The Art of Economic Warfare: China Gains the Upper Hand by Playing a Different Game

- December 7th, 2016
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Since the end of the Cold War, the world has witnessed a blurring of lines that were once seen as separate and distinct. Today, civilians and enemy combatants are virtually indistinguishable. Everything that can be weaponized has been—from jet airliners to your personal computer. “National security” and “economics” are no longer separate policy arenas. They now overlap.

The Chinese were among the first states to recognize this trend and capitalize on it. Many other American trading partners did as well. Yet, American leaders—either through ignorance or through stubborn indifference—failed to see this happening.

For 20 years or more, “We, The People,” have paid the price for our leaders’ ignorance and indifference.

The concept of economic statecraft, as Benn Steil and Robert E. Litan outline in Financial Statecraft: The Role of Financial Markets in American Foreign Policy, “encompasses efforts by governments to influence other actors in the international system, relying primarily on resources that have ‘a reasonable semblance of a market price in terms of money.’” Economic statecraft has been a vital tool in the conduct of foreign policy for most states since the beginning of time. Indeed, until the end of the Cold War, it was a fundamental component of American grand strategy. Since the end of the Cold War, however, America’s ability to conduct economic statecraft has eroded. Even worse, as America separated its security and economic policies, states like China fused them together.

In 1996, just as Taiwan was set to elect its most pro-independence government in decades, the Chinese decided to use military brinksmanship in order to dissuade them from independence. China fired several missile volleys across the Taiwan Strait in a blatant attempt to intimidate what former Nixon aide Bruce Herschensohn dubbed the “threatened democracy.”

It didn’t work. Not only did Taiwan’s elections go on as planned, the Clinton Administration—in a rare instance of demonstrating military resolve—sailed two aircraft carrier battle groups through the Strait, in order to affirm America’s continued support of the fledgling democracy.

Following America’s decisive show of force, the Chinese immediately stood down. But they did not forget—or forgive—the humiliating American military maneuvers in the very thin strip of water separating Mainland China from Taiwan. During and after the Taiwan Strait Crisis, the People’s Liberation Army (PLA) conducted a series of military drills in which they gamed out what a war with the United States over Taiwan would look like. Needless to say, the results were quite disheartening for the standing members of China’s Politburo. Realizing that no amount of military modernization would turn the PLA into an equal rival of the United States’ military, the Chinese began seeking alternative forms of resistance.

During the 1996 exercises, two PLA colonels, Qiao Liang and Wang Xiangsui, compiled their thoughts on alternative strategies for defeating the United States outside of a military-to-military conflict. Their book, Unrestricted Warfare, was the apotheosis of that undertaking. Since its publication in 1998, Unrestricted Warfare has become a foundational text of Chinese grand strategy. This book (which is based largely on Sun Tzu’s concepts of deception in war) outlines key areas where China could debilitate the United States on the strategic level. These methods of asymmetrical warfare represent the blurring together of previously thought separate, non-military areas, into one, seamless concept of total warfare.

Terrorism, cyber warfare, and, yes, economic warfare are all key components of China’s asymmetric approach. Look at the last 20 years of economic dealings between the United States and the People’s Republic of China. It should be obvious that China has waged unremitting warfare against the very backbone of America’s military strength: our economy.

Over the last two decades, China has become the largest economy in terms of its purchasing power parity. In terms of GDP, China has displaced Japan as the second-largest economy in the world and is set to displace America as the largest economy in the near-future. The United States imports significantly more of its goods from China, which has created a trade imbalance, in everything other than financial services (go figure). U.S. manufacturing capabilities have been seriously degraded. Meanwhile, China’s manufacturing capacity has surged ahead. This has allowed the Chinese to mass-produce weapons systems that will eventually challenge the technologically superior, but numerically inferior U.S. forces in the Asia-Pacific.

Just look at Detroit, the once-mighty hub of American manufacturing and compare it to, say, Guangzhou. Yes, Guangzhou is a smoggy, overpopulated city in southeastern China. But, unlike Detroit today, Guangzhou is also one of the most prosperous manufacturing hubs, not just in China, but also in the world. Although I hate parroting Thomas Friedman and Michael E. Mandelbaum, they are right: that used to be us! But the reason it isn’t us any longer is due to  the mindless globalization policies advanced past two decades by the likes of Friedman and Mandelbaum!

China has rightly assessed that economics, like all other avenues of human life, has a strategic value. The Chinese  have honed their economic statecraft and married it to their overall revanchist goals in the Asia-Pacific. Even as they do this, even as they violate U.S. copyright laws, dispossess Americans of economic opportunity, and continue to damage the U.S. national interest, how have we responded? With the Trans-Pacific Partnership! A deal that was purportedly aimed at stunting China’s influence in the Asia-Pacific, by surrendering more of America’s sovereignty to even more Developing States (who disproportionately benefit from the deal)! Some deal.

Free trade dogmatism is mistaken: economics is not always a positive-sum game—at least not when it comes to international affairs. States such as China have proven that economics is yet another domain where the nation-state can and will compete for strategic advantage over other states. Donald Trump is the first U.S. leader in a very long time to realize this fact. He has begun tailoring a foreign policy that effectively synthesizes the all-powerful traditional forms of statecraft (i.e., military power) with the much-ballyhooed, yet little-understood tools of nonviolent statecraft (of which, there are many). In much the same way that China has combined all of the available tools of statecraft to create a cogent and productive foreign policy, so will Trump begin the important work of reminding Americans of the many and long-neglected tools of statecraft.

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