The world’s leading powers: the U.S. VS. China (part 1 / 2)

6 min readMay 5, 2021

Summary

The U.S. is built on the ideology of liberty and equality for everyone
The U.S. is now challenged by polarization from widening wealth gap
China is an ever evolving meritocratic law system
China will face stronger headwinds because other countries won’t accept its culture and belief system

Background

I decided to immigrate from China to the U.S. in 2012. The decision making process was a rough one. From the perspective of staying at China:

For

Close to family and friends
Rich recreational activities
No culture shocks

Against

[dominant] More ill intentioned people
Air quality
Lower living standard comparing to U.S. for my job
Internet and critical learning resources are blocked(Google, Youtube, etc)

The driving reason is the much higher frequency of encountering ill intentioned people in China. This thought will be revisited in a new context: what on earth are China and the U.S. and where are they going? Will China supersede the U.S. as the world leading power, like many predicted?

I believe those questions are among the most relevant ones in today’s investment landscape. It is especially true for Chinese immigrants living in the U.S.

Disclaimer

All contents in this post are from my own study in history and personal understanding. I encourage interested readers to research the history and criticize my thoughts. My intention is to share my learning and inspire deeper thoughts, not to advocate for my verdicts.

The perspectives

A country is an incarnation of its culture. While empires come and go, the culture persists and evolves. A culture is a collection of ideologies. Reasoning at the level of a culture’s evolution gives me extra clarity and the ability to see the big picture.

The power of a culture depends on the answer to two questions: how to be with the world and how to be with each other. Different answers decide what the people will and can do.

When I say Americans or Chinese in this post, I mean the majority of them, not all of them. There are many Americans who are more close to the Chinese values and vice versa.

The United States of America

Europeans living in the New World

It’s a mistake to believe the U.S. history began in 1776. The U.S. is essentially the Western culture immigrated to the New World. I see it as a country with thousands of years of history, knowledge and wisdom, comparable with China.

For most of the past 2000 years, Europeans were significantly behind the East in most aspects. However, they managed to cultivate a culture that’s more dynamic and vigorous. This culture gave birth to science and technology which in turn shaped the world for the past 500 years. In its most advanced form and world leading status, the Western culture came to America, a rich new continent and became the United States of America. This is the nature of the U.S.

Age of Enlightenment, materialized

America is the materialized form of the ideas in the Age of Enlightenment. As clearly stated in the Declaration of Independence, the country is funded based on the core ideas of equality and freedom of everyone. It’s still an outlier even today.

These two ideas have deep roots in the majority of the Americans and deeply shaped the way they think about their relations with the world and with each other. As discovered in the bestselling, Sapiens: A Brief History of Humankind, shared ideas are the secret super power of our species. Collectively or individually, Americans’ behaviors can be easily understood with this perspective. Everything is about building a world of equality and freedom, about realizing the vision in the Declaration of Independence. Democracy, the constitution, the funding of government, all prevailing ideologies and shared values are natural follow-throughs.

That’s why the public are so angry about the manslaughter of African Americans and so mobilized to protest. To some extent, they even tolerate the damage to personal properties. That’s also the reason the U.S. public is supportive of the democracy movement from Hongkongers and are concerned about what happened to Uighurs in China. (Chinese public interpret such behaviors as unreasonable, stupid or hypocritical. You will know why soon.)

The country setup to success

In hindsight, the rise of the U.S. seems logical and natural:

A) They have a rich continent

B) They have shared values for the equal interest of everyone

A) gave the country abundant natural resources, B) attracts the best people from the world. Hardly any country in human history or current time ever has comparable advantage in both A) and B). They make the U.S. the splendid country we are familiar with.

While the polarization from political views and wealth gap endangered B) to some extent, Americans today still firmly believe in equality and freedom, non-negotiable. I think both of the conditions are intact today, so I believe that the U.S. is well positioned to navigate through this challenging time, just like it has done several times in history.

Wealth gap: Sword of Damocles

Almost invariably, the wealth gap is the driving power of the deterioration and destruction of great empires. All of them went through the cycle below.

In 1), a new country or social order is newly built, the wealth gap is small. All great empires enter 2) by establishing efficient policies and actively investing in infrastructure, education, research, economy and market, which brings prosperity. At the same time, the wealth gap begins to build up and won’t significantly shrink until the very last stage. The next step is a debt crisis resulted from over borrowing, like the 2008 financial crisis. The only solution is 4) debt monetization, if it’s possible. Notice that QE is by no means a novel technique, it’s just one version of printing money to buy debt. It has been applied for thousands of years. Like the debt crisis they try to solve, they are as old as our civilization.

4) can mitigate the debt crisis but can’t solve the underlying problem: people like borrowing money and will do so in an unsustainable manner. At the same time, printing money always deeply hurts people holding debt and cash. The shocks to rich folks with abundant assets(land, stock, real estate, gold) are much smaller. Because the have-nots only have a small amount of cash. They are made poorer at this stage. The wealth gap widened to unprecedented levels after rounds of money printing. We are experiencing this process today.

This wealth gap always results in a highly polarized society. The polarization is essentially conflict between the haves and have-nots. This can’t be solved until the wealth gap shrinks. Some countries managed to be salvaged by an favorable external environment and reforms, others were forced to go through violent revolutions.

For more detailed insights of the above mechanism, please read the changing world order by Ray Dalio.

WWI and WWII in this perspective

I think about America’s history 1865 to 1945 as one such cycle. Debt crisis began to heighten during the Great Depression. The new deal is a foundation for classic debt monetization, it saved America from immediate pain but can’t solve the intrinsic issues. The U.S. just lingered on until WWII.

The situations in other countries were similar to the U.S, but only worse. They didn’t have the rich land and resources like Americans, so they are less resilient to the shock to their economies. Japan and German chose a fascist path and decided to narrow their wealth gaps by invading other countries. Thus began the war.

During the war, the U.S. manufactured weapons, lended money to and later fought with their allies. In this process, the wealth flowed from Europe to the New World. This strong external wealth flow managed to shorten the wealth gap to a very low level. In the meantime, the U.S became the world leading power and created a world order that benefited most allies.

The history is easy to understand with this archetype of cycles. But that doesn’t make the future any more knowable. If I had to make a guess about now, I think we are at stage 5. Some significant changes are in order. But it’s also possible that some reforms will get us back to stage 2 or 3.