The global ruptures brought by the COVID-19 pandemic have created a profound moment of political transformation, teeming with possibilities for imagining a new future. Nowhere is this clearer than in the United States of America.
While the Trump presidency signified the abandonment of post-Cold War liberal international order, Joe Biden’s arrival in the Oval Office has marked the death of neoliberal economics at home. A common denominator among the two presidencies has been an increasingly tougher approach towards China. The breakdown of old consensus on international order, domestic political economy, and strategic approaches toward China warrant new ideas and policy visions to fill the vacuum.
Clyde Prestowitz’s The World Turned Upside Down: America, China, and the Struggle for Global Leadership rises to the moment by offering a bold take on the United States’ China policy reset. Compared to Elbridge Colby’s Strategies of Denial, which is focused on the military dimension, Prestowitz leans heavily on economic sinews of power. In three parts, the veteran US trade negotiator and presidential advisor analyses the rise of China and the US; critiques neoclassical readings of economic development and post-Cold War American consensus on China; and offers policy prescriptions for the future. The theme of national development enabled by mercantilist and protectionist economic policy, and the attendant strategic implications, runs throughout the book. In both Prestowitz’s reading of the past and vision for the future, neoliberal ideas of free markets and supply chain globalisation are dismissed as unsuitable strategies for national development. The state looms large in Prestowitz’s strategic vision – a clear departure from the Washington Consensus associated with the American unipolar moment.
Economic Rise of the US and China
The first two parts of the book trace the economic rise of both China and the US. In Prestowitz’s narrative, it was the Chinese adoption of a hybrid of the Singapore and Japan models that produced economic growth. From Japan, the Chinese reformers drew the need for infant industry protection coupled with export discipline. Singapore, a leading financial centre, showed how to actively court foreign capital by providing incentives. Following its agricultural liberalisation, the Chinese development strategy involved suppressing consumption to generate savings for investment and actively courting foreign capital by providing incentives. China’s entry to the World Trade Organization (WTO) provided a fillip to the manufacturing-based, export-led development model.
While it is true that China’s economic miracle coincided with gradual economic liberalisation, the role of the party-state in economic development cannot be overlooked. The Chinese Communist Party (CCP) helped things along by manipulating domestic currency, enabling forced tech transfer, enacting non-tariff barriers to trade, providing preferential treatment to SOEs, coaxing foreign companies for joint ventures, and orchestrating IP theft, as well as providing a host of incentives and infrastructure development. In Prestowitz’s reading, the CCP had dispensed with neoliberal advocacy in following a protectionist pathway to capitalist modernity.
Much the same could be said of the US rise to preeminent global economic power, which was predicated on adopting the Hamiltonian vision and Henry Clay’s so-called “American system.” In contrast to Jeffersonian decentralised village republics of America, Alexander Hamilton envisioned an activist state acquiring national debt after the revolutionary war and using tariff barriers to build the newly independent country’s manufacturing base. Likewise, Senator Henry Clay’s American System consisted of tariff protection for American industry, a national bank to facilitate commerce, and federal subsidies for infrastructure development leading to profitable market for agricultural produce.
After the Great Depression, the economic role of the American state only grew with the New Deal and World War II. The turn really came after 1945 with the US donning the mantle of maintaining liberal international order. The postwar boom years at home and the Cold War imperative of limiting communist influence turned US policymakers into advocates of the free market system, giving unilateral trade concessions to allies like Japan and Korea. In the heady unipolar days of liberal capitalist ascendancy, the US ignored lessons from the recent past of fostering an economic competitor and instead went on to prop up China.
Critiquing the Consensus
In the latter half of the book, two groups draw Prestowitz’s ire for their misreading of economic development and China’s rise. First, neoclassical trade economists and advocates of free trade and globalisation are criticised for faulty assumptions in models, distorted reading of economic history, consumer-centric ignorance of strategic considerations, and policy prescriptions that enabled the rise of peer competitors. Here, Prestowitz’s reading of economic history and reliance on the Baumol-Gomroy trade model, which busts the neoliberal assumption of international trade as a win-win proposition by highlighting the conflict generated in today’s globalised world, are complemented with nuanced discussion on issues ignored by mainstream economists.
The second group that Prestowitz finds fault with is the Beltway advocates of engagement policy with China following the end of the Cold War. In line with John Mearsheimer, Prestowitz shows the folly of bipartisan presidential consensus to engage with and prop up China in hope of economic liberalisation’s democratisation dividend, which never materialised. The blame for faulty policy advocacy is further laid down on corporations and Wall Street financiers with business interests in China; think-tanks and media pundits for providing intellectual ballast to the narrative of the linkage between economic and political liberalisation; and former state officials leveraging their social capital for lucrative consultancy work on China. However, as chapter nine makes clear, the growing recognition of the folly of propping up China has been followed by a correction in the US approach, as exemplified in the vigorous domestic debate on the extent and means of competition with China.
The Way Ahead
Prestowitz’s contribution to the debate comes in the final part of the book with a set of policy prescriptions that would amount to a neoliberal horror dream. In proposing radical solutions like the merger of the National Security Council and National Economic Council, the creation of a Department of Competitiveness, a new corporate compact, and a new WTO for democracies, Prestowitz veers away from the reigning neoliberal consensus by a wide margin. Sans an abrupt and sharp downward turn in the Sino-US relations, it seems unlikely that these policy measures shall be taken up seriously. That, however, does not take away from the value of the work, which provides other sensible solutions that are already being incorporated into official policy under the Biden administration.
Lastly, two further points relevant to the great power competition warrant a mention. On the interest-value dichotomy in foreign policy, Prestowitz argues that the American political and economic systems are incompatible with a PRC controlled by a Leninist political outfit. As such, the different value systems have real implication for the national interest, as the former impinges on the latter and creates a security threat for the US. Second, for a book that claims to provide insights into “the struggle for global leadership,” it gives short shrift to military competition and viable defence strategy for the US in favour of a nuanced analysis of the economic competition. Such an approach is understandable, given the author’s background. Interested readers and policy wonks would do well to complement Prestowitz’s analysis with a host of newly released books outlining elements of American grand strategy against China.
This is a review of Clyde Prestowitz, The World Turned Upside Down: America, China, and the Struggle for Global Leadership (Yale University, 2021). ISBN: 9780300248494
Sanjeet Kashyap is a final year MA student in Politics and International Studies program at Jawaharlal Nehru University, New Delhi.
This article is published under a Creative Commons Licence and may be republished with attribution.