At the heart of the problem in defining an economic strategy toward China is the following awkward fact: Suppose China had been fully compliant with every trade and investment rule and had been as open to the world as the most open countries at its income level. China might have grown faster because it reformed more rapidly, or it might have grown more slowly because of reduced subsidies or more foreign competition. But it is highly unlikely that its growth rate would have been altered by as much as 1 percent.
Equally, while some U.S. companies might earn more profits operating in China, and some job displacement in American manufacturing because of Chinese state subsidies may have occurred, it cannot be argued seriously that unfair Chinese trade practices have affected U.S. growth by even 0.1 percent a year.
This is not to say that China is not a threat to the international order. It is a seismic event for the United States to be overtaken after a century as the world’s largest economy.It's worth spelling out the underlying logic here a bit. The formula for economic growth is to invest in human capital, physical capital, and technology, in an economic environment that provides incentives for hard work, efficiency, and innovation. China has made dramatic changes in all of these areas, and they are the main drivers behind China's extraordinary economic growth in the last four decades, and its expectation of above-global-average growth heading into the future.
But in 21st century, when it comes a wide array of decisions--international trade talks, decisions of the the International Monetary Fund and the World Bank, who leads the way during global financial crises, who dominates the flows of international investment capital and foreign aid, who has the power to impose trade or financial sanctions, and what kind of military threats are most credible--the shifts in the global economy suggest that the high-income countries of the world will not dominate as they did during most of the 20th century. Instead, countries with the world's largest economies, but much lower standard of living for their populations, will play a central role in setting the rules.