A matter of our survival

Cho Yoon-je
The author is professor emeritus at Sogang University and a member of the Monetary Policy Board of the Bank of Korea.

The biggest risk factor the world currently faces is the U.S.-China conflict, with the fate of mankind in the 21st century largely dependant on how this contest will unfold. When examining the current perceptions and responses of the two countries towards each other, the forecast is not very optimistic. China plans to quadruple its arms capabilities by 2035 while the United States will try to increase its defense capabilities to secure sufficient deterrence against China.

In recent interviews held on the occasion of his 100th birthday, Dr. Henry Kissinger sees the current situation as being similar to that just before World War I. The trigger of a small incident or misjudgment of the other party’s intention could result in a catastrophic collision. In the past, confrontations between great powers failed to escape from the “Thucydides Trap” and most of them led to armed conflicts.

The key question in the U.S.-China confrontation is whose side time will be on. At the end of last year, Goldman Sachs predicted that the Chinese economy will overtake the U.S. economy in 2035 in terms of market exchange rates, and at its peak, it would be about 15 percent larger than the U.S. economy. In contrast, Capital Economics, a research institute, forecast that China will grow to reach 90 percent of the U.S. economy by 2035, but will never be able to surpass it.

The primary reasons for this relatively pessimistic outlook on the Chinese economy are the rapidly aging population, decline in the working age population, excessive debts and low investment efficiency, as well as restrictions on innovation ability and productivity under Xi Jinping. Additionally, global companies are trying to diversify their supply chains away from China due to geopolitical risks, and the United States is keeping China in check on core technologies, creating limitations for China’s future growth. In contrast, the U.S. has a strong and open economy where creative destruction and innovation continue to take place. Institutions based on the rule of law — such as courts and government agencies — are also still alive and well in America.

This helps explain why the U.S. economy accounts for 25 percent of the world’s GDP although its population accounts is only 4 percent of the global population. (This share has not diminished since 1980 despite China’s rapid rise.) Perhaps a more reasonable forecast is that by the mid-2030s, China and the U.S. will have nearly equivalent economic power, a situation that will continue for decades to come.

In the 21st century, the world has entered an era of chaos in which the political landscape and media environment in major countries have vastly changed and the existing order is shaken. Competition between the U.S. and China, a democracy and authoritarianian state, market economy and state-led economy, and the East and the West, will continue throughout this century.

All these movements will eventually produce negative consequences for the future world economy. The rapid advancement of artificial intelligence without any international agreements and regulations will deepen uncertainty of the future. When hegemony was transferred from the Great Britain to the United States, the transition was relatively smooth thanks to their similarities in culture, language and values. But the case of the U.S. and China is very different as we hear the sounds of rupture everywhere from the beginning.

To properly overcome these challenges and grasp the opportunities, Korea’s intellectual, political and administrative elites must closely read the flow of the times and establish a national strategy with a farsighted perspective. We must observe more accurately how the political landscapes of China and the U.S. — and their citizens’ ideologies and views — will change in order to determine our position. We must expand cooperation with Europe, Japan, India and emerging countries in Asia to contribute to maintaining world peace in the future, as it is a matter of our survival.

The 21st century could be as turbulent as the 20th century. At some point, we may face an opportunity for unification, be swept into a war, or rise to the ranks of global superpowers. Today, we must decide our national strategy quickly, and to do so, the leadership should be competent and have clear insight. We cannot afford to waste time having meaningless discussions or adhering to outdated ideologies.

Translation by the Korea JoongAng Daily staff.