For more than a decade, most of the world has subscribed to the idea that the rise of China is inexorable and the relative decline of the United States is inevitable. The main basis for this conviction has been China’s relentless economic growth with a population more than four times greater than the U.S. Other comparisons have buttressed the case—for instance, between China’s impressive high-speed rail system and America’s underwhelming Amtrak. Sometimes it is worry over Chinese technology, the growing number of patents, and research in artificial intelligence and quantum computing, or the awe-inspiring Belt and Road Initiative. Often this is contrasted with American social and political dysfunction, ailing public education, and lagging investments in infrastructure, science, and technology. The sense of a waning America has been compounded by our failures in Afghanistan, entanglements in the Middle East, anxieties over the future of Ukraine and NATO, and inability to resolve pressing issues such as immigration and growing federal debt.
A few years ago, this talk aroused fear of a “Thucydides trap”—the inevitable conflict between a rapidly rising power and a declining one. As recently as 2021, Chinese President Xi Jinping proclaimed that “the East is rising, the West declining.” Former President Donald Trump is still pitching to his faithful that “we are a nation in decline. We are a failing nation.”
But outside of Trump’s rallies, there is less and less of this sort of talk, for a simple reason: It turns out not to be true. As The Economist, Time, and other media outlets have recently reported, the United States has not been overtaken economically by China. Quite the opposite: China’s economy is struggling, while America’s is surging. But it is not just the economy. On almost every measure of national strength—from GDP to energy output to technological innovation to military alliances—America’s dominant position relative to other major countries is growing, and has been for several years.
The most fundamental element in America’s power, today and for the future, is the economy. President Joe Biden, inaugurated just as the United States faced a new strain of COVID-19, began his term with a firm plan to reverse 40 years of Republican-dominated economic policy. He called it Bidenomics—as distinguished from Reaganomics. It has indeed been different, and remarkably successful. Though most voters have not yet credited Biden himself, the percentage who think the United States is the leading economic power in the world has been rising since 2021, according to Gallup, and that perception is increasingly shared around the globe, the Pew Research Center reports.
America’s strong and resilient economy is a godsend at this moment because we are facing the most dangerous period in our history since at least World War II. China, Russia, Iran, and North Korea are building an alliance of convenience against the United States and our allies. Our military-industrial base, depleted over recent decades, struggles to field sufficient quantities of even the most basic weaponry, such as artillery shells (see “Why Can’t America Build Enough Weapons?” by Mike Lofgren), much less a robust nuclear deterrent. And illiberal, pro-Putin political movements threaten democracy on both sides of the Atlantic.
These are grave challenges. But we compound them if we inaccurately estimate our own position. Were America truly a nation in decline, economically and otherwise, then those who argue for accommodating our adversaries and lessening our commitment to the global order might have a point. But American power is not declining—it is on the rise. We have the economic means and necessary alliances in place to deal with all of these challenges, and we can succeed.
The Reaganomics of the 1980s was meant to free up private enterprise in America, reduce government spending and taxes, “get government out of the way,” and increase economic growth. Coming after a decade of painful price shocks in the oil market, worrisome inflation, high interest rates, and relatively stagnant economic growth, it was welcomed by Wall Street and business leaders. Some claimed that tax cuts would spur so much economic growth that actual tax revenues would increase. Keynesian, or demand-side, economics had fallen out of favor, and instead leading economists favored using the money supply to deal with matters such as inflation and GDP growth.
Reaganomics also called for scaling back regulatory measures implemented during the Great Depression. That included eliminating restrictions on mergers and acquisitions, with government relying on “perfect market theory” to assure free and fair competition and produce low prices. Business schools began to teach the shareholder theory of value, which prescribed that the purpose of corporations was solely to deliver profits to their shareholders—measured by dividends and share price—rather than communities and workers. Labor unions were attacked as interfering with free markets in goods, capital, and labor.
After 40 years, the record of Reaganomics is decidedly mixed. Interest rates began as high as 21.5 percent and did fall over that period, including, after the Great Recession in 2008–09, to less than 1 percent. Inflation soon eased, and prices rose more gradually. Much private wealth was created. But instead of the benefits “trickling down,” as was promised, real wages for most Americans barely budged. Large firms swallowed smaller ones in sector after sector, from retailing to banking and finance, dampening competitive marketplaces, small business creation, and entrepreneurship. Repeated tax cuts never produced greater government revenues, despite the partisan rhetoric. Instead, during the eight years of the Reagan administration, the national debt tripled.
After 2000, Republican administrations again cut taxes repeatedly, each time creating a larger deficit. Wars in Afghanistan and Iraq brought deficits back and increased public debt alarmingly. The lack of effective regulation in derivatives and mortgage finance led to the Great Recession, which cut the stock market in half, caused millions to lose their homes, and roused great anger. Offshoring, and the wealth it created, should have been used to help retrain and reemploy the workforce, but wasn’t. Instead, real wage increases for the majority of Americans lagged far behind the growing incomes and accumulating wealth of the top 10 percent, and especially the top 1 percent. Private debt increased enormously—for cars, college, and homes. Growing inequities and the shock of the recession created rising public anger, expressed in the Tea Party movement and in the election of populist politicians, including Donald Trump.
When he came to office, Biden had seen it all—from his time as senator during the era of oil price shocks and stagflation, through the Reagan years of supply-side economics, into the Third Way of the Clinton period, the wars and deregulation of President George W. Bush, the 2008–09 recession, the relatively feeble and slow recovery during the Obama administration, and the further tax cuts of President Trump. Biden was determined to make a change. And he has.
Bidenomics essentially tends to the demand side of the economy rather than the supply side, and uses the power of government to assure the very goals that Reagan himself announced some 43 years ago: “a healthy, vigorous, growing economy that provides equal opportunities for all Americans with no barriers of bigotry or discrimination … putting all Americans back to work … ending inflation … all must share in the productive work of this ‘new beginning,’ and all must share in the bounty of a revived economy.” It’s ironic that it is taking a Democrat to achieve these objectives.
The pillars of Bidenomics include using public investment, empowering middle-class workers, and promoting business competition. After the dislocation of the pandemic, Biden’s aim was, in his phrase, to “Build Back Better.” His proposed legislation included the American Rescue Plan Act, the American Jobs Plan, and the American Families Plan. The American Rescue Plan Act, passed in 2021, included $1.9 trillion in economic rescue funds for businesses, individual direct stimulus payments, a fully refundable child tax credit, and eviction and foreclosure moratoriums, among other benefits.
Many of the proposals of the American Jobs Plan and the American Families Plan were eventually worked into other bills, including the Infrastructure and Jobs Act and the Inflation Reduction Act. In addition, in 2022, Congress passed the CHIPS and Science Act, to incentivize semiconductor manufacturing in the U.S. Together, these bills authorized some $4 trillion in specifically targeted government spending over the next several years, designed to help the nation recover from the pandemic, provide needed funds to American families, repair and replace the nation’s infrastructure, address climate change, and improve the provision of health services. Of course, all of this was analyzed by the Congressional Budget Office; expenses were somewhat offset by managing tax receipts, helped by a sizable investment in the IRS, and other expenditures.
But Bidenomics has also included other elements that don’t involve spending significant tax dollars but instead flex public muscles that government had almost forgotten how to use. The Federal Trade Commission and the Justice Department reinvigorated antitrust enforcement to promote competition and reduce monopolistic power in the marketplace, including banning noncompete clauses that overpower labor mobility and limit the ability of workers to seek higher wages by offering their services to competing firms. The administration took scores of actions to reduce the bottlenecks and improve the resiliency of supply chains, which were raising costs to consumers directly and indirectly. And after decades of scant federal support for—and at times outright opposition to—organized labor, Biden put the government squarely behind strengthening the power of unions to give workers a greater voice and more power. He also was the first president to march with striking workers on a picket line.
The administration has worked tirelessly to provide relief for unfair, anticompetitive, and crushing student debt—another effort to restore spending power to the middle class and rebuild the economy from, as Biden says, “the bottom up and middle out—not the top down.” And, notably, the president respected the independence of the Federal Reserve as it raised rates to dampen inflationary tendencies.
Over the past three years, the results have been remarkable. Under Biden, the economy has added more than 15.2 million new jobs (through the first quarter of this year), including 800,000 new manufacturing jobs. The economy had added more than 5 million new small businesses by the end of 2023. Unemployment has fallen below 4 percent and stayed that way for the longest streak since the 1960s. U.S. wages are growing at the fastest rate in five decades, and outpacing inflation. Americans are saving more for retirement than ever before. U.S. GDP grew by roughly 6 percent in 2021, and above 2 percent in real terms in 2022 and 2023.
New support for infrastructure is everywhere. Investments in renewable energy are soaring. Chip manufacturers are adding new facilities in the United States. Threatening mergers in the data and health care industries have been blocked, and unions are regaining strength, with autoworkers in Tennessee recently voting to unionize—a huge step for that state. Prices on several essential drugs, including insulin, have been reduced for those on Medicare. So much for trickle-down, supply-side economics! Biden has moved the economy a long way in the direction of helping ordinary Americans.
Were America truly a nation in decline, economically and otherwise, then those who argue for accommodating our adversaries and lessening our commitment to the global order might have a point. But American power is not declining—it is on the rise.
Although interest rate hikes had an immediate impact on the housing market, by February 2024 existing home sales had made their largest monthly gain in a year, amid expectations that the period of mortgage rate hikes is ending. Annual inflation has plummeted from its 9.1 percent peak in 2022 to a little over 3 percent, which is excellent progress (though still above the Federal Reserve’s target of 2 percent). And while the Fed isn’t reducing interest rates fast enough to please Wall Street, the higher rates are a boon to savers, who were losing an estimated $250 billion per year under the ultralow rates during the Obama administration. Consumer spending remains high, and even Wall Street seems to shrug off the bumpy predictions. Moreover, by focusing on growing the economy from the middle out and bottom up, the president is moving to relieve the disparities and inequities that have heightened the red-blue divide in America.
The United States is the only Western country that is growing and creating jobs at such a rate. American GDP is now 26 percent of global GDP—up from 24 percent in 2019—and increasing. Recent headlines proclaim that the eurozone is stagnating. America’s economic resurgence is sending a powerful message. Headlines in The Wall Street Journal, Bloomberg, and other business-oriented media outlets proclaim that the U.S. is growing faster than China. American allies as well as fence sitters in Asia and the Middle East have taken notice. Autocratic, state-directed economic growth looks less compelling now, a mixed-market, democratic-based economy relatively more attractive.
Even the foreign policy cognoscenti is awakening to the sea change in expectations. Some talk about China’s peak power and American resilience. Others note that the decline of U.S. power has been greatly exaggerated. The date by which China’s GDP would overtake that of the United States has been extended by several years, from the late 2020s to the mid-to-late 2030s, and according to some forecasts might not catch up until the 2040s, if then.
But there is even greater American strength behind the headlines. This includes technology, energy, strong capital markets, personal and financial security, a growing population, and a strong private sector.
The United States is maintaining crucial leads over China in advanced technologies like AI and quantum computing. For all the worry about Huawei over the past five years, Chinese companies have been dependent on importing the most advanced chips. These are designed for and cut using extreme ultraviolet technology. China lacks the technology, the most advanced of which is Dutch, and the U.S. has taken measures to prevent China’s buying or stealing it. The American company NVDIA is also under U.S. restrictions on the selling of its most advanced chips to China. This has hobbled Chinese efforts not only in advanced cell phone telephony but also in quantum computing and AI.
Of course, China’s industrial espionage capacities are legendary, and we can expect that the country will find ways to either evade the sanctions or gather the proprietary information it needs to build its own more advanced chips. But our lead in AI should give us the ability to better detect leaks in the sanctions and the flow of information and thereby maintain our advantage, at least for a while.
Biotechnology is another area in which China has struggled to catch up. The COVID vaccine that they rushed to the market was relatively ineffective. The U.S. lead in RNA technology is substantial. American efforts in stem cell research and differentiation have been extremely effective and have overtaken earlier Chinese efforts in this area.
In space, where there is fear of Chinese anti-satellite technologies, and in cyber, which could threaten our critical infrastructure systems, the U.S. has always been ahead and, so far as can be determined at the unclassified level, retains its lead in both areas.
In energy, the United States is the world’s leading producer of oil—ahead of Saudi Arabia and Russia. Our natural gas supplies are abundant. And while the U.S. would like to transition to green energy as rapidly as possible, these hydrocarbons currently provide an essential foundation for national economic power. In the area of renewables, China does have the lead in low-cost solar power panels, but only because of Chinese government subsidies.
This is precisely why market-driven solutions must be supplemented by wise industrial policy. Everything from car mileage standards to rebates on U.S.-produced electric vehicles plays to renewable portfolio standards, and net metering will contribute to our catch-up in solar energy production. In areas of the most critical national needs, we cannot simply let the market decide. Another carbon-free energy source is nuclear power; the United States is gaining in the development and certification of small modular nuclear reactors, and these will become increasingly important in the future.
American capital markets are the largest and strongest in the world. Over the past three years, market indexes have risen markedly, despite the inflationary shock of 2022. From January 2021 through May 2024, the S&P index has gone up roughly 41 percent, the NASDAQ 30 percent, and the Dow Jones Industrial Average 24 percent. Under SEC regulation, the markets have been, on the whole, remarkably free of corruption. They have been continuously modernized for faster transactions and reporting. For the 12th year in a row, the United States is the top destination for foreign direct investment. Investors here and abroad trust the U.S. regulatory and courts system, as well as the role of the Fed and Treasury in regulating the nation’s banks and money supply. There is no such trust of China, with its large state sector, state subsidies to industries, under-performing loans, jiggered financial statistics, and continuing government interference at multiple levels.
Immigration has been one of the greatest American strengths, and it shows continuing momentum. The United States draws far more immigrants than any other country. As the prime-working-age native-born U.S. population has dropped, millions of immigrants have surged into the country to fill available positions. This one factor has enabled the economy to continue to boom and add jobs even as the Fed has raised interest rates, and at the same time has helped somewhat in holding down wage-push inflation as the economy expands. Immigrants also make up almost a quarter of the highly educated STEM talent in the U.S., and according to recent data almost 40 percent of software developers.
The use of the dollar as a reserve currency and in international commerce is yet another advantage. Almost 60 percent of world currency reserves are held in dollars, versus a little over 2 percent in Chinese renminbi. This enables the United States to finance its national debt at a lower cost and facilitates the Fed’s regulation of the economy. Under Biden, the country has maintained the dollar’s central role despite efforts by China, Russia, and some countries in the Global South to dislodge it.
The U.S. dollar dominates trade—half of Europe’s international trade and 70 percent elsewhere in the world is conducted in dollars. The same is true in international banking, with more than 60 percent of international claims and liabilities denominated in dollars. Payments for trade usually go through the SWIFT system, which is governed by Western central banks, and although many fintech competitors have emerged, SWIFT’s large network and continuing modernization seem to assure its continuing leadership in international transfers. The dollar gives the United States great power in imposing financial sanctions as well as gaining financial intelligence. And, as I wrote in these pages last year, American companies own and control the underseas fiber optic cables through which most of the world’s financial data flows, and U.S. intelligence and financial regulatory agencies have access to that data. This gives the United States unparalleled, granular insight into international financial transactions, a form of hard power other nations understand—and fear.
Even the supply of critical minerals necessary for modern electronics and batteries, long a concern for U.S. national security, is being addressed. China has held the lead in rare earths for decades, simply because they have accepted the environmental costs and hazards of processing the ores. In the past, American firms actually shipped rare earths to China, which then processed and hoarded them, dumping as necessary to undercut new market entrants. China has also made strides in dominating African sources of cobalt. But the U.S. is now prioritizing its access to cobalt, rare earths, and other critical minerals. Most of these key materials, including lithium, are present in the United States. With increased attention to onshoring, recycling, and developing new materials—all part of the Department of Energy’s strategy—we can greatly improve access to critical minerals.
Joe Biden came to office determined to repair relations with American allies. He said, “America is back”—and he’s right. We’ve strengthened NATO, our most crucial alliance. European allies, with the exception of Hungary, have backed away from closer relationships with China and rebuffed recent Chinese efforts to dominate European infrastructure investments. The Biden administration has helped our two allies in northeast Asia, South Korea and Japan, to overcome their long-painful relations with each other and forge a bilateral security agreement to counter China’s rising power in the region. Elsewhere in Asia, the U.S. has strengthened our long-standing alliance with Australia, and informally joined with Japan, Australia, and India—the so-called Quad—to manage the challenges of China. The administration also has negotiated new basing agreements with the Philippines and increased diplomatic attention to the islands of Micronesia and other islands of the Pacific.
Of course, there are challenges ahead. The American government is running an annual deficit; our national debt is now equal to our GDP. The long-term funding of Social Security and Medicare must be assured. Some tax rates will need to be adjusted to better protect the middle class. The use of electric vehicles must increase, and other measures will be necessary to get the U.S. to net zero carbon by 2050. But Biden and his economic team have put in place the critical foundation that will ensure the fiscal and monetary means to deal with these challenges, including enhanced tariffs on Chinese EVs.
But the geostrategic environment is dynamic. The halcyon post–Cold-War era of American exceptionalism is over. The Biden team must deal with the most dangerous period in American history since at least World War II.
Four potential adversaries—Russia, China, Iran, and North Korea—are increasingly working together against the United States and the international rules-based order that emerged under American leadership in the 1940s and beyond. The countries have different but complementary strategic aims. Russia wants to regain control and absorb Ukraine, Moldova, the Baltic states, Georgia, and part of Poland into an enlarged imperial Russia; roll back NATO and U.S. security guarantees in Europe; secure strategic minerals in Africa and the Middle East; isolate the United States; and hobble the independence of Western European states. China seeks its historic place as the world’s most powerful nation. It wants reunification with Taiwan, control over the western Pacific, and the marginalization of the United States in international institutions. Iran aims for regional hegemony in the Persian Gulf and the Middle East and the destruction of Israel. North Korea has recently declared South Korea its “principal enemy,” heightening tensions on the Korean peninsula.
For now, these potential adversaries are engaged in a hybrid war against the United States: espionage; economic and military pressures; propaganda and disinformation; penetration of U.S. and Western political systems; cyber probes and minor attacks; and insertion of malware into Western infrastructure in preparation for disabling attacks on power, water, and transportation systems.
But, as demonstrated by Russia’s war against Ukraine and Iran’s attacks on Israel, they are also willing to use force to gain their ends. They are enhancing their nuclear arsenals, threatening nuclear use, and undercutting the credibility and survivability of the U.S. nuclear deterrent. The outcome in Ukraine is far from certain, and should it collapse, the rest of eastern Europe will be the next target of open aggression. Russia and China have undercut the American and Western presence in Africa; blunted the effectiveness of international institutions in containing human rights abuses, war crimes, and nuclear proliferation; and managed to wriggle out from under the most comprehensive set of sanctions yet applied by the U.S. and other Western nations.
Diplomacy is, of course, the first response. But diplomacy has always rested on hard power and our record of success—and the hard power of the United States rests on our economy. The U.S. has the economic means and the alliances to deal with all of our potential competitors simultaneously, from strengthening our nuclear deterrent and reinvesting in our military-industrial base and our volunteer armed forces to winning the technology race with China and deterring further aggression abroad.
We should face the future with optimism and confidence. President Xi and former President Trump are wrong. American power is not declining—it is on the rise. We have the ability to deal with every challenge, at home and abroad. This is a truth that American voters need to understand, so they can make an informed choice in the elections this November and summon the will to meet these challenges.
