Can it be? Will China become the new America?

In an op-ed piece in yesterday’s WSJ, Zachary Karabell warns of just that. This timely article looks back to the relationship between Britain and America, when Britain was the superpower, and America was the underdog. After two world wars, Britain found itself cash-strapped. America strategically lent it the money it needed, under its terms, which included making the dollar the reference point for global exchange rates. Karabell makes the argument that ultimately, these negotiations culminated into the end of the British Empire.

Karabell sees parallels between the relationship between Britain and the U.S. in the mid-20th century, and the U.S. and China today. He points out:

“Trajectories can change, but the recent implosion of the American financial system has only accelerated China’s rise.

And while the level of current indebtedness is manageable for the U.S.—and in fact tethers the Chinese closely to the U.S. economy in ways that are arguably beneficial for both countries—the fact that these economies are currently bound together does not mean that their interests will always be in sync.

The Americans have not had to deal with a true economic rival since the British more than half a century ago. America today is as unaccustomed to global economic competition as the British were at their apex. The U.S. often seems lumbering and ill-suited to the demands of economic rivalry.”

The way out of this pattern for America is to “reinvigorate economic life,” according to Karabell. Indeed, as government spending (and therefore, borrowing) continues to increase, all signs point to Karabell’s analogy as a relevant one that our politicians should take heed of. Just earlier today, Sen. Cornyn of Texas cited a statistic that for every dollar spent by the U.S. government today, 43 cents is borrowed money. If the private sector continues to suffer, where will the money to repay this debt come from?

Steve Wynn was entirely right on this weekend when he appeared on Fox News Sunday and stated:

“I think that the priorities of the administration should have been more directly focused on job creation. From the day of the inauguration forward, the priority should have been job creation. And the most powerful weapon and the tool that the government has for that is its tax policy. If the government had used its power to restrain its tax collection they would have given everybody who runs small businesses, large businesses, a chance to hire more people and that could have been done an entirely different way. With eight or $900 billion we could have created four or five million jobs, which would have made a big difference.”

The only way to ensure that history is not repeated, is as Wynn suggested, for government to focus on creating incentives for the private sector to get creative, to start new businesses, to hire more employees, etc. Karabella’s warning hits home that arguing over big-government programs like health care reform and climate change during this economic crisis is “the cultural equivalent of fiddling while Rome burns.” If the U.S. continues to borrow and spend at this rate, China’s economic dominance globally looks more and more secure.

Tags: US debt, US-China relations