Having Chinese companies depend on Western markets will serve as a meaningful deterrent against aggressive behaviors. Having them depend on Western inputs and equipment will also serve as non-insignificant deterrence.

We cannot be naïve. Such deterrence is not perfect. China will take action when it believes its national interests are at stake. However, cutting ties will wipe out such remaining deterrence and sacrifice opportunities for Western companies to grow.

We need to be careful about which technologies to supply and limit. Some products are so sensitive that they warrant prudence. We must be very strategic and selective in determining which technologies to control. Those technologies must be those in which the West enjoys a clear, substantial advantage, and the gap will be difficult to close anytime soon. Other technologies and products should be free to trade.

The importance of trade goes beyond China. Trade helps emerging economies to grow. Their growth will provide markets for our products. Their exports of supplies can help our firms stay competitive. The economic ties with these countries will help strengthen our relationship with them. If we cut trade with them, they will have no other place to go other than China. Cutting trade with emerging countries will make it more difficult for the West to deal with China’s rise.

5) Sound Economic Policy

A strong economy is the foundation of any country. In particular, keeping our economy strong is necessary to deal with China’s rise, which is driven by its impressive economic growth.

In addition to having effective industrial policy, wise trade policy, strengthened innovation policy, and reinforced education system as described above, we need to have sound economic policies in place.

As China struggles with the burst of its real estate bubble, the accumulation of non-performing loans, and growing local government debt, we must proceed in the opposite direction. We need to continue enhancing our financial oversight while implementing sound fiscal and monetary policy. Sound and strong economies can be our greatest asset in dealing with China’s rise, which is now facing a series of economic difficulties. 

Playing the game of great power competition requires planning over a long time horizon. Therefore, we need to have sound economic policies not only for today but also for the long term. In particular, we need to have a proper and sustainable policy to deal with the aging of our population. This trend will put enormous pressure on our social security system and our government finances. China will also face the burden of its rapidly aging population on its social security system and government finances in the coming years. Success in dealing with changing demographics will have a substantial impact on economic competition. Sound economic policy, both in the short term and the long term, is essential for keeping our economies strong enough to withstand China’s rise.

One of China’s strengths is its long-term strategic thinking. To deal with the People’s Republic and its overbearing economic power, the West will also have to think in a similar far-sighted fashion. The five elements highlighted may not be sufficient, but they are necessary to secure the future of American and Western democratic and free-market economies. 

The rise of China presents a pivotal juncture in world history. We cannot afford the luxury of inaction or misguided policies. It is time to think and act strategically to deal with the economic rise of China.

Tatsuya Terazawa is the Chairman and Chief Executive Officer of The Institute of Energy Economics in Japan.

Image: Lushengyi / Shutterstock.com.