US-China Myths vs Facts: Competition Without Catastrophe

Predictions of imminent Chinese economic collapse have been made regularly for over two decades — and have been consistently wrong. China faces genuine and serious economic challenges: a real estate sector downturn (Evergrande, Country Garden), a demographic crisis (declining birth rate, aging population), high youth unemployment, and mounting local government debt. These are real problems that will constrain China's growth trajectory. But 'constraint' is not 'collapse.'

China's economy is the world's second-largest by nominal GDP (~$18 trillion) and largest by purchasing power parity. It has the world's largest manufacturing base, the largest trading nation status, and massive foreign exchange reserves (~$3.2 trillion). Countries with these structural features do not collapse suddenly — they experience slowdowns, adjustments, and restructuring. Japan's economic stagnation since the 1990s is a more relevant model than Soviet-style collapse.

Wishful thinking about Chinese collapse is dangerous because it leads to strategic complacency. If policymakers assume China will collapse, they underinvest in competitiveness, fail to prepare for a sustained strategic competition, and are surprised when China continues to advance technologically and militarily. The CGP approach is to plan for a China that remains powerful and competitive for decades — not to hope the problem solves itself.

China faces structural constraints that make global hegemony unlikely. Its demographic crisis is severe — the population is shrinking and aging rapidly, with a fertility rate of approximately 1.0 (well below the 2.1 replacement level). By 2050, roughly one-third of China's population will be over 60. No country has achieved global dominance while its working-age population was declining. This constraint alone makes 'taking over the world' implausible.

China's geographic position is significantly less favorable than the United States'. China is surrounded by competitors and potential adversaries (India, Japan, South Korea, Vietnam, the Philippines) and depends on maritime trade routes through chokepoints it does not control (the Strait of Malacca, the South China Sea). The United States has two ocean buffers, friendly neighbors, and global naval dominance. Geography still matters in great-power competition.

China has significant soft power limitations. Its authoritarian political system, treatment of Uyghurs, crackdown on Hong Kong, and aggressive 'wolf warrior' diplomacy have alienated potential partners. China has fewer formal allies than the United States has military bases. Global public opinion of China has turned sharply negative in most surveyed countries. Economic power does not automatically translate to the kind of comprehensive global influence that 'taking over the world' implies.

The US imposed significant tariffs on Chinese goods starting in 2018, reaching up to 25% on roughly $370 billion worth of imports. Despite these tariffs, the overall US trade deficit did not shrink — it actually increased. The bilateral deficit with China decreased somewhat, but the deficit shifted to other countries (Vietnam, Mexico, Taiwan) as supply chains rerouted. The total US trade deficit hit record levels in 2022. Tariffs changed the geography of the deficit, not its existence.

Trade deficits are primarily driven by macroeconomic factors — the relative savings and investment rates of countries, currency values, and domestic consumption patterns. The United States runs trade deficits because Americans consume more than they produce and save less than they invest. This structural pattern is not altered by tariffs on any particular country. Economists across the political spectrum agree on this basic macroeconomic reality.

Tariffs function as a tax on American consumers and businesses that import goods. The Peterson Institute for International Economics estimated that the 2018-2019 tariffs cost the average American household $800-$1,200 per year in higher prices. Some tariffs may be justified on strategic grounds (protecting critical industries, addressing unfair trade practices), but they are not a mechanism for reducing the trade deficit. The CGP supports targeted, strategic tariffs — not blanket tariffs sold as trade deficit solutions.