The world has two great powers – the United States and China. And though being a great power isn't what it used to be, great powers still matter. Their reach has been much reduced since 1945, not so much by competitors as by their inherent natures. In future, the most successful will be those that can use their multiple strengths (both hard and soft) to get others to follow them. The will and the skills for mutual accommodation will be indispensable.

The world needs a grand bargain from the U.S. and China that combines a rebalancing and reshaping of the global order along with a solution to the North Korea crisis. Henry Kissinger, the U.S. secretary of state who took Richard Nixon to China, recently said we are at a rare moment when the interests of both America and China coincide. Zbigniew Brzezinski, Jimmy Carter's former national security adviser, said something similar in 2014: "The post-Cold War era was not really an 'era' but a gradual transition from a bilateral Cold War to a more complex international order that still involves … two world powers. The decisive axis of the new order increasingly involves the United States and the People's Republic of China. The Sino-American competition involves two significant realities that distinguish it from the Cold War: neither party is excessively ideological in orientation; and both parties recognize that they really need mutual accommodation." The arrival of Donald Trump may have changed this.

The rise of China

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China's sudden global economic surge in 2005, and the U.S.'s excessive borrowing spree after 1981 and its geopolitical overreaches into Afghanistan and Iraq, led to the 2009 financial crisis, chaos in the Middle East, the Russian annexation of Crimea and military interventions in Ukraine, Brexit, and the election of Mr. Trump. These developments resulted from the unsustainable global imbalances that now dictate America's withdrawal from ground it can no longer hold.

This withdrawal began in a measured way under former president Barack Obama, but now, under Mr. Trump, the U.S. has moved on to a disruptive undermining of the global order achieved since 1945. There is no practical alternative to mutual accommodation and a largely rules-based global order. Today, China's president Xi Jiping seems to understand that better than Mr. Trump.

The U.S. and China, 2017

The centrifugal forces within the West and between the West and the rest of the world must be contained. When the European countries failed in 1914 to find an inclusive path for a rising Germany, their behaviour led to the Western-driven global horror story that culminated in the Second World War. A comparable horror story now awaits the world if it does not find a path to a reshaped world order. As Harvard professor Graham Allison writes in his indispensable book Destined for War: Can America and China Escape Thucydides's Trap, "It was the rise of Athens and the fear that this instilled in Sparta that made the war inevitable." With China and the U.S., we face this ancient conundrum all over again.

Unlike in the 1914-45 period, the U.S. and China are among the world's destabilizing forces. Although they both have strengths to work with, they face huge domestic challenges. After 1945 the West sought two goals, both through U.S. leadership: to bring greater peace and prosperity to the world; and to contain the Soviet Union and China until they were ready to join the inclusive order as leaders. Today, the potential danger in Brexit/Trump populism and a subversive/aggressive Russia should bring China and the U.S. together to lead a new effort for inclusive global order – order that would be more responsive to differing needs, and yet still be based on equivalence.

China's Mr. Xi may, right now, be the only leader with the strength and the willingness to try to preserve a largely rules-based inclusive global order – and he should act sooner rather than later. He has the motivation: China, more than the U.S., depends on the global economy, especially for resources.

The post-2010 world

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In 2010 a group of Canadian business people sponsored a symposium in Shanghai. The objective was to alert China to the danger in its excessive reliance on high net exports to the U.S.. Though the Canadians did not predict Brexit or Trump, they made these points – which I've commented on in light of the situation today:

  • This is a high-stakes moment in human history. The postwar achievement of an inclusive global economic order is at risk and may prove to be beyond the collective ability of the world to sustain. (This prediction is now happening.)
  • China played no role in creating the conditions that led to the debt crises – trends that had been forming over 25 years. But China’s strong arrival on the global scene early in the 2000s overwhelmed a global system that had become vulnerable to adverse shocks. China will be central to when and how we get out of the current mess. (Although China’s too great a reliance on exports over imports has lessened, it still has a long way to go.)
  • American politics pose the greatest single potential danger to global prosperity and to preserving the inclusive global economic order. (In 2017, this prediction is beyond doubt.)
  • The U.S. Administration does not yet have it right on the economic challenge. (It has been able to get the monetary/fiscal balance largely right, but has been unable to carry out much needed tax reform and infrastructure investment because Congress has refused to compromise.)
  • Economic activity and markets are important, but balance sheets and the gap between policy and political will are even more important. (This is generally still the case.)
  • During the past 20 years, three of the world’s largest economies – first Japan, then Germany, and now the United States – have had balance-sheet recessions. (The U.S. has come through, but can no longer play the role of global economic engine; Europe, Japan, and China have been struggling, but are now doing much better. China has not yet found the right economic path forward but is trying.)
  • The best scenario going forward requires the U.S. to get some reasonable level of natural, self-sustaining recovery and some help with growth from countries with a surplus. Even then it will still be a long, slow struggle to achieve assured, stable global growth. (We are not there yet. The U.S. did not really get any help from surplus countries after 2008. A boost did come from shale gas, but not the needed balanced growth in global demand. Now, after a long absence, global growth is synchronized).
  • Canada, although a small country, can play a helpful role. (That is even more true now, with the arrival of mR. Trump and the inward-looking electorate mood of 2017 America.)

China's astonishing path

China started down its new path in 1979. The Industrial Revolution began in Britain 250 years before and sustained globalization 65 years ago. By 2005 China had compressed these two massive transformations into 25 years. China's sudden export surge and current account surplus – the result of jobs outsourced from the U.S. and money borrowed to enable this increasingly debtor nation to live beyond its means – created huge systemic vulnerability in the overall global economy. No country in history has ever improved its economy as quickly as has China in recent years. However:

  • The U.S. and its blue-collar workers bore too much of the burden, as the 2016 election proved.
  • History will likely say that 2005 marked a fundamental transition moment, when emerging-market economies, led by China, began to help shape the global economic order. China’s fast ride initially affected financial markets primarily. The 2005 China surge, however, was a key cause of the post-Lehman-Brothers mess that emerged two years later in the United States and of the Brexit-Trump mess in 2016. The Trump United States sees the negatives of the trade deficit role, but not its own debt complicity. The U.S. and China must now begin to listen to each other and to others. U.S. diplomats do it, but Americans in general less so. What Canada can bring to each country is the listening skills it has developed to survive, along with more fair-mindedness. These qualities can help the two big guys, so long as they are ready to use them.

Strengths and stories

When my wife practised family therapy, she always said that in looking ahead we should start with reflecting on strengths and good stories. One of America's weaknesses is that the majority of its population has little understanding of its strengths and stories. China is very conscious of its thousands of years of history and its amazing post-1980 achievements.

The U.S., in contrast, has no understanding of why or how it successfully led the creation of the postwar inclusive global order, and so it began to overreach after 1980. The neo-conservatives intruded into the domestic orders of other countries and espoused regime change; that has put the world order at risk. The world today needs to find political consensus to use its many strengths to avoid another 1914-45 horror story.

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Getting to a grand bargain

China and the U.S. have to find a path toward a "grand bargain" in reshaping the global order. No one really believes that war will break out in North Korea (though it could happen), and that reduces the U.S. leverage against China and North Korea, and China's against North Korea. However, the U.S. can get its leverage from its own interest, and China's, in preserving and reshaping the global order and keeping the Korean peninsula and Japan nuclear-free. Achieving this goal will likely need some private-sector leadership, especially from China, along with finding a way to bring Canada's successful mutual-accommodation ways into play on both sides. What North Korea needs is its independence guaranteed and freedom from externally-imposed regime change.

In shaping this new global order, China has four long-term challenges: economic reform; respect for the rule of law; devising a political system for the future; and expanding its role in the world. The U.S. in turn has one big challenge: to contain its persistently divided nature reflecting its win/lose, black/white, no-compromise political and societal culture. In addition, Americans must come to better understand the huge array of strengths they possess – and use them to maintain peace, prosperity, and security.

China and Russia

Great countries make mistakes, some of them big, but they get the most important things right. Since the end of the Cold War, China, unlike Russia, has got the greatest things right in three very big ways:

  • China chose economic reform first; Russia embarked on political reform first;
  • China chose to be mostly constructive in its growing international role; Russia has been aggressive and subversive; and
  • China has looked backward to its history and used that inheritance to move forward; Russia has looked to its past in order to go backward.

Canada has a real role

Canada is well placed to play a real role in shaping the new global order so long as the U.S. and China are open to working together for their own advantage and for the world. Canada has to move quickly and carefully on two fronts:

  • First, to establish steadily-improving trade arrangements with China;
  • And second, to bring its strengths in mutual accommodation to each of these countries to help them achieve this most single important goal in the world. Both the U.S. and China have the strength and the ability, but they need to have a better understanding of themselves and of the other. They need to find a way to respect not only each other, but other countries, too. That is difficult for nations that regard themselves as exceptional.

For further reading:

Destined for War: Can America and China Escape Thucydides's Trap? by Graham Allison; Living with China by Wendy Dobson – upcoming; Canada and China – Globe essay of March 24, 2016

William A. Macdonald is a corporate lawyer turned consultant with a long history of public service and social engagement.

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