China’s Currency? That’s the Least of the Problems for the Next U.S. Leader

China’s ambitious rise presents issues far more complex than Trump’s outdated yuan manipulation charges

By Andrew Browne
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A photo released by China’s Xinhua News Agency on Sunday shows a Chinese Air Force fighter, right, flying alongside a Chinese bomber as part of a drill near the East China Sea. Photo: Associated Press


SHANGHAI—In his video documentary “Death by China” the economist Peter Navarro, a Donald Trump adviser, promptly shows a Chinese dagger plunging into the heart of America, as blood spurts from the wound.

Almost as quickly, the Republican presidential nominee raised the Chinese threat in his debate with Hillary Clinton on Monday night. He identified China as a currency cheat that steals American jobs. China, he said, “is the best ever at it.”

Except that Mr. Trump, like many a general, is fighting the last battle. His opponent’s weapons and tactics have changed.
Whoever wins the elections in November must face challenges from China that are far more potent and complex than the ones that preoccupy Mr. Trump’s campaign. He doesn’t exaggerate the competitive threat from China; if anything, he underestimates it.

Indeed, U.S. politicians of all stripes have consistently failed to appreciate both the scope of China’s ambitions and, above all, the extent of the adjustments that will be required within America to respond effectively.

When President Obama took office in 2009, the Chinese economy was less than a third the size of America’s. It’s now 60% as big—and by some calculations is already larger.

Back then, China’s investments in the world were modest, mainly state-owned companies acquiring mining assets in Africa and other developing economies. Last year, China’s outbound investment flows exceeded inflows and they have become far more sophisticated.

The latest dazzling deal: China’s richest man, Wang Jianlin, who already controls America’s largest movie theater chain, seeks to buy control of Hollywood’s Dick Clark Productions, which stages the Golden Globe Awards.

In another contrast from 2009, China was then rebuilding after a devastating earthquake that revealed serious equipment shortages in the Chinese military, which lacked heavy-lift helicopters and transport planes to reach the disaster site in Sichuan province.

Just this week, in a startling illustration of how China’s economic might has since translated into military muscle, Chinese bombers and fighters flew past Japanese islands to the Western Pacific on a route such a large sortie of planes had never traveled before.

The biggest change since then, though, may be psychological. The 2008 collapse of Lehman Brothers convinced the Chinese leadership that America’s best days were behind it.

The next American president must face a China that feels assured of its unstoppable ascendancy, one that no longer seeks merely to game the American-led global trading system by manipulating its currency, or dumping steel. The new China increasingly aspires to set the rules.

After all, China now has many of the world’s largest industries, and its expanding middles classes are the spur for innovation in products and services that are set to become a huge driver of global growth. Access to its markets is a major new battle ground.

Mr. Trump, or Mrs. Clinton, can expect an early test from a Chinese leadership eager to underline the message that China is no longer prepared to accept a position as America’s junior.

That could take the form of a military challenge. China has recently shown signs it may be preparing to build another fortification in the South China Sea on the Scarborough Shoal within striking distance of Manila and military bases used by American forces. Or, it could even be another tilt at the American institutional order, building on the success of the Asian Infrastructure Investment Bank, which Washington saw as a rival to the World Bank.

It’s true, as “Death by China” points out, that China once manipulated its currency to keep its value low and exports high. No longer. Beijing is now propping up the yuan, not beating it down. China’s current account surplus was just 3% of GDP last year.

And, despite Mr. Trump’s exhortations, the low-end American factory jobs lost to China won’t return. In fact, some of them are now leaving China for countries with lower labor costs, like Vietnam. Traditional manufacturing in China is struggling, too.

While Mr. Trump is fixated on the U.S.-China trade gap—according to Mr. Navarro’s documentary, fueled by “slave labor” and other abuses—China is focused on higher value production and emerging technologies as it rebuilds an economy around domestic consumption and services rather than exports and investment. That means everything from robotics to artificial intelligence. On Sunday, China introduced the world’s largest radio telescope, capable of searching for signals from distant galaxies, and possibly extraterrestrial life.

These are the kinds of projects that inspire the Chinese leaders, even as they grapple with legacy problems from the old economy—a mountain of bank debt, polluted air and unfunded pension obligations.

Swaths of blue-collar America may be suffering, but the country as a whole is nowhere near death.

No matter how you measure it—high-quality patents, license fees, college rankings, financial depth—China isn’t even close. The real threat is that America squanders its extraordinary advantages. The dagger pointed at America’s heart, if there is one, is gripped in its own hands.

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