America and China, the two largest economies with two very different ways of governing. Our American Democracy and their Dictatorship. Some American analysts believe China is considered near our strength in economic power. However, this view is incorrect as America holds its supreme advantage. Our Growth Domestic Product (GDP) is near twice as large as China’s. With our allies, we dominate global commerce and control much of China’s output, especially in advanced technologies. The Trump Administration has leverage to execute a broad economic cutoff with its allies, causing substantial damage to China with minimal long-term impact on the U.S.
China is not as powerful as many portray, mainly due to how they manipulate their statistics. Official statistics suggest China’s GDP is a little under $20 trillion. Alternative metrics indicate its far less. Using satellite images reveal less light concentration than expected, suggesting China’s GDP is overstated by around a third. This would mean China’s GDP is only about half the size of the US. China's official GDP statistics have poor credibility, noting that much of China’s growth is driven by unproductive investment, such as high housing vacancy rates and underutilized infrastructure projects. Many examples would be what has been named "Ghost Cities" with unfilled apartment complexes and a lack of population within said cities.
Moreover, the economic output of China is often not under its control. Production in complex industries like semiconductors and jet aircraft is made globally. Multinational corporations, especially based in America and our allies, wield significant influence. U.S. firms produce 38% of global profits, while the Chinese have just 16%. We lead in high-tech sectors, and much of China’s advanced manufacturing is designed and controlled by foreign powers, being completely reliant on us and others.
So far, Washington's attempts to cut off China have been targeted, focusing on technology restrictions. To understand the impact of a broader economic cutoff, various scenarios were modeled, considering factors like Taiwan's status and the extent of trade disruptions. The findings indicate that China would suffer disproportionately, with short-term economic disruptions significantly larger than those in the United States. A distant naval blockade scenario, for instance, would disrupt nearly 40% of China's GDP compared to just 3.6% of U.S. GDP. Long-term consequences reveal that while the U.S. and its allies would return to baseline growth, China's economic trajectory would permanently decline due to its reliance on foreign firms producing goods within its borders.
American firms and those of U.S. allies operating in China are already diversifying. A wartime economic cutoff would hasten this process, negating concerns over competitive disadvantages. Former President Biden's "small yard, high fence" strategy sought to curtail economic interchange with China in critical national security sectors while maintaining attempting to maintain trade relations. However, this approach was insufficient for many who advocate for a complete stop to protect U.S. interests. A broad economic cutoff in response to Chinese aggression is sensible, but doing so now would waste leverage and potentially provoke conflict. Instead we should maintain economic ties to deter China from challenging the status quo.
Ending trade early could also fail without allied support, as significant economic disruptions to our major trade partners like Germany, Japan, and South Korea would disapprove. Forcing allies to comply through secondary sanctions or naval restrictions would damage alliances, an invaluable resource. We instead can use broad economic cutoffs against China if they attempt aggression or change. To prepare, our allies need to remain on the same page as us when it comes to economic policies.
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