Lanke, David A

Abstract
Economic and political power within the international system is becoming more diffuse. Nonetheless, China is today the principal challenger to the United States (Mansfield, this issue). The European Union (EU) remains an economic powerhouse, but is currently plagued by problems centering on the euro and the austerity Germany and the fixed exchange rate regime have imposed on the continent. Europe has also shown little interest in challenging the United States in past decades and, in fact, has been a stalwart supporter of American hegemony for nearly 70 years. Japan remains the world’s third largest economy and fourth largest trader, and after decades of stagnation may finally be on the road to economic recovery. Yet, it too remains a supporter of continued American leadership. Brazil, Russia, and India have garnered much attention recently but still rank low on the scale of economic power, whether measured by GDP or trade (Mukherji, this issue). China is the world’s second largest economy and largest trader. By any measure, it is the only country likely to overtake the United States in the near future, although its ability to do so is not a foregone conclusion. The distribution of international power may soon return to bipolarity.
The challenge posed by China to the United States, however, arises not just from its emergence as a twenty-first-century superpower. In the past, hegemons have managed transitions by challengers without significant conflict, as when Britain ceded leadership over first the Western hemisphere and then all of the world economy to the United States (Lake 1988). Rather, the challenge—if it occurs—will emerge from fundamental differences in the domestic political economies of the United States and China. The United States is a liberal market economy in which prices are the primary determinant of the allocation of resources. China is a state market economy, increasingly controlled by narrow party elites and their families, in which politics determine resource allocation. The United States has successfully generalized its liberal market system to the international economy through seven decades of hegemony. The question for the future is whether integration into the American-led international economy will transform China’s domestic political economy from statism to liberalism. If integration strengthens market forces within China, cooperation between the two superpowers will likely be expanded as common interests prevail. If political forces remain dominant in China, greater conflict may emerge.
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