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Dueling Titans

China, the US and Battle to Lead a Globalized World

By Frank Hornig and Wieland Wagner

China's meteoric rise has caught America by surprise. Both superpowers are locked in a struggle over jobs, trade and resources that's really about global supremacy. A new era is on the horizon: As the heyday of U.S. hegemony passes, is the "New Chinese Century" about to begin?

Peter Zantal is in charge of globalization at the Port of New York. His hands are more than full. Every week, 24 ships disgorge thousands of containers, most of them arriving from Hong Kong and Shanghai via the Panama Canal. Their cargos are unloaded within 18 hours. Cellphones, refrigerators and computers - all made in China - begin the final leg of their journey to America's shelves. "The traffic's getting heavier by the week," Zantal says.

In some ways he is pleased by the development; in others, he finds it troubling. For one thing, half of the containers head back to China empty, and the contents of the other half are hardly designed to boost American confidence: They are filled with waste paper. The Chinese recycle it into packaging - for more cellphones, refrigerators and computers destined for New York.

High tech vs. recycled paper. There is no more vivid illustration of the trade imbalance between China and the United States. More and more products are being churned out in the low-cost factories of this new Asian economic wonder, causing more and more jobs to be lost in the U.S.

"This is an earthquake for our industry," Zantal says. "How many jobs will be left for our children?"

This question has begun to preoccupy the entire nation. Beijing's precipitous rise has left Americans in a collective state of shock.

Appalled, they have begun to realize that their own decline is making their low-priced competitors rich - dollar-rich. And that these competitors know just what to do with all of this cold, hard cash. Last December, for instance, the Americans watched the Chinese seize control of a national treasure - the computer wing of IBM. When the People's Republic made a move on an icon of the American housewife - the home-appliance producer Maytag - and tried to swallow one of the country's major energy companies, fear of the new red threat washed over the entire country.

No other issue can unify the divided Americans more than this. With hardly a peep of resistance, the House of Representatives lodged a protest against the sale of the Unocal oil company to the Chinese dragon. Republicans and Democrats alike feared the Chinese might strengthen their hold on oil supplies. Faced with such strong political pressure, the Chinese withdrew their takeover bid.

But Americans have no reason to breathe a sigh of relief. The actions directed at IBM and Unocal are the first harbingers of an epochal shift that will realign the global power structure from the ground up. The era of American supremacy is drawing to an end. The Asian century - with China in the vanguard - has dawned.

Initiated under Deng Xiaoping in the 1970s, China's reforms have gathered momentum fast. For 25 years, the Chinese economy has been growing at an average annual rate of 9 percent. Skeptics have repeatedly warned that the country could not keep up the pace and that a major setback was inevitable. So far, they have been wrong every time.

For most experts, it is only a matter of time before the Chinese economy goes barreling past the United States'. Some economists think it will take 20 years; others expect China to become the world's top economic force in 40. Only a minority considers this scenario unlikely.

With fascination and growing irritation, the world at large - and the United States in particular - has watched the Chinese advance toward economic preeminence. The initial amazement gave way to respect. Today, anxiety has set in. The disconcerted citizenry is numbed by the never-ending news of their new rival's trade records.

China is the prime mover behind the biggest trade deficit in U.S. history. Its exports to America have climbed 1,200 percent since 1990. The currency reserves at China's central bank - a good $710 billion - are so huge that a well-placed comment from a top Chinese official would put the greenback in a vise. At the end of Appalled, they have begun to realize that their own decline is making their low-priced competitors rich - dollar-rich. And that these competitors know just what to do with all of this cold, hard cash. Last December, for instance, the Americans watched the Chinese seize control of a national treasure - the computer wing of IBM. When the People's Republic made a move on an icon of the American housewife - the home-appliance producer Maytag - and tried to swallow one of the country's major energy companies, fear of the new red threat washed over the entire country. No other issue can unify the divided Americans more than this.

With hardly a peep of resistance, the House of Representatives lodged a protest against the sale of the Unocal oil company to the Chinese dragon. Republicans and Democrats alike feared the Chinese might strengthen their hold on oil supplies. Faced with such strong political pressure, the Chinese withdrew their takeover bid. But Americans have no reason to breathe a sigh of relief. The actions directed at IBM and Unocal are the first harbingers of an epochal shift that will realign the global power structure from the ground up.

The era of American supremacy is drawing to an end. The Asian century - with China in the vanguard - has dawned. Initiated under Deng Xiaoping in the 1970s, China's reforms have gathered momentum fast. For 25 years, the Chinese economy has been growing at an average annual rate of 9 percent. Skeptics have repeatedly warned that the country could not keep up the pace and that a major setback was inevitable. So far, they have been wrong every time. For most experts, it is only a matter of time before the Chinese economy goes barreling past the United States'. Some economists think it will take 20 years; others expect China to become the world's top economic force in 40. Only a minority considers this scenario unlikely. With fascination and growing irritation, the world at large - and the United States in particular - has watched the Chinese advance toward economic preeminence. The initial amazement gave way to respect.

Today, anxiety has set in. The disconcerted citizenry is numbed by the never-ending news of their new rival's trade records. China is the prime mover behind the biggest trade deficit in U.S. history. Its exports to America have climbed 1,200 percent since 1990. The currency reserves at China's central bank - a good $710 billion - are so huge that a well-placed comment from a top Chinese official would put the greenback in a vise. At the end of June, China including Hong Kong passed Japan as the world's largest holder of foreign currency reserves for the first time.

New rivals are emerging in every part of the world. Almost every day, Americans are confronted by an unfamiliar feeling: that of being outmaneuvered, outplayed.

The world's largest shopping mall is no longer located in the Canadian city of West Edmonton, but in Beijing. Most of the world's engineers no longer receive their degrees from universities located between Berkeley and Harvard, but in China: 440,000 every year, more than twice as many as in the United States.

The giants of Washington and Beijing have locked horns in a duel. Fifteen years after the end of the Cold War, the sole remaining superpower is uneasily preparing to receive a newcomer to its stratosphere. "While we have been focused on 9/11 and Iraq, China and America have become, in economic terms, Siamese twins," says bestselling author and New York Times columnist Thomas Friedman (The World Is Flat). "The real issue," he contends, "is that we have slipped into a symbiotic relationship with another major power that is neither a free market nor a democracy."

For years, carefree Americans snapped up cheap products from the Far East - and on credit, at that. Today they are taking a closer look at the bill - and discovering to their horror that it includes domestic layoffs, the relocation of entire industries, cutbacks for research and development and the downfall of the once-almighty dollar. And the payee? A population of billions. American book titles like China's Master Plan to Destroy America and Red Dragon Rising play on fears of a doomsday scenario. A recent Pentagon report warns of a rapidly growing weapons arsenal in China, the country that ranks third in military spending behind the U.S. and Russia. While China tells the United States to stay out of the dispute over Taiwan, Washington is making eyes at India, a Chinese rival, and has given its official blessing to that country's nuclear weapons program. U.S. President George W. Bush has even dropped China's status as a "strategic partner" and redefined Mao's heirs a "strategic competitor." In his worldview, "It's a complicated relationship." The two superpowers are wrestling over jobs, energy resources and access to markets worth billions. But there is actually much more at stake - supremacy in tomorrow's world. This battle royal puts two unequal partners in the ring: in one corner, the Chinese. They are brimming with confidence, burning with ambition, eager to display their prowess to the world: in business (but that's obvious), in sports at the 2008 Olympic Games in Beijing - and perhaps even in military might.

In the other corner, the United States. The U.S. is by far the world's leading economic and military power. But it is already battered and increasingly plagued by self-doubt. For years now, the country has been living well beyond its means, allowing foreign nations, particularly China, to finance its gigantic trade deficit. Despite the United States' overwhelming military force, it cannot win the war in Iraq, a conflict costing the country billions of dollars and its international reputation to boot.

This face-off between the superpowers of today and tomorrow recalls ascents of other great powers and the unfriendly reception they received from the rest of the world. Industrial late sleepers Germany and Japan began to stir at the end of the 19th century. And America's dramatic rise threw the world's political and economic balances of power into chaos.

Once again, the world is facing a new order. When the Soviet Union collapsed, the global supremacy of the United States seemed to be sealed for decades. Today a new, incomparably more dangerous challenger has appeared on the world stage. It is one that threatens to beat the West with its own best weapon: the economy. This one sneaks up behind its opponents, lures and addicts them with its cheap goods, while quietly stashing away cash as currency reserves.

For many, China's rise proves that free trade does not benefit everybody - notwithstanding standard economic theory. At breakneck speed, this new "Orient Express" has emerged from a dark tunnel as the world's factory. It already produces two-thirds of all DVD players and other electronic equipment, not to mention textiles and toys. At the same time, more and more industries and jobs are heading to the Far East.

Wal-Mart is a case in point. The biggest company in the United States, the retail chain posts sales seven times higher than Microsoft's. It employs 1.6 million people - more than Ford, General Motors, General Electric and IBM put together. The fact is, when a company like Wal- Mart turns China into its biggest supplier, American industry has a giant-size problem on its hands.