The Real Chinese Threat

Pretty much everyone agrees that China is the only nation with any chance of challenging American military superiority in the foreseeable future. So it's awfully strange that the Department of Defense's new Quadrennial Defense Review has little to say about the country. Explicit discussion is mostly limited to a single paragraph atop page 60, which begins with the banal observation that "China's growing presence and influence in regional and global economic and security affairs is one of the most consequential aspects of the evolving strategic landscape in the Asia-Pacific region and globally." The Defense Department then reaches the banal conclusion that our two countries "should sustain open channels of communication to discuss disagreements in order to manage and ultimately reduce the risks of conflict that are inherent in any relationship as broad and complex as that shared by these two nations."

Dull, dull stuff. But beyond being boring, these kinds of considerations are surprisingly distant from the most important issues in the U.S.-China relationship.

These issues start with finances. The only truly reliable path to development that anyone's found in the post-World War II world is export-oriented growth. You build factories to sell stuff to American and European consumers, turning your country's lack of development -- and its low-wage floor -- into an asset. The strategy worked for Japan, it worked for South Korea, it worked for Taiwan, and now it's working for China. Ultimately, running a trade surplus should drive the value of your currency up. But China doesn't want that, because a more valuable currency would make it harder to keep up export levels, even though it would improve the welfare of Chinese consumers.

Fortunately, China can do something about this. It can take the revenue it earns from exports and use it to buy dollar-denominated assets like treasury bills. That pushes the value of the dollar back up and lets the export train continue. American officials sporadically complain about China's "currency manipulation," but it has the consequences of ensuring that we can sell our debt at low interest rates, making our deficit spending affordable.

This web of debt, currency valuation, and trade flows is the centerpiece of the global economic system, and its management is critical to the fortunes of a billion Chinese people and 300 million Americans. It's also vital to another 500 million Europeans and Japanese. Arguably, this complicated economic dynamic is the single most important element of international relations today. At a minimum, it has a lot more relevance to the lives of Americans than the issue of how "lack of transparency and the nature of China's military development and decision-making processes raise legitimate questions about its future conduct and intentions within Asia and beyond," as the QDR frets.

This isn't to say that the QDR should go on at great length about trade flows, since we are talking about the Quadrennial Defense Review. (Though, it is a bit odd that the financial relationship isn't at all referenced.) But the QDR's discussion of China is still remarkably marginal to the main issues in the U.S.-China relationship. In the end, the document only highlights the limited relevance that the American military and its enterprises -- for all the vastness of its budget and all the capacity of its weapons -- have to the international issues that really matter. This, in turn, raises serious questions about our country's allocation of resources.

Of course, this debate over resources has already played out elsewhere. Everyone from Defense Secretary Robert Gates on down now talks about the need for more resources to flow to civilian capabilities and also for the military itself to move beyond what the Pentagon refers to as a "kinetic" paradigm, which just involves blowing things up and killing people. And, indeed, in the QDR you'll find lots and lots and lots of words expended on building ministerial capacity in partner governments, training foreigners in helicopter use, and all that other good counterinsurgency stuff. But the military's vision of increased nonmilitary efforts fundamentally just means a desire for more civilian support of the very things the military is increasingly called on to do -- namely, help weak states fight off ill-equipped insurgencies and wander around the world's backwaters looking for al-Qaeda.

This approach is fine as far as it goes, but until it becomes possible to build a nuclear weapon in a remote cave, the parts of the world that matter most are the ones that aren't chaotic backwaters but growing, industrialized nations. Addressing this reality means shifting resources away from military-focused activities to ones that are relevant to our major commercial and diplomatic relationships.

It also means recognizing the deep links between our economy and the long-term strength of our military. Engaging in a "spending freeze" that leaves intact the Pentagon's enormous budget makes little economic sense. And policies that make little economic sense make little military sense. Given China's role as our major creditor, it will necessarily be involved in any winding-down of American debt. This is primarily an economic issue, and it's far and away the biggest issue in the U.S.-China relationship. The military is relevant to it primarily because the Pentagon costs so much money, and the bill makes it hard for us to break out of a dysfunctional dynamic. That's not the kind of thing you're likely to ever see a military-planning document admit, but that doesn't mean it isn't true.

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