Opinion | US must stop obsessing over fake ‘China threat’ narrative and focus on global economic dangers

World financial markets are facing their worst turmoil since the 2008 financial crisis. The Federal Reserve’s belated then aggressive action in raising interest rates to fight US inflation has sent shock waves through financial markets. The strong dollar, war in Ukraine, energy crisis and China’s economic slowdown constitute the ingredients of what World Bank chief David Malpass warned of as a “perfect storm”, putting the world at risk of stagflation.

Markets are watching to see which way the Fed would pivot should mayhem in the global economy spread to the United States. In a recent Fortune magazine interview, former US Treasury secretary Larry Summers suggested the Fed funds rate needed to rise to 5-5.5 per cent to wring over-the-top demand out of the system. If such resolute use of the interest rate instrument to tame inflation materialises, America and the rest of the world would face a very painful correction.

The US, as the world’s largest economy with the strongest reserve currency, should be focusing on how to help the world head off financial Armageddon. Yet it continues to be consumed with national security and great power competition, in particular the “China threat”, the only issue on which politicians from the Democratic and Republican parties appear to unite.

The Biden administration has not only continued Donald Trump’s “America first” policy, but gone further in identifying China as “the most serious long-term challenge to the international order”. In his May 26 speech laying out America’s approach to China, Secretary of State Antony Blinken said: “China is the only country with both the intent to reshape the international order and, increasingly, the economic, diplomatic, military, and technological power to do it.”

In accordance with its “invest, align, compete” strategy to counter China, the Biden administration has maintained most of Trump’s tariffs on Chinese imports, prohibited hi-tech exports to China, enacted a Chips Act to boost semiconductor investment while forcing allies to relocate chip production to the US, and ratcheted up its rhetoric to “defend” Taiwan.