Time for a big deal between the US and China

An old theme in social theory is that societies with highly unequal distributions of wealth can maintain social cohesion as long as total wealth increases.

Such overall growth allows everyone who receives a distributed share of this wealth – even those with the smallest shares – to experience at least some increase. The rich with the largest shares can capture most of the growth as long as some of it is passed on to those with small shares.

The cake analogy works well: as long as the cake grows, all the distributed parts of it can also grow. Some will grow more, others less, but all can grow. When everyone grows, social stability is facilitated (assuming the society’s population accepts unequal shares). Modern capitalism’s prioritization of economic growth as urgently necessary reflects such a social theory (just as economic growth has reinforced it).

Of course, if a society’s population instead prioritizes development toward less unequal shares, economic growth becomes relatively less important. If a society’s population seriously addresses climate change, economic growth may become even less important. If social movements embraced such growth and alliance priorities, they could well transform society’s attitudes and commitment to economic growth.

US capitalism from 1820 to 1980 encouraged and encouraged the increase in total wealth. The share of wages rose while the share of capital increased more strongly. Despite many bitter capital/labor struggles, the United States as a whole demonstrated considerable social cohesion. This was partly because a growing pie allowed almost everyone to see some growth in their real income. “Almost everyone” could be described as “white”.

In contrast, the last 40 years, 1980-2020, represent a turning point within the United States. Growth in total wealth slowed while corporations and the wealthy gained larger relative shares. As a result, middle-income people and the poor found that their wealth either did not grow much or did not grow at all.

The main reasons for the slowdown in wealth growth in the USA are the profit-driven relocations of the dynamic centers of capitalism. Industrial production shifted from Western Europe, North America and Japan to China, India, Brazil and other countries. Financialization prevailed in backward capitalism.

China and its BRICS allies are increasingly matching or surpassing the US and its G7 allies in terms of production levels, technical innovation and foreign trade. The US response to its competition – growing protectionism, expressed in the introduction of tariffs, trade wars and sanctions – is mobilizing increasing retaliation, which is worsening the situation in the US.

This process continues with no end in sight. The role of the US dollar in the global economy is decreasing. Geopolitically, the United States is seeing former allies such as Brazil, India and Egypt shifting their allegiance to China or adopting a more neutral position toward the United States and China.

The combination of slowing overall wealth growth and a larger share going to corporations and those who enrich them is undermining the United States’ internal social cohesion.

Political and cultural divisions within the United States, highlighted in the Trump-Harris contest, have become societal animosities that further undermine the United States’ global position.

The decline of empires and their internal social divisions often accelerate one another. Consider, for example, the scapegoating of immigrants in the United States, which now includes blaming Haitians for eating pets and ignoring data showing greater criminality among citizens compared to immigrants.

White supremacy resurged, became more public, and fueled increasingly divisive regionalism and racism. The conflicts surrounding the topics of patriarchy, sexuality and gender are sharper than perhaps ever before. Long-delayed protests against social conditions increase as empires fall, growth slows and social cohesion collapses.

Because of a parallel logic, things are very different in China. In recent decades, China’s GDP growth has been two to three times faster than that of the United States. Growth in average real wages has been much faster in China than in the United States. These differences are stark and have existed for a generation.

This enabled the Chinese leadership – its Communist Party and government – to distribute the fruits of its rapid economic growth – its increasing wealth – to support internal social cohesion.

It achieved this through its policies of increasing real wages and shifting hundreds of millions of rural and agricultural jobs to urban and industrial occupations. For these Chinese, this was a historic transition from poverty to middle-income status.

China’s growth and that of its BRICS allies created a major competitor to the United States and the G7 in 2010. Both blocs are now scouring the globe in search of safe, cheap sources of food, raw materials and energy.

Both strive equally for access to markets, safe transport routes and supply chains, and friendly governments. Both subsidize cutting-edge technological advances, so much so that the United States and China now virtually monopolize their achievements (compared to what Europe or Japan once did).

U.S. politicians portray China’s global efforts as aggressive, threatening the U.S. empire and potentially U.S. capitalism itself. Chinese politicians see US efforts (protectionist tariffs and trade restrictions, maneuvers in the South China Sea, foreign military bases and wars) as the goal of slowing or stopping China’s economic development.

For them, the United States is blocking China’s growth opportunities and dynamism, potentially heralding a resumption of years of humiliation of China, which it considers completely unacceptable. National security fears shape the rhetoric of both sides. Predictions of impending military conflicts and even another world war spread.

At a time when wars in Ukraine and the Middle East are leading many to call for immediate ceasefires and negotiated settlements, could history suggest something similar for the United States and China? Britain tried twice (1776 and 1812) to use the war to slow or stop the independence and growth of its North American colony.

After failing twice, Britain changed its policy. Negotiations increasingly enabled the new United States and Great Britain to trade with each other and develop economically. Britain focused on keeping, profiting from, and building the rest of its empire.

The United States declared that its future imperial focus would be on South America (the “Monroe Doctrine”). This remained the deal until World War II ended the British empire and allowed the United States to expand its own.

Why not a similar agreement between the United States and China that includes the G7, BRICS and the Global South? With real global participation, could such an agreement finally mean the end of empires?

The very real dangers – both environmental and geopolitical – that the world currently faces encourage the search for some kind of negotiated agreement on a multipolar world.

After World War I, such goals inspired the League of Nations. After World War II, they inspired the United Nations. The realism of these goals was questioned at the time. This humiliation must not be endured again now. Could we now achieve these goals without World War III?

Richard D. Wolff is Professor Emeritus of Economics at the University of Massachusetts, Amherst, and visiting professor in the Graduate Program in International Affairs at the New School University in New York. Wolff’s weekly show, “Economic Update,” is broadcast on more than 100 radio stations and reaches millions across multiple television networks and YouTube.

His most recent book at Democracy at Work is Understanding Capitalism (2024), which responds to requests from readers of his previous books Understanding Socialism and Understanding Marxism.

This article was created by Economy for everyonea project of the Independent Media Institute. It is republished with permission.