The United States

The United States comes out of World War II in an extremely good position. Having won the war but fought almost none of it on their soil, infrastructure is intact and industries are firing. Industrial capacity has never been so concentrated. (For context, today, China has about 30% of the world’s industrial capacity. After World War II, the U.S. had 50%.)¹,² This is in contrast to the rest of the world: Europe is destroyed by the war, China is in a domestic power struggle between the Nationalists and the Communists, and plenty of other countries are poor, colonized, or only recently rid of colonial powers.

This provides a massive opportunity for the U.S. They create a multitude of multilateral institutions: the United Nations (UN), North Atlantic Treaty Organization (NATO), International Monetary Fund (IMF), and so on. These institutions serve the dual purpose of 1) fostering international collaboration to ensure there is never again such a war, and 2) codifying the United States as having a seat, if not the most powerful seat, at a variety of geopolitical tables. The U.S. Dollar becomes the international medium of exchange and is established as the world’s reserve currency.³ This is followed by: the Marshall Plan.

From 1948 to 1952, the U.S. pours more than 150 billion USD in today’s money into Europe, spent primarily rebuilding infrastructure, with a focus on transportation. This is openly subverting the Bretton Woods institutions which were meant to rebuild Europe. Why? Because it was extremely lucrative for American firms. American firms are both providing the materials and doing the rebuilding across Europe. Additionally, when Western European infrastructure is functional again, demand in the region rebounds, creating thriving new export markets ripe for the world’s only operational manufacturing powerhouse of the time: the U.S.⁴

The Marshall Plan is a boon to the American economy. But it’s also an ideological strategy: the U.S. wants Western Europeans, devastated by war, to see how supporting their own industries and free-market principles can bring a higher quality of life - dissuading them from turning to communist influence.⁴

That higher quality of life comes - by 1952, the economy of every recipient country is larger than before the war - and with it, unlimited goodwill between the U.S. and Europe.⁵ The United States is seen as a military and economic partner that had helped to uplift the region. This belief lays the groundwork for an enduring alliance with European nations consistently supporting American endeavors in international forums, solidifying American hegemony.

So, by 1970, the United States has the world’s largest GDP, making up 31% of the global economy. The Soviet Union is next, with a GDP of less than half the U.S. The next five biggest economies are Germany, Japan, the U.K., and Italy, all of which are allied with the U.S.⁶ One can conclude that when the Soviet Union eventually falls, there is no prospective competitor for the seat in the international order occupied by the United States. Then, Mao Zedong dies.

China

In 1978, Deng Xiaoping comes to power in China. He executes enormous economic reforms, approving the dismantling of village collectives in favor of private household farms and businesses in the villages, establishing most of the coast as Special Economic Zones where trade with foreign powers could take place, and building infrastructure which leads to an influx of foreign direct investment and allows for the use of foreign technology. China’s provinces fund their local champions in different industries - the industries which are most important being designated by the state - so there is fervent competition across sectors, with the quality of goods produced increasing all the time. The Hukou system is reformed, so that men who were previously forced to remain in the villages in which they were born can travel to the cities and work in factories. Accordingly, cities and industrial capacity explode.⁷

China undergoes miracle growth. The population booms, and that enormous population is effectively utilized. From 1978-2010, GDP grows an average of 10% per year. This rate of growth, for this long, is the only of its kind in modern history. From 2000-2008, China becomes the factory of the world. They build stockpiles of USD and building materials. In 2008, they effectively weather the global financial crisis, and rebound faster than the rest of the world. China is flush with cash when the rest of the world is not. In this period, they shore up domestic support, implementing popular social programs such as free public education up through 8th grade.⁸ They simultaneously take their money abroad.

In the mid-2000s, China is in search of oil, but they don’t have the political capital to engage in the Middle East, so they go to Angola. Angola is fresh out of a 27-year civil war, its infrastructure in poor condition as a result. China provides loans for the central African country to develop rail, roads, and dams in exchange for oil. The key condition? The engineering and construction must be carried out by Chinese firms. The “Angola model” is born.⁹

China quickly deploys this model - providing commodity-backed financing for infrastructure projects contingent on Chinese firms being used for their realization - across the globe. In 2013, Xi Jinping formalizes this practice as the Belt and Road Initiative, and the number of projects under this label grows rapidly.¹⁰

From 1900 to 2000, the US used 4.5 gigatons of cement. From 2011-2013, China uses 6.6.¹¹ What happens to firms when they are doing an enormous volume of work, and competing with one another for projects? They move rapidly down the learning curve and see drastic efficiency increases. This makes Chinese bids more attractive to countries looking to build infrastructure, such that they win more projects, move further down the learning curve, and so on, such that today, Chinese construction firms dominate the space.¹²

Chinese loans for BRI projects are near market rate, making them more attractive than financing from multilateral development banks¹³, and Chinese construction firms are extremely competitive on both price and time to complete projects. This unique combination makes participating in BRI economically expedient in the eyes of developing countries.

This is a key factor in China establishing itself as a political superpower on the global stage. The implications of this play out in international forums. A 2022 analysis found that at the United Nations, “countries that receive more BRI investment vote more in line with China and less in line with the US and the G7 compared to countries that do not receive BRI investment.”¹⁴

The implications also play out in the form of developing countries contorting themselves to appease Chinese wishes and become candidates for joining BRI. In June of 2023, Honduras joined the initiative, with eyes on road, port, and infrastructure projects.¹⁵ What made this possible? Less than a year earlier, the Honduran government ended decades of diplomatic ties with Taiwan, and officially “[recognized] the existence of just one China in the world.”¹⁶

The Playbook

A country has a period of massive economic prosperity driven by possessing profound industrial capacity (and capital) when the rest of the world has very little. They take that prosperity and use it to invest in infrastructure projects abroad, which curries them political favor from new allies. These projects being undertaken by domestic firms made ruthlessly efficient by uniquely large project volume, along with the expansion of trade markets in recipient countries, leads to the country’s economy flourishing further. The country, with a strong economy and abundant political capital, shapes international institutions in their favor, placing themselves at the top of the international order.

China is following the same playbook as the United States, 45 years later.

Thank you to the brilliant Gyude Moore and the kind-hearted Arjun Akwei for reading drafts of this!