Arvind Subramanian

Almost a decade ago, China bulls like Martin Jacques and I predicted the rise of the People’s Republic at the expense of a declining United States. Today, with the two superpowers unabashedly jostling for hegemony – their trade war being just one sign of this – it is time for a fresh assessment. It is tempting to view the US-China rivalry as just another superpower transition in a long line going back to the classical shift of power from Athens to Sparta. But this case is different.

Predictions
Traditionally, a strong rising power has challenged a weakening incumbent, making the outcome preordained. The only question was whether the transition would be peaceful or violent. This question also applies to the US-China struggle. But the outcome is far from inevitable, because the powers of both the aspirant and the incumbent are eroding – albeit in different ways. Let’s start with the more obvious case of America. Previous predictions of US decline were based on unfavourable domestic economic and social trends such as slowing productivity growth, declining social mobility, and worsening income inequality.
In recent years, however, America has faced the additional problem of a precipitous decline in its soft power, which Joseph Nye defined as a country’s ability to get others to want what it wants. Today, that soft-power currency, more valuable than the dollar itself as a source of US hegemony, has been debased beyond recognition. US global leadership is now associated with disastrous wars, repudiation of the collective commitment to address climate change, sabotage of the global trading system, and unravelling international security arrangements.
In addition, America has damaged its own political institutions. It currently has an erratic and unbalanced president, a gerrymandered Congress, a politicised Supreme Court, and a system of rulemaking rigged by the elite. Now, they have become an object of mockery, while the 2008 global financial crisis similarly tarnished the American model of finance-driven, winner-take-all capitalism. Moreover, whoever wins the 2020 presidential election will find it hard to restore the lustre of US political and economic institutions, owing to America’s deep polarisation and entrenchment rather than attenuation of adverse economic trends.
What about China? If the Chinese economy remains on track, it will challenge US economic supremacy in the medium term. However, the risks of a Chinese economic derailment have increased, as domestic debt has climbed to vertiginous and unsustainable levels while export opportunities have shrunk. Perhaps most worryingly, Chinese President Xi Jinping has – bizarrely – turned away from the private sector-led growth model that served as the country’s transformational golden goose for over four decades. As a result, China’s economic prospects seem far less bright than they did a few years ago.
Its hegemonic rise has always been hobbled by a lack of soft power. In an attempt to rectify that deficiency, China launched the Belt and Road Initiative (BRI) to promote the international transfer of its impressive expertise in building infrastructure effectively and expeditiously.

Rivalry
China established the Asian Infrastructure Investment Bank to challenge international financial institutions that it regards as increasingly discredited by out-dated governance mechanisms. As if to reinforce that view, the US and Europe have yet again asserted their monopoly on control of the World Bank and International Monetary Fund, respectively, through an undemocratic process that was established 75 years ago. Although there have been no formal objections to the recent changes of leadership at both institutions, this has not gone unnoticed in the rest of the world.

(Subramanian, a former chief economic adviser to the government of India, is a non-resident senior fellow at the Peterson Institute for International Economics.)
--Project Syndicate