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Opinion - World Economy

America's invincible weapon is its role as a beacon to the world

Key Points
  • The U.S. does not need staged security talks with China to show that it remains a supremely dominant superpower.
  • Washington should hit hard trade miscreants and aggressively pursue the balance of American trade accounts with countries running excessive and systematic surpluses on U.S. trades.
  • Draining resources by meddling in global squabbles will do nothing for America. Stepping up investments in education, health care, science and technology to enhance social welfare and reinforce national security would keep the U.S. as an example and a beacon to the world.
A U.S. flag flutters in the wind.
Gary Hershorn | Corbis News | Getty Images

There is something demeaning about the idea that people come to a major security meeting to witness the U.S.-China clash for global dominance.

This year, the opening salvo was fired last week by America's Acting Secretary of Defense Patrick Shanahan. He pledged that there would no longer be any "tiptoeing" around Beijing's illegal military operations in the South China Sea, and apparently equally misguided attempts to suffocate Taiwan's thriving democracy.

What does that mean?

Taken literally, China was put on notice that the U.S. would use force to dismantle what Shanahan called China's "excessive" weaponizing of artificial islands and reefs in contested areas of the South China Sea. Shanahan wanted no Chinese "tollbooths" to air and naval traffic in, what Washington considers, international air and sea corridors. Similarly, the U.S. is ready to defend Taiwan's independence.

And then, to leave no doubt about such a policy intent, Shanahan reportedly said that "when a country makes a pledge and does not follow it, you should worry. When that same country makes no pledge … you should really worry."

Cut China's American trade surplus

That's clearly an escalation in tensions with China. And that was also a follow-up on the earlier (a) "pivot to Asia," (b) concentrations of America's military might along Asian shores, and (c) pledges to block China's rapidly expanding Belt and Road Initiative.

This time is different, isn't it? Time will tell.

Meanwhile, Shanahan has clearly put American credibility on the line in a way that got him kudos – even from Democrats – and promises of a Senate confirmation should the White House decide in favor of his permanent appointment.

Hedging his bets, though, Shanahan said he had "positive and constructive" talks with his Chinese counterpart last week, and that he was confident of being able to find solutions with Beijing.

A few hours later, China begged to differ. In an official statement last Saturday, Beijing said "the freedom of navigation and overflight has never been an issue" in the South China Sea. On Taiwan, Washington was warned about "playing with fire," because China would "fight to the end" to safeguard its territorial integrity.

But ever vigilant about bread-and-butter issues, the Chinese insisted that they were "keeping the door open" to trade talks.

That is a quick recap of what transpired over the weekend with regard to the latest U.S.-China sparring on security and trade.

So, here are a number of things one might consider about the precarious state of that relationship.

The US should focus on strong economy

First, it is foolhardy to threaten military force as a solution to growing U.S.-China tensions. One has to operate with concepts of peace among nuclear-armed nations where the doctrine of Mutually Assured Destruction (MAD) is a guaranteed epilogue to humanity.

Second, wherever MAD applies, it is lunacy to advocate limited nuclear wars, or the threat of small-scale nuclear weapons.

Third, the U.S. should aggressively pursue its economic interests. In the case of China, or any other country running excessive and systematic trade surpluses with the U.S., Washington should insist on balancing its trade books. Balancing the trade accounts with China would also obviate the need to fight about Beijing's economic policies, intellectual property violations and other mischief.

Fourth, as a key currency country and a pillar of world trade, the U.S. should compete fairly in international trade and finance. Washington should resist the urge of using the world's dollar-based economy for extra-territorial reach of its domestic laws and regulations. Failures of American diplomacy should not lead to debilitating sanctions condemned even by America's closest friends and allies. A wall around dollar transactions is now being developed by friend and foe. That could segment the markets and isolate American companies.

Fifth, the dollar is a global public good and an essential part of the foundation of the Western world order. The stability of the dollar's purchasing power and the integrity of its management are central to Western values of democracy, rule of law and human rights.

Sixth, some people were calling last week for the revision of the Western world order to make room for China, even though Beijing is pursuing that objective by attempts to create its own multi-polar world to challenge America's global leadership.

Seventh, the U.S. can fight that easily. None of its would-be competitors have anything to offer by way of superior political, economic, social, moral and cultural systems and values. But America's current advantages could erode if Washington continued to deplete its shrinking resources by meddling in illusory pursuits around the world while neglecting the social and economic challenges at home.

Eighth, those 96.2 million Americans who are now out of the labor force — i.e., virtually unemployable — need education, vocational training and access to health services. Bringing those people into the labor force would raise the economy's non-inflationary growth potential and improve social welfare. To make that happen, the U.S. needs to step up investments in education, health care, science and technology to keep building that shining example to the world — a City upon a Hill.

Investment thoughts

The U.S. does not need staged security talks with China to show that it remains a supremely dominant superpower.

Washington should hit trade miscreants hard and aggressively pursue the balancing of trade accounts with countries running excessive and systematic surpluses on U.S. trades.

Draining resources by meddling in global squabbles will do nothing for America. Stepping up investments in education, health care, science and technology to enhance social welfare and reinforce national security would keep the U.S. as an example and a beacon to the world.

Commentary by Michael Ivanovitch, an independent analyst focusing on world economy, geopolitics and investment strategy. He served as a senior economist at the OECD in Paris, international economist at the Federal Reserve Bank of New York, and taught economics at Columbia Business School.