The Start of the Chinese Century

Without fanfare—indeed, with some misgivings about its new status—China has just overtaken the United States as the world’s largest economy. This is, and should be, a wake-up call—but not the kind most Americans might imagine.

By Joseph E. Stiglitz

SOFT POWER For America, the best response to China is to put our own house in order.

When the history of 2014 is written, it will take note of a large fact that has received little attention: 2014 was the last year in which the United States could claim to be the world’s largest economic power. China enters 2015 in the top position, where it will likely remain for a very long time, if not forever. In doing so, it returns to the position it held through most of human history...

The United States then made two critical mistakes. First, it inferred that its triumph meant a triumph for everything it stood for. But in much of the Third World, concerns about poverty—and the economic rights that had long been advocated by the left—remained paramount. The second mistake was to use the short period of its unilateral dominance, between the fall of the Berlin Wall and the fall of Lehman Brothers, to pursue its own narrow economic interests—or, more accurately, the economic interests of its multi-nationals, including its big banks—rather than to create a new, stable world order. The trade regime the U.S. pushed through in 1994, creating the World Trade Organization, was so unbalanced that, five years later, when another trade agreement was in the offing, the prospect led to riots in Seattle. Talking about free and fair trade, while insisting (for instance) on subsidies for its rich farmers, has cast the U.S. as hypocritical and self-serving.

And Washington never fully grasped the consequences of so many of its shortsighted actions—intended to extend and strengthen its dominance but in fact diminishing its long-term position. During the East Asia crisis, in the 1990s, the U.S. Treasury worked hard to undermine the so-called Miyazawa Initiative, Japan’s generous offer of $100 billion to help jump-start economies that were sinking into recession and depression. The policies the U.S. pushed on these countries—austerity and high interest rates, with no bailouts for banks in trouble—were just the opposite of those that these same Treasury officials advocated for the U.S. after the meltdown of 2008. Even today, a decade and a half after the East Asia crisis, the mere mention of the U.S. role can prompt angry accusations and charges of hypocrisy in Asian capitals.

Read the entire essay at Vanity Fair. http://www.vanityfair.com/business/2015/01/china-worlds-largest-economy