Opinion China’s dominance rests on fragile foundations
A useful parallel lies in the 1970s when Arab nations sought to wield global influence by restricting oil supplies
China’s strength has been so pronounced that it repeatedly forced the US — Trump in particular — to retreat from tariff threats, even during his first term, largely due to domestic political pressures. 
I HAVE argued that behind Donald Trump’s erratic tariff strategy lies a deeper contest for global supremacy. The US has dominated the world both politically and economically. But since 2008, China has increasingly challenged its economic hegemony. The current US-China rivalry is fascinating because the two powers are ideological opposites politically, yet share a broadly similar economic model — the US represents a democratic, free-market system, while China functions as a communist political state with a market-driven economy. This duality distinguishes today’s “cold war” from the earlier US-Soviet confrontation, which was shaped by opposing political and economic ideologies.
In the 1980s, following the consolidation of the EU, many believed that US dominance might be balanced by a unified Europe led by Germany’s manufacturing prowess. However, the Soviet Union’s disintegration redirected Europe’s focus eastward, as newly independent states along its borders posed fresh security challenges. From the early 2000s — and especially after the 2008 recession — as Europe wrestled with its internal contradictions, China’s extraordinary growth established itself as a global economic power.
China’s strength has been so pronounced that it repeatedly forced the US — Trump in particular — to retreat from tariff threats, even during his first term, largely due to domestic political pressures. The US economy had grown deeply dependent on China for consumer goods, and any disruption in supply threatened runaway inflation. China’s dominance in rare earth supplies has given it additional leverage. When Trump once again threatened tariffs on Chinese goods, pressure from US tech leaders compelled him to back down. In return, China agreed to a controlled supply of rare earths and renewed its earlier, unfulfilled promise to maintain markets for US soybean and corn farmers. China has thus far resisted pressure to isolate Russia economically. In this first round of the new global rivalry, China appears to hold the upper hand. Is this new “cold war” sustainable?
While nations cautiously hedge between Washington and Beijing, China’s apparent dominance rests on fragile economic foundations. A useful parallel lies in the 1970s when Arab nations sought to wield global influence by restricting oil supplies. Because oil demand was inelastic, prices soared from about $2 per barrel in 1971 to $32 by the decade’s end. But this “Third World power” perception soon eroded in the 1990s as energy conservation measures and alternative energy sources drove prices down to $12 a barrel. The lesson was clear: No resource is irreplaceable. The same holds true for China’s rare earth monopoly; technological innovation will, over time, reduce its strategic leverage.
China’s internal political stability remains heavily dependent on access to Western markets. Signs of strain are already evident — a collapsing real estate sector, slowing growth, and deflationary pressures not seen since 2008. The massive industrial capacity built over decades now depends on continued access to US markets, even as other countries begin shielding themselves from a surge of Chinese imports. If this situation persists, Xi Jinping’s own position could come under threat — the Chinese have grown accustomed to ever-rising living standards driven by relentless export growth.
Could India emerge as an economic alternative ? Not immediately — its per capita income is about one-sixth of China’s, and its technological base remains nascent. Its true strength lies in its democracy and demographics. India’s favourable demographic profile suggests that future global consumption will center here. Economists often overlook that demand can be as much a constraint on future production as growth in productivity or technology. While technology makes production seemingly limitless, consumers cannot be manufactured.
So perhaps the future lies with India. But, for the next decade or so, the world must reconcile itself to a unipolar order dominated by the US.
The writer is visiting professor, Shiv Nadar University
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