The Sino-American Decade

HONG KONG – The California summit between US President Barack Obama and Chinese President Xi Jinping on June 7-8 comes at a time of heightened tension between the world’s two preeminent powers. But divisive issues – from computer hacking to America’s pivot to Asia – must not claim all of the attention. If Obama and Xi lift their heads above the parapets and begin charting a jointly agreed course through the coming decade, they may find that they have much in common.

The next ten years will be characterized by major structural adjustments and shifts in individual economies, and by a huge reconfiguration of the global economy as a whole. Above all, much depends on the policies adopted by the two largest economies, China and the United States, and their cooperation and leadership in creating global public goods and maintaining a stable and open economic environment.

Cooperation will be needed in many areas. One is the management of natural resources and the environment. The growth of China and the developing world will lead to a doubling of global output in 10-15 years, and probably a tripling in the 15 years after that. The growth model on which both advanced and developing countries relied in the past will not work at two or three times the scale. Climate, ecology, food, water, energy, and livability will not withstand the pressure.

Global problems are hard to solve. A productive starting point would be China-US collaboration on energy efficiency and security, greener growth, and climate change.

China’s sets ambitious goals in this area. In the US, progress is somewhat more decentralized, though new national policies have been adopted, including for automobiles. The US also is set to become energy independent, owing to the rise of shale oil and gas, with already bringing down per capita carbon emissions.

The complementarity of the Chinese and US economies is changing rapidly, but it is not declining in significance. In the past, the US brought a large open market, foreign direct investment, and technology, while China supplied low-cost labor-intensive components in key global manufacturing supply chains. Today, China provides a large and rapidly growing market for a widening array of previously unaffordable goods, and will increasingly produce as well as absorb new technologies. In the process, it will shed lower-value-added jobs in its export sector as production moves to lower-cost developing countries.

Depending on policies on both sides, China may also become a foreign direct investor in the US economy in a wide range of areas – including infrastructure. The US will continue to provide a large open market, even as China’s role in serving it will shift upward in value added and in global supply chains. The US will also provide, share, and absorb technology and human talent, remaining at the top end of the higher-education spectrum and in basic and applied research.

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