Ever since the United States ascended to global leadership at the end of World War II, American leaders have regularly been stricken by bouts of anxiety that the country is in decline and losing ground to a rival. The Soviet Union’s 1957 launch of the Sputnik satellite prompted such fears, as did Soviet expansionism in the 1960s. In the 1980s, Washington was seized by the worry that American industry was incapable of competing with Japan’s economic juggernaut. Even in 1992, just after the Soviet Union collapsed, an article in the Harvard Business Review asked, “Is America in Decline?”
Today, this perception of decline is wedded to fears about new vulnerabilities in the U.S. democratic system and the burgeoning strength of China. Both of these concerns have merit. Although U.S. voters disagree on the sources of the threats to American democracy, they broadly express an anxiety that their country’s democratic institutions can no longer deliver on the American dream’s promises. An October Gallup poll found that three-quarters of Americans were dissatisfied with their country’s trajectory.
Meanwhile, the story goes, China is powering ahead, pairing ambitious economic and diplomatic agendas with a massive military expansion while the United States staggers under the weight of inequality, stagnating wages, legislative gridlock, political polarization, and populism. Over the past three decades, China has indeed established itself as the factory of the world, dominating global manufacturing and taking the lead in some advanced technology sectors. In 2023, China produced close to 60 percent of the world’s electric vehicles, 80 percent of its batteries, and over 95 percent of the wafers used in solar energy technology. That same year, it added 300 gigawatts of wind and solar power to its energy grid—seven times more than the United States. The country also exerts control over much of the mining and refining of critical minerals essential to the global economy and boasts some of the world’s most advanced infrastructure, including the largest high-speed rail network and cutting-edge 5G systems.
As the U.S. defense industry struggles to meet demand, China is producing weapons at an unprecedented pace. In the past three years, it has built over 400 modern fighter jets, developed a new stealth bomber, demonstrated hypersonic missile capabilities, and doubled its missile stockpile. The military analyst Seth Jones has estimated that China is now amassing weapons five to six times faster than the United States.
To some observers, such advances suggest the Chinese system of government is better suited than the American one to the twenty-first century’s demands. Chinese leaders often proclaim that “the East is rising and the West is declining”; some U.S. leaders now also seem to accept this forecast as inevitable. Arriving at such a broad conclusion, however, would be a grave mistake. China’s progress and power are substantial. But it has liabilities on its balance sheet, too, and without looking at these alongside its assets, it is impossible to evaluate the United States’ real position. Even the most formidable geopolitical rivals have hidden vulnerabilities, making it crucial for leaders to more keenly perceive not only the strengths but also the weaknesses of their adversaries.
And although China will continue to be a powerful and influential global player, it is confronting a growing set of complex challenges that will significantly complicate its development. Following a decade of slowing growth, China’s economy now contends with mounting pressures from a turbulent real estate market, surging debt, constrained local government finances, waning productivity, and a rapidly aging population, all of which will require Beijing to grapple with difficult tradeoffs. Abroad, China faces regional military tensions and increasing scrutiny and pushback by advanced economies. Indeed, some of the foundational conditions that drove China’s remarkable growth over the past two decades are unraveling. But just as these new difficulties are emerging, demanding nimble policymaking, Chinese leader Xi Jinping’s consolidation of power has stifled political debate and sidelined technocrats, yielding a policymaking process that is brittle, reactive, and prone to missteps. Chinese young people now lament the narrowing space they have to achieve their goals, a trend that won’t change unless their country’s leadership does. But that event appears distant.
The United States still has a vital edge over China.
Even with its many shortcomings and vulnerabilities, the United States continues to command a strategic depth that China fundamentally lacks: a unique combination of economic vitality, global military superiority, remarkable human capital, and a political system designed to promote the correction of errors. The resilient and adaptable U.S. economy has the world’s deepest and most liquid capital markets and unparalleled influence over the global financial system. The United States continues to attract top global talent, including many Chinese nationals now fleeing their country’s autocratic political environment.
Put plainly, the United States still has a vital edge over China in terms of economic dynamism, global influence, and technological innovation. To highlight this fact is neither triumphalism nor complacency. It is the root of good strategy, because Washington can easily squander its asymmetric advantages if excessive pessimism or panic depletes its will, muddies its focus, or leads it to overindulge nativist and protectionist impulses and close America’s doors to the rest of the world. For despite its problems, China is still making headway in specific domains that challenge U.S. national security and prosperity, such as quantum computing, renewable energy, and electric vehicle production. A political-economic system such as China’s can remain a fierce rival in key areas even as it groans under the weight of its pathologies.
China most often gains primacy in areas in which the United States is dramatically underinvested. China’s greatest assets in its competition with the United States are not its underlying fundamentals but its hyperfocus and willingness to expend enormous resources, and tolerate enormous waste, in the pursuit of key objectives. That means that Washington cannot afford to retreat from sectors vital for competing in the twenty-first century’s economy, as it did in the case of 5G technology in the previous decade.
U.S. President-elect Donald Trump’s campaign rhetoric relied particularly heavily on the specter of American decline. The United States does face its own daunting array of problems abroad and at home, but these pale in comparison to those China faces. And Washington’s tendency to stress its rivals’ power and underestimate its own strengths has often backfired, becoming a trap that leads to serious policy errors. Even Trump’s most pessimistic advisers should understand this history—and recognize that U.S. leaders risk making costly missteps by adopting a reactive posture toward China instead of capitalizing on the United States’ comparative advantages to push forward its interests at a moment when Beijing is struggling.
CONFIDENCE GAME
Throughout the last century, the United States has consistently overestimated the strength of its rivals and underestimated its own. This habit became particularly evident during the Cold War, when U.S. officials and analysts were consumed by fears that the Soviet Union had grown superior in military might, technological advancement, and global political influence. In the late 1950s, for instance, U.S. officials came to believe that the Soviets had a much larger and more sophisticated stockpile of intercontinental ballistic missiles. Intelligence gathered by U-2 spy planes and other sources, however, later revealed that the so-called missile gap had been mostly imaginary. As the Cold War drew to a close, it became clear that the Soviet economy was crumbling under the weight of military expenditures, and much of the feared Soviet superiority was exaggerated or based on misinterpretations.
The tendency to underappreciate the United States’ strength is driven by a difference in how democracies and autocracies perceive and present their weaknesses. Democratic systems are more transparent and foster more debate about their own flaws. This can lead to a heightened focus on domestic shortcomings, making weaknesses appear more significant than they are. A democracy’s vulnerabilities can seem even more alarming when compared with the apparent strength of authoritarian regimes, which, conversely, punish criticism and disseminate propaganda in order to present a brighter picture than the reality. The Soviet Union strove to maintain a veneer of invincibility by censoring its press and mounting military parades. Its efforts to mask its economic stagnation, political infighting, and failure to innovate often fooled U.S. policymakers; the United States’ tendency toward self-criticism, meanwhile, obscured its own advantages.
Sometimes, this dynamic redounds to the United States’ benefit. The prospect of a rival’s ascendancy can mobilize American resources and political will: for instance, although the claim that the United States lagged the Soviet Union in its production of ballistic missiles was largely erroneous, the warning served as a powerful motivator for the U.S. government to boost its defense spending and accelerate its technological research. To some extent, the misperception that the United States was losing its comparative advantage helped it maintain that advantage. Similarly, the Soviet Union’s early space-race victories—and the fear that the United States would fall behind in a crucial, symbolic contest—prompted the U.S. government to create NASA, renew its investments in science education in American schools, and increase funding for scientific research. In this case, the worry that the Soviet Union was outstripping the United States was valuable, catalyzing beneficial investments that undergirded a subsequent half century of American technological superiority.
Underestimating geopolitical threats also comes with costs, as it did in the case of Nazi Germany’s rise in the 1930s, al Qaeda’s growth in the 1990s, and Russian President Vladimir Putin’s 2022 invasion of Ukraine. The chaos that these underestimates unleashed can make it seem as if it is generally safer to overestimate the threat posed by a potential adversary. But in many cases, developing an outsize fear of a rival has led the United States to misallocate government resources, lose sight of the need to nurture its own sources of strength, become distracted by peripheral threats, or even become mired in unnecessary wars. The United States’ immense financial and human investments in the Vietnam War, for example, were inspired in part by the so-called domino theory, which held that if the United States allowed Soviet-backed communism to take hold in Southeast Asia, communism would inexorably come to dominate the globe. That belief led the United States to fixate on winning a costly, protracted war that ultimately drained its resources, hurt its reputation worldwide, and eroded Americans’ trust in their own government. Decades later, a similar mobilization against an exaggerated threat—Saddam Hussein’s regime in Iraq—led to a disastrous and drawn-out conflict, domestic turmoil, and the further decline of the United States’ international credibility.
The United States’ tendency to point to a rival’s strength to spur domestic action has thus been a double-edged sword. On the one hand, perceived threats can mobilize resources, drive innovation, and foster unity in the face of potential challenges, as seen with the space race and military advancements during the Cold War. A useful overestimate is one that galvanizes constructive action without leading to paranoia or unsustainable commitments. Overestimates become damaging when they dramatically skew government priorities and distract leaders’ finite attention from other pressing issues. Recognizing the difference requires both a nuanced understanding of a rival’s capabilities and the development of a well-calibrated and sustainable response to them.
ALL THAT GLITTERS
Today, many in the United States fear that China will eclipse its power. On the surface, evidence for this prediction is abundant. In a variety of key capabilities, from hypersonic missiles to shipbuilding, China is increasingly powerful, if not dominant, which appears to demonstrate that China’s state-driven political-economic model remains more than capable of “concentrating power to do big things,” as Chinese leader Deng Xiaoping put it.
Yet the foundations of China’s strength are strained by mounting challenges. The country’s growth rate has steadily declined from its 2007 peak; the past five years, in particular, have ushered in stark structural problems and economic volatility. The real estate market, a core driver of China’s growth and urban development, is experiencing a historic correction with far-reaching implications. In August 2024, the International Monetary Fund estimated that roughly 50 percent of Chinese property developers are on the brink of insolvency. Their woes are driven in part by a persistent decline in housing prices, which as of October 2024, were falling at their fastest pace since 2015. Because more than 70 percent of Chinese household wealth is tied up in the property market, steep drops in the value of housing hurt not only developers but nearly all Chinese citizens.
The real estate crisis is affecting the finances of China’s local governments, too. These municipalities were long reliant on land sales to fund investment in public services and infrastructure. As property values and land sales falter, these municipalities are becoming strapped for revenue, preventing them from servicing their debt and providing essential services. In an April 2024 analysis, Bloomberg estimated that China’s local governments had, that month, generated their lowest revenue from land sales in eight years. To compensate, they have resorted to collecting arbitrary fines from local companies, clawing back bonuses paid to local officials, and even seeking loans from private firms to cover payroll.
Even Chinese citizens’ faith in Beijing’s economic stewardship is eroding. According to The Wall Street Journal, as much as $254 billion may have quietly flowed out of the country between June 2023 and June 2024—a clear signal of domestic disillusionment. Young people are turning to a posture they call “lying flat,” a quiet rebellion against societal expectations that demand relentless effort in exchange for increasingly elusive rewards. With youth unemployment surging to record levels, young Chinese people face a bleak reality: advanced degrees and grueling work no longer guarantee stable employment or upward mobility.
The external environment that formerly supported China’s meteoric rise is also characterized by wariness. Foreign companies that once rushed to tap the potential of China’s vast market are now approaching it with caution, and some are even seeking the exits. Foreign direct investment into China plunged 80 percent between 2021 and 2023, reaching its lowest level in 30 years. Beijing’s 2021 crackdown on the tech sector wiped out billions of dollars in value, and the country’s unpredictable regulatory and political environment has forced multinational corporations to rethink their China strategies. In September, a survey by the American Chamber of Commerce in Shanghai revealed a grim outlook: fewer than half of foreign firms expressed optimism about China’s five-year business prospects—the lowest levels of confidence in the survey’s 25-year history.
In the years following its accession into the World Trade Organization, China was warmly welcomed into global markets, with countries eager to benefit from its manufacturing prowess and seemingly limitless appetite for foreign investment. China remains deeply reliant on access to the world’s markets, but many foreign governments are growing ever more concerned about the strategic implications of China’s economic reach and military might. Many developing countries that initially embraced its Belt and Road Initiative as a pathway to infrastructure development, for example, are scrutinizing the project’s impact, worried about its negative effects on the environment and on local labor practices. Advanced economies such as Australia and Canada have erected new investment screening mechanisms to better protect their economies from national security risks stemming from Chinese investment. In March 2019, in a “strategic outlook” report, the European Commission formally labeled China a “systemic rival,” marking a shift from the traditional view that the country offered a market opportunity with few downsides. The EU subsequently moved to impose stricter regulations on Chinese investments in Europe’s critical infrastructure, technology, and digital sectors and tariffs of up to 45 percent on Chinese-made electric vehicles.
Washington’s tendency to focus on its rivals’ strength has often backfired.
Xi, meanwhile, has ushered in a governance style characterized by reactive, opaque decision-making, which often exacerbates China’s domestic and international tensions. By consolidating his authority within a small circle of loyalists, Xi has weakened the internal checks and balances that might otherwise temper policy decisions. Beijing’s handling of the initial COVID-19 outbreak is a striking example: the suppression of critical information, along with the silencing of whistleblowers, caused delays in the global response to the virus, contributing to its rapid spread beyond China’s borders. What might have been a well-coordinated local response metastasized into a global health crisis, exposing China to international condemnation and illustrating the pitfalls of a system that punishes dissent and cuts off sources of feedback.
Xi’s attempts to reduce economic inequality and curb the excesses of China’s booming private sector have followed a similarly opaque and erratic course. Policy missteps by the central government—such as its reluctance to bail out local governments and rein in shadow banking and capital markets—have intensified the fiscal pressure on the Chinese economy, triggering liquidity crises for giant real estate developers. Sudden and aggressive regulatory crackdowns in sectors such as technology and private education have sent shock waves through China’s business community and unsettled international investors. With his push to institutionalize what he calls a “holistic national security concept”—in which Beijing’s economic and political decision-making is guided by concerns about regime security—Xi has begun to erode the very sources of dynamism that propelled China’s rapid ascent. Since Deng began to open China’s economy in the late 1970s, Chinese leaders have striven to offer the country pragmatic, pro-market policies and to afford local politicians the flexibility to address their areas’ specific challenges. But hamstrung, now, by rigid and top-down directives that prioritize ideological conformity over practical solutions, local politicians are ill equipped to tackle the mounting pressures of fiscal insolvency and unemployment.
Entrepreneurs, once key engines of China’s economic miracle, now operate in a climate of fear and uncertainty, unsure of what Beijing’s next policy shift might be. The lack of transparency or legal recourse in government decision-making reveals the deeper flaws of centralized governance: policies are developed and carried out with little consultation or explanation, leaving citizens and businesses to navigate the fallout. Xi’s consolidation of power may offer short-term control and a capacity to achieve certain strategic and technological outcomes through brute force. But it risks rendering China’s policymaking apparatus increasingly tone-deaf, out of touch with both domestic realities and global expectations.
GOOD BONES
The extreme attitudes of either fatalism or triumphalism can easily obscure a more nuanced perspective that recognizes China’s expanding global influence while appreciating the United States’ unique and enduring strategic advantages: its resilient economy, innovative capacity, robust alliances, and open society. In dollar-adjusted terms, the U.S. economy remains not only larger than China’s but also larger than the next three biggest economies combined, and it is on track to grow faster than any other G-7 economy in 2024 and 2025, according to International Monetary Fund estimates. During President Joe Biden’s tenure, the United States more than doubled its GDP lead over China, and its share of global GDP remains near the level it was in the 1990s. Analysts such as the Rhodium Group’s Logan Wright have predicted that China’s share of global GDP peaked in 2021 and will likely remain below that of the United States for the foreseeable future. Even observers who think the outlook for China’s economy is less dire agree that its growth is slowing and will be constrained by structural challenges and a clumsy policymaking process.
American companies dominate global markets: as of March 2024, nine of the world’s ten largest firms by market capitalization were American; China’s largest firm, Tencent, ranked twenty-sixth. And the United States continues to attract the most foreign capital of any economy, in stark contrast to China’s increasing capital outflows. The United States also has more high-skilled immigrants than any other country; China, meanwhile, struggles to attract any significant amount of foreign-born talent.
As the artificial intelligence revolution accelerates, the United States is particularly well positioned to become the global epicenter of AI innovation and diffusion. According to Stanford University’s Global AI Power Rankings, the United States leads the world in artificial intelligence, possessing a substantial lead over China in areas such as AI research, private-sector funding, and the development of cutting-edge AI technologies. Over the past decade, the United States’ tech sector has consistently outpaced China’s in AI, creating more than three times as many AI-focused companies. In 2023, U.S. companies developed 61 significant AI models compared with China’s 15, reflecting the strength of the United States’ AI ecosystem. That same year, U.S. investors poured nearly nine times more capital into AI than China did, funding the launch of 897 AI startups, far surpassing China’s 122. This success stems in no small part from a decentralized, market-driven approach that China, as it is currently governed, cannot emulate. The United States’ relatively flexible regulatory framework, the free collaboration it permits between private companies and academia, and its ability to attract talent give it an edge.
As the world’s largest oil importer, China relies on imports for over 70 percent of its oil needs, leaving it vulnerable to global disruptions. Geopolitical tensions, supply-chain bottlenecks, or regional conflicts could severely jeopardize China’s energy security. The United States, by contrast, has nearly achieved energy independence and has emerged as a leading global producer of oil and natural gas. Its energy dominance is driven in part by strong innovation in areas such as advanced fracking and horizontal drilling, and the United States uses its preeminence to shape global energy markets and strengthen its geopolitical leverage. After Russia’s invasion of Ukraine disrupted Europe’s energy supply, for example, the United States quickly increased its exports of liquefied natural gas, reducing Europe’s dependence on Russian energy.
The dollar’s status as the world’s primary reserve and settlement currency gives the United States unparalleled financial leverage, although it also has downsides. In 2023, nearly 60 percent of global foreign exchange reserves were held in dollars, far outpacing the euro (around 20 percent) and the yuan (less than three percent). That gives the United States advantages such as lower borrowing costs, greater flexibility in managing its debt, and the ability to impose sanctions. At the same time, the dollar’s global status imposes costs on the U.S. economy, such as a persistent trade deficit and pressure on manufacturing when it makes American exports less competitive. But these are problems Beijing wishes it had: it is actively promoting alternatives to the dollar and has unveiled a digital currency to try to blunt the United States’ ability to weaponize its financial system.
China’s investments in aircraft carriers, stealth-capable submarines, and AI-driven systems are reshaping the Indo-Pacific’s military balance and creating an undeniably challenging operating environment for the U.S. force posture there. Beijing’s defense industrial base now produces fifth-generation fighter jets, hypersonic weapons, and sophisticated missile systems at scale. Its development of anti-access/area denial (A2/AD) capabilities reflects a strategic focus on limiting the U.S. military’s freedom of action in the western Pacific. Despite these advancements, however, China’s military also faces serious obstacles. It is grappling with corruption, which could undermine its operational efficiency and readiness. Its lack of combat experience means that it is uncertain whether it could execute complex operations under the pressures of modern warfare. And any conflict within or near China’s territorial waters would likely have a disproportionate impact on the Chinese economy, which relies heavily on maritime trade and trade with its immediate region. The U.S. military’s ability to project power on a global scale, by contrast, remains unmatched, supported by extensive combat experience, a vast alliance network, and forward-deployed forces stationed across the world.
Perhaps most significantly, however, China cannot yet match the United States’ greatest force multiplier: its global alliance system. The United States’ partnerships with NATO and close treaty allies in the Pacific such as Australia, Japan, the Philippines, and South Korea allow it to form a united front in the face of natural disasters, technological competition, and adversarial ambitions. These alliances are more than symbolic. They enable real-time coordination that allows the United States to pre-position forces far from its shores, thus amplifying its military effectiveness and readiness. A superpower is a country capable of projecting force and exercising influence in every corner of the world. The United States meets this definition. China does not, at least not yet.
The decentralized nature of the United States’ democratic system, in which significant governance responsibilities remain vested with state and local authorities, remains an American advantage, too. Unlike in China, the United States’ regular electoral cycles and peaceful transfers of power enable citizens to insist on change when they become dissatisfied with the country’s trajectory. And although the United States must urgently address the many threats to its democratic norms from extreme polarization and institutional erosion, it still boasts serious checks on presidential power from a free media, an independent legislature, and a transparent legal system.
FALSE CEILING
It is vital to remember that Beijing’s greatest wins have tended to occur not in spite of American efforts, but in their absence. Take 5G telecommunications: China developed and deployed next-generation wireless networks at breakneck speed, cornering markets in Africa, Asia, and parts of Europe. This did not happen because the United States lacked the capacity to compete, but because it was slow to invest in domestic alternatives and unwilling to mobilize resources to scale a national strategy at China’s pace.
China’s especially rapid advancements in quantum communications and satellite networks underscore the extent to which it has prioritized leadership in technologies that the United States has been slower to embrace or fund at scale. This success has been driven by government subsidies, aggressive industrial policies, and a singular focus on securing critical raw materials, often at a high geopolitical and environmental price. These gains come with other costs, too. The Chinese government’s laser focus on specific strategic domains has diverted its attention and resources from projects that would drive longer-term economic growth, such as reforming the social safety net and boosting domestic consumption.
As China struggles, the United States should press its advantages. To do so, U.S. policymakers must make significant investments in areas in which the United States appears strong, boosting funding for research and development and cutting-edge industries, attracting global talent through targeted immigration reform, fortifying alliances in Asia and Europe, and rebuilding the U.S. defense industrial base. If American leaders continue to wring their hands over China’s ascendancy instead of taking these crucial steps, Washington’s strategic advantage could quickly erode.
It is undeniable that the United States faces serious challenges. But it is equally undeniable that it retains extraordinary strengths—and that its democratic institutions, albeit stressed, possess a unique capacity for renewal. Competition between the United States and Beijing will be a defining feature of the coming decades. But although China’s centralized governance may deliver rapid advancements in key areas, its gains are fragile. The real peril for the United States may lie not in the unmatchable rise of a new rival but in its own unwillingness to acknowledge and build on its own unmatched potential.