In the early 1970’s, China and the United States seemed like an unlikely match. No formal communication or diplomatic ties had existed for 25 years. Henry Kissinger laid the groundwork for formal ties with a series of secret meetings in 1971. Richard Nixon then formally ended the public silence with a historic visit to China in 1972.
The two countries were driven together by a shared unease with the growing strength of the Soviet Union. It was a delicate balance to avoid offending Moscow while still leveraging the direct relations. The payoff was almost immediate. Both China and the U.S. received concessions from the Soviet Union. Ultimately, the direct relations allowed the U.S. to pressure China and the Soviet Union to limit their support to North Vietnam.
China benefits from a large population and low production costs for goods that the United States and other developed markets seek. As China’s economic power has increased, so has their consumption of U.S. goods and technology. Both sides are sensitive to their reliance on the other.
The relationship between China and the U.S. has not been perfect, but it has significantly benefited both countries. In fact, it has been so successful that the two countries are now uneasy with the other’s global influence. China has used its expanding wealth to flex its economic muscles and look to expand its military influence, particularly in Asia.
A New Partnership?
While China and the U.S. struggle to manage their relationship, they both seem to be eyeing a new partnership elsewhere. The recipient of this search may well be India. Based on their size and proximity to China, they have the potential to sway the economic and political balance of power in the region.
What’s the appeal from the U.S. perspective?
- India has the population and potential to replace the manufacturing output of China.
- A shared foundation of democracy.
- A younger, highly educated population. The median age in India is 28, compared to 38 in China.
- With 1.4 billion residents, they are projected to pass China as the most populous nation within a decade.
- A young, educated, growing population is an ideal market for both the U.S. and China.
What’s the appeal from India’s perspective?
- An ally that can offer security against China’s growing military strength.
- Elevated international standing.
- Continued investment in technology and infrastructure.
- Access to a wealthy consumer base for its goods and services.
While relations with China required significant thawing in the 1970’s, current U.S. relations with India stand on more stable ground. The last two decades have brought strategic partnerships including food, technology, financial investment, and defense. It helps that both countries are established democracies and such a large portion of the population in India speaks English.
With all the positives, India still has its challenges. The development of the banking system has not kept pace with population growth. A weak banking system slows the flow of money, inhibiting reinvestment by business owners. This only complicates commerce in a country known for weak legal protections and an unwieldy bureaucracy. Fortunately, the challenges for India are areas of strength in the U.S. If the U.S. can continue assisting with investment and financial infrastructure, the economic growth potential for a young country of that size far surpasses the potential for growth in either the U.S. or China.
A Path Forward
For this to work, both sides will need to bend on their current protectionist mindsets. There are also delicate topics to address, such as different policy approaches to relations with China and Pakistan. The potential benefits of the relationship should allow for collaborative discussions on these sticking points.
Fifty years ago, the U.S. needed China to counterbalance the Soviet Union. Now the U.S. may need India to counterbalance China. The foundation for relations has been laid by prior administrations. Continued progress will take time and the results are not guaranteed, but the potential is there to sway the balance of power in Asia.
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Author:
Thomas Burleigh, CFP®
Wealth Manager
Credits:
Carnegie Endowment for International Peace, Pivoting to Biden: The Future of U.S.- India Relations, by Ashley J. Tellis, November 9, 2020.
Rosenburg Research – Breakfast with Dave, A Partner in Delhi, December 8, 2020.
Wikipedia: Richard Nixon’s 1972 visit to China.
Photo: Alosh Bennett, Mirror to the Sky
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