temperatures that occurs every few years in the Pacific Ocean. In different parts of the tropics, El Niño can cause conditions ranging from floods to droughts -- in turn potentially linked to lower agricultural output and other risks. Hsiang and his co-authors looked at data on the timing of ENSO and civil conflict in the tropics and concluded that as many as one in five civil wars worldwide over the last 60 years may be related to El Niño.

Given that climate change is likely to be associated with warmer, drier tropical regions, the study's findings led numerous commentators to warn that the world's future could be increasingly violent. Thankfully, the study -- for all its careful design and academic interest -- provides little evidence that human-induced climate change will have any such effect. The nature of the relationship between the weather and violence in the past remains open to question, and the study itself suggests reasons why we'd expect any impact to decline in the future.

The paper is the latest in a line that has linked climate with violence. The Malleus Maleficarum, a 15th century Catholic treatise on witchcraft, has a whole chapter on how witches "Raise and Stir up Hailstorms and Tempests, and Cause Lightning to Blast both Men and Beasts," as economist Emily Oster notes in her study of the link between bad weather and witch burnings. During the Little Ice Age in the mid-centuries of the last millennium, witch burnings increased as the climate got cooler; as many as 1 million people were killed. In 2007, University of Hong Kong geographer David Zhang and colleagues from around the world looked at data covering global temperatures and warfare dating from 1400 to 1900 and estimated that the number of wars worldwide per year was almost twice as high in cold centuries as it was in warm centuries. This was, they suggested, because cold weather caused declining food yields and rising food prices, which brought with them famine and political instability.

Further south, the usual concern is with heat and drought rather than cold and overcast weather, so the plausible relationship between climate and warfare is different. In 2009, University of California, Berkeley, economist Marshall Burke and colleagues looked at temperature and conflict data from Africa and found a positive association between warmth and war. They went as far as to argue, "When combined with climate model projections of future temperature trends, this historical response to temperature suggests a roughly 54% increase in armed conflict incidence by 2030, or an additional 393,000 battle deaths if future wars are as deadly as recent wars."

But is the relationship between climate and violence really that clear? First off, even when rainfall and temperature patterns were directly included in Hsiang and colleague's statistical analysis, the association between El Niño years and civil violence remained. In other words, whatever the impact of El Niño on violence, it apparently isn't connected to its effect on precipitation levels or high temperatures in tropical countries. Perhaps, the paper suggests, El Niño's impact on violence is due to the timing of the rainfall, or altered wind patterns, or humidity, or cloud cover -- but those theories are (so far) untested.

And these results regarding temperature and precipitation should come as no surprise given earlier studies on the climate-conflict link. In 2010, Halvard Buhaug, a researcher at the Peace Research Institute Oslo, re-examined Burke's earlier study of weather and war in Africa and concluded that it didn't stand up to further scrutiny. With more data, he argued, the link between rainfall, temperature, and violence disappeared -- a point accepted by Burke and his colleagues.

Second, Hsiang and his co-authors are careful to clarify that they don't think El Niño caused warfare, but rather that it was a contributing factor -- that in many cases, conflicts that would have broken out anyway may have occurred earlier owing to the effects of the El Niño cycle. That fits with the conclusions of a 2008 review of the evidence linking climate to conflict in the Journal of Peace Research, which suggested that any link is contingent on a range of factors from governance through wealth to land-use patterns and "claims of environmental determinism leading seamlessly from climate change to open warfare are suspect."

Indeed, saying the weather is responsible for civil war is like saying drought is responsible for famine. At most, weather can be an additional stressor to an environment already made combustible by human activities. For example, experts on the Shining Path insurgency in Peru or the Sudanese conflict might be surprised at the idea that these two conflicts are seen as prime examples of the impact of Pacific weather patterns on civil war, given that both have a whole range of causes (including poverty, twisted ideology, and a cruel and incompetent government and military response in the case of the Shining Path).

The considerable limits to climate determinism are clear from the ENSO paper itself. One way of understanding the results is to look at the risks to peace associated with El Niño. Between 1950 and 2004, the chance that a conflict did not begin in any given year in any country was 97 percent, according to the data. Take the results of the paper at face value: For countries affected by El Niño, a 1-degree Celsius rise in El Niño-related temperatures decreased the probability that a conflict didn't begin to 95.5 percent. Even if there is a link, there is a lot more to explaining war and peace than the weather -- not least, those 95 cases out of 100 in which nothing happened.

And in fact, Hsiang and colleague's paper contains some good news about our warmer future related to that other 95 percent: First, it suggests that the effect of El Niño on warfare declines as countries get richer. So Africa's last decade of rapid growth (with agriculture's share of the region's GDP falling from 22 to 13 percent between 1967 and 2009) should mute any future impact of climate on violence. In fact, temperatures may have been consistently hotter than average since 1990 in Africa, and precipitation consistently lower, but there has still been a drop-off in the number of civil wars ongoing since the mid-1990s and a dramatic fall in war deaths since that time.

Second, the analysis points to the relative importance of factors like geopolitics in explaining the outbreak of violence. The second-highest risk of civil war between 1950 and 2004, according to the paper, was in 1989 -- a La Niña year -- part of a dramatic peak in war risk that continued until 1994, and has gone unmatched before or since. That speaks to the impact of the end of the Cold War on civil conflict. The good news is that in the period since the mid-1990s, conflict risk has been on the decline as global cooperation to settle disputes has been on the rise. Even if climate cycles are a short-term influence on conflict, the long-term trends are dominated by factors other than the weather. The argument that we should reduce greenhouse gas emissions to slow climate change is beyond reasonable dispute -- but that it will make for a more pacific world is yet to be demonstrated.

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