September 23, 2011
WASHINGTON—China's economic dominance over the United States is likely to be more imminent, broader in scope, and larger in magnitude than is generally believed. Eclipse: Living in the Shadow of China's Economic Dominance argues that this dominance is a product of historical forces, economic policies and objectives laid out by China, and that the United States cannot do much about it. Author Arvind Subramanian, senior fellow at the Institute, challenges a widely held view that the right set of economic policies can retain the United States' position as the most economically competitive and powerful nation in the world.
The analysis in Eclipse is based on a series of economic projections and the book has won praise for its use of history and political analysis that make it accessible to a wide audience. Bob Davis wrote in the Wall Street Journal that "Parts of Eclipse read like a wonky version of Rising Sun, Michael Crichton's 1992 novel of Japanese dominance over the U.S. when Tokyo was seen as speeding toward number one. But Subramanian is a first-class economist who uses his book to discuss provocatively U.S.-Chinese relations and the nature of economic power."
The core of the book is an index of economic dominance that combines a country's GDP, trade and its external financial strength, which the author argues are key determinants of a country's ability to exercise power internationally. He projects these attributes to 2030 and finds that China's dominance could be comparable to that of the British Empire in the late 19th century and the United States in the aftermath of the Second World War. One manifestation of such dominance relates to international finance, where Subramanian predicts that the renminbi will surpass the dollar as the world's premier reserve currency by the end of this decade or soon thereafter.
The author draws implications from his analysis for the United States and for the world. The message for the United States is that dominance might be more China's to lose than America's to retain. The last great transition of dominance from one economic power to the next was that of the United Kingdom to the United States two generations ago where he finds that a combination of internal economic weakness, external vulnerability and the presence of a rival power can alter the status quo. In the current situation, this vulnerability would be to a dominant power that is not only not an ally—unlike the United States and the United Kingdom before and after World War II—but also a country that has yet to sufficiently reassure the world about its internal politics and its extraterritorial ambitions. The prospect, however remote, of being at the receiving end of a less-than-benign exercise of power by a dominant China should serve as a loud wake-up call for the United States.
Subramanian's second message relates to the survival of the open and rules-based economic and trading system. Indeed, China's growing importance in world trade has generated a large and growing private constituency benefiting from its economic and trade relations with China, and hence a stake in maintaining that relationship. Moreover, China is so dependent on trade as an engine of growth and continual improvements in living standards—which are key to the legitimacy of the Chinese leadership—that it has an incentive to maintain its relative openness. This does not mean that there will not be frictions with China over the parts of its economy that are closed to imports of goods and services, and over such issues as currency values and intellectual property rights, but China's future dominance need not pose a threat to this system.
The world cannot be entirely sure of what actions China will take in the future, Subramanian argues. It needs insurance against the possibility of a future with an economically dominant but less-than-benign China. That insurance must take the form of reviving multilateralism and tethering China to it. Hence, the United States and other countries should seek to revive multilateralism rather than try to negotiate bilaterally with China or push for a regional alliance that would threaten or confront that country.
Eclipse: Living in the Shadow of China's Economic Dominance
ISBN paper 978-0-88132-606-2
September 2011 | 216 pp. | $21.95
About the Peterson Institute
The Peter G. Peterson Institute for International Economics is a private, nonprofit, nonpartisan research institution devoted to the study of international economic policy. Since 1981 the Institute has provided timely and objective analysis of, and concrete solutions to, a wide range of international economic problems. It is one of the very few economics think tanks that are widely regarded as "nonpartisan" by the press and "neutral" by the US Congress, its research staff is cited by the quality media more than that of any other such institution. Support is provided by a wide range of charitable foundations, private corporations and individual donors, and from earnings on the Institute's publications and capital fund. It moved into its award-winning new building in 2001, and celebrated its 25th anniversary in 2006 and adopted its new name at that time, having previously been the Institute for International Economics.