The Economic Front: A Modern Sense of Warfare
Over the past century, especially after the industrial revolution, nations of the world have changed their perspective greatly on their relations with other states. The days of gibberish military aggression are long gone, unless monetary gain of a particular group is prioritised. The foreign policies of the world's superpowers have considerably evolved from the lurid one-upmanship of the cold war to a greater spending of men and resources for an economic surge. In the scenario of our somewhat immediate history, a greater emphasis was laid by governments on military industrial complexes and assembly lines for military hardware to assert their superpower status in the region. The collapse of the Soviet Union put question marks to this notion and these policies were labelled by analysts as arbitrary actions of dictatorial governments and their think tanks. Even the United States, regarded by many as the current leader of the developed world, found this out the hard way by their on-going war on terrorism, which resulted in two wars costing more than a trillion dollars each, creating an ever-growing burden of a gross fiscal debt that amounts to $15.356 trillion.
Amidst growing social unrest and a catastrophic economic malaise encircling the globe, the two current superpowers of the world viz. the People’s Republic of China and the United States of America have resorted to a battle of economic attrition rather than the Soviet-era styled arms race. The relative disparity between the defence budgets of the two countries is evident by the fact that China is not willing to engage in a pompous show-off of its military capabilities. Her annual defence budget is between $85 billion to $123 billion compared to the counterpart, the United States - with a walloping $623 billion in defence spending. This is $123 billion in excess to the rest of the whole world’s defence budget combined! In spite of all these figures, both the nations, especially the US with the election year looming over, are looking to put in place effective monetary, fiscal and economic policies that will attract big businesses, corporate investments and industrial development in hope to create an ambiance of economic welfare for the general masses. The major think tanks in both these respective countries deem this as an appropriate strategy to downplay the other in the international arena, instead of any mindless sabre-rattling. Other regional economic powerhouses such as the European Union, Russia and the oil rich Gulf states are following suite in concentrating their efforts to create their own regional economic monopolies. The US and China as the world’s leading nations have to put in stringent economic policies to attract businesses or investments.
It should be noted that some of these economic policies that they implement can have an adverse effect on their counterparts. Often a blame game ensues between the two economic heavyweights accusing the other of unfair play which sometimes seems absurd.
Corporate taxation is a big issue when it comes to attracting corporate and capital investments to a country. The US has arguably low corporate tax rates under the current democratic Obama administration but there is a continuous growing social unrest as low corporate taxes mean that the greater burden of taxation goes to the middle class and the poverty stricken. This creates a policy making dilemma for the incumbent US government as implementing low corporate taxes means that they are in danger of alienating their largely middle class liberal vote bank which is agitated by low corporate taxes, which they deem are responsible for creating the financial disparity. On the other hand, they cannot go for high corporate tax rates as it will ward off big multi-national businesses which will be injurious to the economy.
The opposing Republican Party argues for low taxes for both corporations and the working class but this solution comes at a cost of less government funded social services and more self-reliance for the already low income, lower middle class. Thus, a balance needs to be achieved between corporate and working class’s taxes for a balanced budget and low fiscal deficits.
While the US has a capitalistic system and has to go for a bi-partisan compromise on taxation, China has a relative mix of socialist and capitalist policies; they can impose relatively low corporate taxes compared to the US, often at the cost of draconian tax rates on the middle class. This is one of the main reasons why China, in the past decade, has been more successful in attracting industrial corporations like Nokia and Microsoft to its shores.
Industrial and corporate investors are always looking for cheap labour to employ for their production units and assembly lines in order to maximise profits. The US has strict labour laws safeguarding a worker's interests and there is a limit to the minimum wage that a worker is entitled to, coupled with legislation that allows for labour unions to be formed so that they can advocate for the rights of the working class. In relative contrast to this, China has no clear labour laws enforced; a ban has been enforced by the government on all sorts of labour unions. Furthermore, there is no minimum wage limit that the corporations owe their workers.
The working conditions for most of the labour hired by international corporations in China are close to appalling. Workers are subjugated to insanely long working shifts. Industrial corporations like Nike are considerably renowned for their sweatshops in China and other parts of South Asia. Suicide numbers are constantly on the rise among workers in industrial units for corporations like Apple and Foxconn. Recently, a worker was reported to have died in one of Foxconn's assembly lines after working a 34 hour shift. Who can blame them? Corporate tycoons are not exactly known for their philanthropy. This gives China a major competitive advantage over USA as far as luring big business is concerned.
Regulatory measures, although sometimes necessary, are not known to have been conducive to big businesses and capital investments. Currently, the Obama administration in the US has proposed strict regulatory legislation to protect consumer rights and to keep a check on the profit-seeking malpractices and quality control. One of the renowned pieces of these regulatory legislations was the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Republican Party has not been in favour of regulating big businesses and has argued that over-regulation will scare businesses away from the US.
China, on the other hand, brands itself as a socialist market economy with Chinese influences. China has traditionally been open to all sorts of businesses with limited or no regulation unless necessary, as in the food, electronics and pharmaceutical industry. It has been home to corporations producing the same product in various echelons of quality. To see why this is true, consider the mobile phone industry with international corporations like Nokia manufacturing alongside the local Chinese industry.
It is usually observed that corporations do not take kindly to governments regulating their industrial effluent and waste emissions they release into the atmosphere. In the US, the democratic led Obama administration has introduced a very insightful policy of emissions trading in which special incentives are given to industrial corporations for reduced emissions. There is even an enforced limit on the total emissions over a specified period of time. This policy achieves a very logical compromise between environmentalists and industrial stake holders. The Republicans, as with most left-wing policies, are diametrically opposed to this as their party is of the view that cap and trade legislations are an obstacle to economic growth.
However, the Chinese do not have environmental preservation as part of their economic agenda and have no limits put on industrial emissions whatsoever, which gives them a comparative advantage as far as attracting manufacturing industries is concerned.
Amidst the conflagration of economic warfare between both the countries, there have been serious allegations from both sides of the isle of using malicious machinations for gaining an unfair trade or economic advantage; this was more pronounced from the US.
The US has accused the Chinese of conducting state-sponsored cyber warfare against US networks. They are accusing the Chinese of intellectual property theft from the US private sector in the form of illegally acquiring industrial design secrets, trade secrets, military hardware designs, patents et cetera through hacking and espionage activities. The US is insinuating that by providing government funding to these pernicious acts, the Chinese are in direct violation of international law. The Chinese government has publicly denied all these allegations and has labelled them as self-concocted and absurd.
Both countries also accuse each other of using trade policies to artificially deflate their currency values in pursuit of an unfair trade advantage. Most monetary and trade experts agree that the Renminbi, or Yuan as it is most popularly known, has been artificially kept undervalued by the People’s Bank of China for increased Chinese exports to the US. The incumbent US government is under severe domestic pressure to compel the Chinese to fairly value its currency. They are proposing tariffs against Chinese imports to pressurise the Chinese to take the necessary steps. However, revaluing of the Yuan will have cataclysmic consequences in the trade balance for the Chinese, so they simply cannot afford to take the risk. It is still a very debatable topic amongst international business circles whether the Chinese manipulation of the currency is within the premises of international law.
Most monetary experts agree that with the current trend of proceedings, China is well on its way to spearheading the global economic spectrum and, according to most predictions, will overtake the US by 2015 as the leading nation of the world by GDP. China is also the largest foreign shareholder of US debt. Unless the US government comes up with a way to cut its merry spending ways and balance its budget, they are likely to come up short to their socialist friend in the economic stronghold of the east.