The Chimerica Trap

How China Built Power and America Built Assets

Epigraph:

“Do not trust the horse, Trojans. Whatever it is, I fear the Greeks even when they bring gifts.”

– Virgil, Aeneid

Introduction: The Surplus Question

The post-Cold War era was shaped by two powerful assumptions.

The first was economic. Globalization would allocate resources more efficiently, increase prosperity, lower prices, and raise living standards. The second was geopolitical. Economic integration would encourage political liberalization, moderate authoritarian regimes, and gradually produce convergence between rival systems. As nations became wealthier, it was widely assumed, they would become more alike.¹

China became the greatest test of both propositions.

By many conventional measures, the experiment appeared successful. Hundreds of millions of Chinese escaped poverty. Consumers throughout the developed world gained access to inexpensive manufactured goods. Inflation remained relatively subdued for much of the period. Global trade expanded. Capital flowed across borders. Supply chains stretched across continents. Economists celebrated efficiency gains, while policymakers increasingly spoke of a future in which economic integration would soften geopolitical rivalries and encourage political reform.²

Yet the results proved far more complicated than expected.

China became richer without becoming democratic.³ Manufacturing abundance coincided with asset inflation and financialization. Interest rates remained unusually low for decades. Housing, education, healthcare, and financial assets often rose in price far faster than many consumer goods.⁴ The world’s largest Communist state became one of the world’s most technologically sophisticated and industrially capable powers. Rather than converging toward a common model, the United States and China appeared to become more capable versions of the systems they already were.

Most explanations treat these developments as separate phenomena. Economists debate low interest rates, secular stagnation, financialization, demographics, monetary policy, or the global savings glut. Foreign-policy analysts debate engagement, modernization theory, industrial policy, containment, and strategic competition. Yet many of these discussions share a common blind spot.

They focus on the creation of wealth while paying less attention to the allocation of wealth.

Every economy generates surplus. The critical question is what happens next.

Who captures the gains?

Do they flow primarily to households? To firms? To banks? To states? To political parties? To military institutions? To research systems? To future productive capabilities? Economic activity creates resources, but institutions determine where those resources go.

This distinction lies at the center of the Chimerica story.

Economists often assumed that prosperity would reshape institutions. Policymakers often assumed that trade would reshape regimes. Both perspectives underestimated the extent to which institutions shape prosperity itself. Prosperity does not bypass institutions. It flows through them. Institutions determine who captures gains, how those gains are allocated, which capabilities are accumulated, and what signals are transmitted through the economy.

The consequences can be profound. If gains flow primarily to households, rising prosperity may produce greater consumption, larger homes, larger families, and higher living standards. If gains flow primarily into productive investment, prosperity may generate infrastructure, industrial capacity, research institutions, and technological capabilities. If gains are captured by political institutions, prosperity may strengthen the state itself. The gains remain real in every case. What changes is their destination.

China provides perhaps the clearest modern example of this principle. During the decades of export-led growth, Chinese institutions repeatedly redirected surplus away from immediate consumption and toward capability accumulation. Demographic policy reduced consumption claims. Financial policy captured household savings. Industrial policy directed investment. Technology-acquisition programs accelerated learning.⁵ Viewed separately, these appear to be distinct policies. Viewed together, they formed a coherent system for capturing and redirecting surplus.

The United States processed surplus differently. Consumers benefited from lower prices. Investors benefited from rising asset values. Financial institutions benefited from expanding capital flows. The resulting system generated substantial prosperity, but much of that prosperity increasingly appeared through financial assets and ownership rather than through direct expansion of productive capabilities.

The interaction between these two systems created what became known as Chimerica.⁶ American demand helped fuel Chinese industrialization. Chinese export earnings helped finance American consumption. Manufacturing abundance restrained prices in some sectors while financial and monetary forces pushed prices upward in others. Capabilities accumulated on one side of the Pacific while asset values accumulated on the other. The relationship generated enormous wealth, but it also transformed the distribution of productive capabilities within the global economy.

This essay argues that many of the most important economic and geopolitical developments of the post-Cold War era can be understood through a single principle: prosperity amplifies surviving institutions. Economic gains do not distribute themselves. Institutions capture them, allocate them, and transform them into capabilities. As a result, prosperity often strengthens the institutions through which it flows rather than replacing them.⁷

The central error of the engagement era was not simply a mistaken forecast about China. It was a mistaken understanding of the relationship between prosperity and institutions. Trade can create wealth. Industrialization can create wealth. Technological progress can create wealth. None of these determines who captures the resulting surplus. Until that question is answered, the broader consequences of prosperity remain unknown.

The history of Chimerica is, above all, the story of how two very different institutional systems captured, allocated, and transformed the gains generated by their interaction—and how those choices reshaped both economies in ways that neither side fully anticipated.

I. Market Equilibrium vs. Policy Equilibrium

Most economic analysis begins with markets.

This is understandable. Markets are among the most powerful mechanisms for coordinating human activity ever discovered. Prices transmit information. Competition rewards efficiency. Profit and loss discipline decision-makers. Capital flows toward opportunities. Consumers influence production through their purchasing decisions. Under normal conditions, economic outcomes emerge from the interaction of millions of decentralized choices.

The problem is that not all outcomes are purely market outcomes.

Some emerge from the interaction of institutions pursuing strategic objectives.

This distinction is important because many of the defining economic patterns of the post-Cold War era occurred within systems that were only partially market-driven. Governments influenced exchange rates. Central banks influenced interest rates. State-owned banks directed credit. Regulatory structures altered incentives. Political institutions shaped capital allocation. Strategic objectives often operated alongside market incentives rather than being replaced by them.

As a result, some equilibria reflected more than the interaction of buyers and sellers.

They reflected the interaction of institutions.

A market equilibrium emerges when decentralized actors adjust their behavior in response to prices and incentives. A policy equilibrium emerges when institutions pursue objectives that interact with one another, generating outcomes that may appear market-driven even though they are partly the product of strategic choices. More specifically, a policy equilibrium emerges when institutions systematically capture surplus and redirect it toward objectives that differ from those that would arise through decentralized market allocation alone.

A simple example illustrates the difference.

Suppose interest rates fall because households voluntarily decide to save more and consume less. In that case, lower rates communicate information about preferences. Individuals are choosing to defer consumption, increasing the supply of savings available for investment. The resulting interest rate is largely a market signal.

Now suppose interest rates fall because central banks purchase large quantities of financial assets, governments alter regulatory requirements, foreign reserve managers accumulate Treasury securities, and state-controlled banking systems recycle export earnings into global capital markets. The resulting interest rate may look identical on a chart, but the process generating it is fundamentally different. The signal still contains information, but that information now reflects institutional behavior as well as market preferences.

The distinction is not between markets and governments. Every modern economy contains both. The distinction is between outcomes that emerge primarily from decentralized allocation and outcomes that emerge from the interaction of institutions pursuing strategic objectives.

This essay argues that Chimerica was fundamentally a policy equilibrium.

The conventional account treats the relationship between the United States and China as a largely market-driven phenomenon. American consumers demanded inexpensive goods. Chinese workers supplied inexpensive labor. Firms reorganized production globally. Comparative advantage increased efficiency. The resulting pattern of trade reflected ordinary market forces operating on a global scale.

There is considerable truth in this account.

Yet it leaves out several crucial institutions.

The United States was not merely a consumer market. It was the issuer of the world’s reserve currency.

China was not merely a source of inexpensive labor. It was a one-party state with a nationalized banking system, extensive industrial policy, capital controls, and long-term strategic development objectives.

American monetary institutions shaped the supply and distribution of dollars.

Chinese political institutions shaped the allocation of labor, capital, savings, and investment.

Neither side operated as a purely market system.

The interaction between them therefore produced outcomes that cannot be understood through market analysis alone.

This is where the surplus question becomes important.

Economic activity generates gains. Markets help create those gains. But markets do not determine who ultimately captures them. Institutions play a decisive role in that process. The same quantity of surplus can produce very different outcomes depending upon who controls it and how it is allocated.

A society that directs surplus toward household consumption will develop differently from a society that directs surplus toward industrial investment. A society that channels gains into financial assets will develop differently from one that channels gains into infrastructure. A society that allocates resources toward reproduction will develop differently from one that allocates resources toward production. The gains remain real in every case. What changes is their destination.

The central claim of this essay is that Chimerica was not merely a trading relationship. It was a system for generating and allocating surplus across two very different institutional environments. The economic and geopolitical consequences of that system depended less on the creation of wealth than on the mechanisms through which that wealth was captured and redirected.

To understand those mechanisms, we must begin with the institutional architecture of China’s rise itself. The conventional explanation emphasizes cheap labor. The more important story concerns how Chinese institutions systematically redirected surplus away from immediate consumption and toward long-term capability accumulation. That process began with one of the most consequential social-engineering projects in modern history: the reallocation of resources from reproduction toward production.

II. Breadwinner Jobs Without Children

Most explanations of China’s rise begin with cheap labor.

This is not wrong. China possessed an enormous labor force, and the integration of hundreds of millions of workers into the global economy represented one of the largest labor-market shocks in history. The resulting expansion of manufacturing capacity helped transform global trade, reduce the cost of countless consumer goods, and accelerate China’s economic growth.⁸

Yet “cheap labor” is ultimately more a description than an explanation.

The deeper question is why China was able to sustain such a large manufacturing workforce, maintain exceptionally high investment rates, and accumulate industrial capabilities at a pace few societies have ever matched.

The answer lies not merely in labor abundance but in the institutional allocation of surplus.

Economic development requires resources. Every society must decide how much of its output will be devoted to consumption, how much to investment, how much to household formation, and how much to future productive capacity. In market economies these decisions largely emerge from millions of decentralized choices. In more centralized systems they can be influenced by policy. China’s development model systematically redirected resources away from immediate consumption and toward production, investment, and capability accumulation.

Perhaps the most dramatic example was the One Child Policy.

The policy is usually discussed in demographic terms. Analysts focus on fertility rates, population growth, aging, or the long-term consequences of demographic decline. Those issues are important, but they do not fully capture the policy’s economic significance during the decades when China’s export-industrialization model was taking shape.

The One Child Policy reallocated resources from reproduction toward production.⁹

A child is a future worker, taxpayer, inventor, soldier, and consumer. Before becoming any of those things, however, a child is a dependent. Raising children requires food, housing, education, healthcare, parental time, and household income. Every society devotes a substantial share of its resources to these activities because reproduction is necessary for long-term continuity.

China deliberately reduced those claims during the exact period in which it was attempting to industrialize at unprecedented speed.

As a result, the policy produced effects that extended far beyond population growth. Fewer children meant fewer dependents relative to workers. Fewer dependents meant lower household consumption requirements relative to output. Lower consumption requirements meant a larger share of national resources could be directed elsewhere.¹⁰

In demographic terms, China enjoyed an unusually favorable ratio of working-age adults to dependents.

In economic terms, it generated an unusually large surplus.

The importance of this distinction is often overlooked. Most discussions emphasize the increase in labor supply. Yet the reduction in consumption claims may have been equally significant. The issue was not simply that China had more workers. It was that a larger share of national output could be devoted to production, savings, and investment rather than household consumption.

This pattern became visible in China’s aggregate economic data. While household consumption in most advanced economies typically accounts for roughly 60–70 percent of GDP, China’s share fell below 40 percent during parts of the reform era, one of the lowest levels recorded among major economies.¹¹ The mirror image of that unusually low consumption share was an unusually high level of savings and investment.

The One Child Policy alone did not produce this outcome.

It interacted with a broader institutional framework that repeatedly redirected surplus away from households and toward capability accumulation.

III. Export-Penetration Industrialization

Traditional industrialization follows a familiar pattern. A country develops basic manufacturing capabilities, gradually moves up the value chain, accumulates capital, improves infrastructure, and acquires increasingly sophisticated productive knowledge. Foreign investment often plays a role, but the process remains largely domestic. Industrial capabilities emerge through decades of trial, error, learning, and accumulation.¹⁵

China followed a different path.

Rather than merely participating in the global economy, China positioned itself inside the productive systems of more advanced economies. Its objective was not simply to sell goods. Its objective was to acquire capabilities.¹⁶

This distinction is critical because production is not merely a means of creating output. It is also a means of creating knowledge.

Factories produce goods, but they also produce learning.

Supply chains produce products, but they also produce organizational expertise.

Engineering teams produce designs, but they also produce capabilities.

Every industrial ecosystem contains a vast body of tacit knowledge that rarely appears in patents, textbooks, or technical manuals. It exists in routines, practices, supplier relationships, production processes, quality-control systems, engineering cultures, and accumulated experience. The most valuable industrial knowledge is often not the knowledge that can be written down. It is the knowledge that must be learned by doing.¹⁷

This observation helps explain one of the most remarkable features of China’s rise. China did not merely attract factories. It attracted ecosystems.

When multinational corporations relocated production to China, they rarely transferred only assembly operations. Suppliers followed. Logistics networks followed. Tooling expertise followed. Production engineering followed. Quality-control systems followed. Technical training followed. The ecosystem surrounding production gradually migrated alongside production itself.

The process was cumulative.

Each new capability made additional capabilities easier to acquire. Each new supplier made additional suppliers more attractive. Each new engineering center made additional engineering centers more valuable. Industrial ecosystems exhibit powerful network effects. Once a sufficient concentration of expertise develops in a particular location, that location becomes increasingly attractive for future investment.¹⁸

Apple’s Chinese manufacturing operations provide a useful illustration. Popular discussions often describe Apple as outsourcing assembly to China, but assembly represented only a small part of the broader ecosystem. Over time, thousands of suppliers, tooling firms, logistics providers, engineers, and production specialists clustered around Apple’s operations. Chinese workers did not merely learn how to assemble iPhones. They learned supply-chain coordination, precision manufacturing, quality control, industrial scaling, tooling design, and production management. The resulting capabilities extended far beyond any individual product. What migrated was not merely manufacturing. It was industrial knowledge.¹⁹

This is one reason why the conventional debate over intellectual-property theft often misses the larger issue.

Patents matter.

Trade secrets matter.

Industrial espionage matters.

But the most important transfers frequently occur through participation itself.

A society that becomes integrated into advanced production systems acquires access to forms of knowledge that cannot easily be copied from documents alone. Workers learn. Engineers learn. Managers learn. Suppliers learn. Universities learn. Entire institutions learn.

The result is capability accumulation.

This is where China’s institutional strategy becomes particularly important. The Chinese leadership did not view foreign investment primarily as a source of jobs. It viewed foreign investment as a source of capabilities.

This perspective shaped policy throughout the reform era.

Joint-venture requirements encouraged foreign firms to operate alongside Chinese partners. Technology-transfer agreements often accompanied market access. Foreign universities established partnerships with Chinese institutions. Chinese students were encouraged to study abroad in large numbers. Researchers moved between Chinese and Western institutions. Foreign companies established research centers inside China. Chinese firms participated directly in global supply chains.²⁰

Viewed individually, many of these activities appeared commercially rational and politically harmless. Viewed collectively, they formed a system for acquiring productive knowledge at extraordinary scale.²¹

Automation and Capability Transfer

At this point, an obvious objection arises. Would many of these jobs not have disappeared anyway due to automation?

To a degree, yes. Technological progress has long reduced the amount of labor required to produce a given quantity of output. Modern manufacturing employs far fewer workers than earlier generations, and many routine tasks would likely have been automated regardless of where production occurred.

Yet automation and offshoring are not the same phenomenon.

A factory replaced by robots in Ohio remains part of the American industrial ecosystem. The engineers remain. The suppliers remain. The tooling expertise remains. The production knowledge remains. The next generation of workers and managers continues learning within the same ecosystem. Employment may decline, but productive capabilities largely remain in place.²²

Chimerica involved something different. Production did not merely become more automated. Significant portions of the productive ecosystem migrated abroad. Factories moved, but so did suppliers, engineers, technicians, logistics networks, and the accumulated knowledge embedded within them. The issue was not simply that goods were produced elsewhere. It was that learning increasingly occurred elsewhere.²³

This distinction matters because industrialization is not merely a process of producing output. It is a process of producing capabilities. Workers learn. Engineers learn. Firms learn. Universities learn. Entire institutions learn. Over time, those accumulated capabilities become technological expertise, organizational competence, and productive power.

The critical question, therefore, is not whether automation would have reduced manufacturing employment. It is whether the capabilities associated with production remained within the existing industrial ecosystem or migrated into a different one.

That is a different question entirely.

The contrast with Cold War policy is striking.

Throughout much of the Cold War, the United States and its allies operated on the assumption that advanced capabilities strengthen rival systems. Export controls restricted access to sensitive technologies. The Coordinating Committee for Multilateral Export Controls (COCOM) was established specifically to limit the transfer of strategically significant capabilities to the Soviet bloc. Advanced computing systems, machine tools, telecommunications equipment, aerospace technologies, and other high-value industrial assets were often treated as matters of national security.²⁴

The underlying logic was straightforward.

Capabilities strengthen institutions.

A more technologically advanced Soviet Union would remain Soviet.

A more capable Soviet Union would remain a strategic competitor.

Whether every restriction was justified is beside the point. What matters is the assumption that guided policy.

The engagement era adopted a remarkably different assumption toward China.

Educational exchanges expanded. Research partnerships expanded. Technology transfers expanded. Industrial integration expanded. Chinese students entered Western universities in large numbers. Western corporations increasingly embedded themselves within Chinese production ecosystems. Programs such as the Thousand Talents Program actively sought to attract foreign expertise and accelerate capability acquisition.²⁵

The expectation was that participation in the global economy would eventually transform China’s political system. Yet this expectation implicitly reversed the logic that had guided policy toward the Soviet Union. Instead of assuming that capabilities strengthen institutions, many policymakers assumed that capabilities would weaken them.

This was a remarkable gamble.

History provides many examples of prosperity, technology, and industrialization strengthening institutions. It provides relatively few examples of capabilities automatically dissolving the institutions that acquire them.²⁶

The issue can be illustrated through a simple analogy.

Suppose Athens and Sparta are locked in a long-term strategic rivalry. Athens possesses superior naval capabilities, advanced shipbuilding expertise, and extensive experience in maritime logistics. Would Athenians conclude that the best way to moderate Sparta’s behavior is to teach Spartans how to build triremes, train Spartan officers in naval tactics, integrate Spartan shipyards into Athenian production networks, and invite Spartan engineers to study the most advanced maritime technologies available?

The obvious concern would not be that Sparta might fail to learn.

The concern would be that Sparta might succeed.

Yet something remarkably similar occurred during the engagement era. Western policymakers increasingly assumed that the acquisition of capabilities would transform China’s institutions rather than strengthen them. The possibility that the Chinese Communist Party might simply become a more capable version of itself received far less attention.

This observation leads directly to the geopolitical question at the heart of the engagement strategy. If prosperity generates capabilities, and capabilities strengthen institutions, why was it assumed that China’s institutions would weaken as China’s capabilities grew? Understanding that assumption requires examining the theory of convergence that underlay much of the post-Cold War consensus.

IV. The Failure of Convergence

The geopolitical case for engagement rested upon a simple proposition: economic integration would gradually produce political convergence.¹

As China became wealthier, the theory held, it would become more urban, more educated, more technologically sophisticated, and more interconnected with the outside world. A larger middle class would emerge, civil society would strengthen, and political liberalization would eventually follow economic modernization. The precise timeline remained uncertain, but the direction appeared obvious.²

This belief was not confined to a single administration or political faction. Variations of it appeared across much of the Western foreign-policy establishment for nearly three decades. While advocates differed in emphasis, most shared a common assumption: prosperity would ultimately transform China’s political system.³

China’s accession to the World Trade Organization in 2001 became one of the clearest expressions of this belief. WTO membership was often viewed not merely as an economic arrangement but as a mechanism for accelerating convergence. Greater access to global markets would strengthen reformers, deepen integration, and expose China to the liberalizing effects of international commerce. Yet WTO accession altered China’s access to global markets far more than it altered China’s political institutions. The Communist Party remained intact. State-directed banking remained intact. Industrial policy remained intact. The mechanisms through which surplus was captured and allocated remained intact. The result was not institutional transformation but institutional amplification.⁴

The problem was not that this theory lacked historical examples.

The problem was that it misidentified the causal mechanism.

At its simplest, modernization theory can be summarized as:

Industrialization → Prosperity → Democracy⁵

The historical record, however, is considerably more complicated. Many societies industrialized long before they democratized. Many authoritarian states became wealthier without becoming democratic. Many successful democratizations followed major institutional disruptions rather than prosperity alone.⁶

The missing variable was institutions.

Economic development can generate new pressures, new opportunities, and new social classes. What it cannot automatically determine is who captures the resulting gains. That question is institutional. The same increase in wealth can strengthen households, firms, political parties, bureaucracies, militaries, or states depending upon the institutions through which it flows.⁷

Germany provides a useful example. Imperial Germany became one of the most industrialized societies in the world while remaining an authoritarian state. Industrialization strengthened German capabilities by increasing economic output, expanding state capacity, and supporting military power. Yet it did not produce liberal democracy. The decisive break came later, after military defeat, revolution, constitutional reconstruction, economic crisis, dictatorship, another military defeat, occupation, and extensive political restructuring.⁸

Japan followed a similar trajectory. Industrialization strengthened the Japanese state long before it produced liberal democracy. Economic development increased Japan’s productive capabilities and military power, but the democratic institutions of postwar Japan emerged only after military defeat, occupation, constitutional reform, and elite displacement.⁹

The same pattern appears repeatedly elsewhere. Spain’s democratic transition followed civil war, decades of authoritarian rule, economic modernization, and eventual political succession. South Korea’s democratic transition followed decades of authoritarian development and political reform. Taiwan’s democratic transition followed a long period of one-party rule and gradual institutional transformation.¹⁰

These cases suggest a different model from the one commonly assumed by convergence theory:

Institutional Change → Development → Political Transition → Democracy¹¹

The historical record suggests an alternative sequence to the one implied by modernization theory:

Institutional Change → Development → Political Transition → Democracy¹²

Prosperity often contributed to democratization, but it generally did so after major institutional disruptions rather than by automatically dissolving existing institutions. Economic growth frequently strengthened institutions that remained intact and empowered new institutions only after older structures had been displaced or fundamentally transformed.¹³

The Soviet Union provides an especially revealing contrast because it is often treated as evidence supporting modernization theory. Yet the Soviet experience actually illustrates the importance of institutional rupture. The Soviet Union did not collapse after becoming prosperous. It collapsed after becoming stagnant. The Communist Party did not lose power because prosperity rendered authoritarian rule unnecessary. It lost power because the institutions sustaining Soviet rule ceased functioning effectively. Economic weakness, declining legitimacy, fiscal strain, and political dysfunction weakened the regime until institutional continuity itself became unsustainable.¹⁴

Most importantly, the Soviet system actually experienced rupture. The Communist Party lost its monopoly. The Soviet Union ceased to exist. Large portions of the governing structure collapsed. Whatever one thinks of the subsequent transition, the institutions directing the system were broken apart.¹⁵

China experienced no comparable event.¹⁶

This distinction is crucial because many engagement advocates implicitly treated China as though it would follow a Soviet trajectory. Yet the defining feature of the Soviet transition was not prosperity but institutional collapse. China experienced the opposite pattern. The Communist Party survived, the state survived, the security apparatus survived, and the mechanisms directing capital allocation remained largely intact. The institutions responsible for capturing and allocating surplus continued operating throughout the reform era rather than being displaced by alternative institutions.¹⁷

Under those conditions, historical precedent would suggest a very different outcome from the one envisioned by convergence theory. If prosperity amplifies surviving institutions, then rapid economic growth should strengthen the capabilities available to the Communist Party rather than weaken them. A richer China would therefore tend to produce a richer Communist Party, a more technologically advanced China would tend to produce a more technologically advanced Communist Party, and a more capable China would tend to produce a more capable Communist Party.¹⁸

That is largely what occurred.

As China’s economy expanded, the Party gained access to greater resources, greater administrative capacity, greater technological sophistication, and greater industrial capabilities. Research institutions expanded, state capacity expanded, military capabilities expanded, and the broader apparatus of governance acquired access to resources unimaginable during the Maoist period. The institutions governing China did not disappear. They accumulated capabilities.¹⁹

This observation reveals a deeper flaw in the engagement thesis. The theory assumed that prosperity would reshape institutions. History often suggests the reverse. Institutions shape prosperity by determining how the gains generated by prosperity are captured and allocated. The same economic growth can produce very different outcomes depending upon whether the resulting gains strengthen households, firms, states, bureaucracies, or ruling parties.²⁰

This brings us to what might be called the reciprocity problem at the heart of convergence theory.

Why was convergence assumed to operate in only one direction?

Why did so many observers assume China would become more like the West while paying relatively little attention to the possibility that the West might become more responsive to China?²¹

Economic integration is not a one-way process. When two systems interact, both adapt. Capital adapts, institutions adapt, corporations adapt, universities adapt, media organizations adapt, and political actors adapt. The assumption that only one side would change was therefore never self-evident.²²

Nor was the possibility merely theoretical.

As access to Chinese markets became increasingly valuable, foreign institutions acquired incentives to adapt their behavior accordingly. Hollywood provided some of the most visible examples. The 2012 remake of Red Dawn reportedly altered its fictional invaders from Chinese to North Korean forces amid concerns about Chinese market access. Disney’s live-action Mulan was filmed in Xinjiang and thanked local authorities there despite growing international scrutiny of the region. Universities became increasingly dependent upon Chinese student enrollment. Financial firms lobbied aggressively for greater access to Chinese markets. Media organizations faced recurring concerns about visas, access, and commercial relationships when reporting on politically sensitive subjects. The significance of these examples lies less in their individual details than in the broader pattern they reveal. Economic integration was influencing institutions on both sides of the relationship. Chinese institutions were being exposed to Western markets, technologies, and ideas. Western institutions were simultaneously adapting themselves to incentives created by access to Chinese markets, capital, students, regulators, and consumers.²³

Convergence did occur.

It simply did not occur exclusively inside China.

Indeed, once institutions are treated as active rather than passive, the opposite possibility becomes difficult to ignore.

If institutions direct access to economic opportunities, why would foreign actors not acquire incentives to cultivate those relationships?

If a ruling party controls investment, why would greater wealth not increase its influence?

If prosperity strengthens institutions, why would that process operate only on one side of the relationship?²⁴

These questions rarely received satisfactory answers because convergence theory largely skipped the most important step in the chain. Trade can create prosperity, but prosperity alone does not determine how the resulting gains are distributed. That question is answered by institutions, which decide who captures the gains and how they are allocated.²⁵

The failure of convergence was therefore not simply a failed prediction about China. It was the consequence of a deeper analytical mistake. Economists assumed prosperity would reshape institutions. Policymakers assumed trade would reshape regimes. Both underestimated the extent to which institutions shape prosperity itself.²⁶

The result was one of the largest transfers of productive capability in modern history carried out under the assumption that capability accumulation would weaken the institutions acquiring those capabilities.²⁷

History suggests the opposite lesson.

Capabilities are accumulated surplus in institutional form, and institutions that survive long enough to capture that surplus generally emerge stronger rather than weaker. China’s trajectory was therefore not a historical anomaly. It was a predictable consequence of prosperity flowing through institutions that remained intact long enough to capture, allocate, and transform the gains generated by globalization.²⁸

The next question is how those gains affected the broader international financial system. If China’s institutions captured surplus and redirected it toward investment and reserve accumulation, what effect did those decisions have on interest rates, capital flows, and financial markets throughout the developed world?²⁹

V. The China–Central Bank Feedback Loop

If the failure of convergence explains why China’s institutions remained intact, it does not yet explain one of the most puzzling economic features of the Chimerica era: persistently low interest rates.³⁰

For decades, economists struggled to explain why rates remained unusually low despite economic growth, technological progress, rising asset values, and repeated business-cycle expansions. Explanations proliferated. Some pointed to demographics. Others emphasized excess savings, secular stagnation, a shortage of safe assets, or declining investment opportunities. Each explanation captured part of the story. The problem is that many of these theories treated low rates as the product of market equilibrium while paying insufficient attention to the institutional structures shaping global capital flows.³¹

The Chimerica framework suggests a different interpretation. Low interest rates were not simply the outcome of decentralized decisions by savers and investors. They were the product of a policy equilibrium generated by the interaction of American monetary institutions and Chinese surplus-allocation institutions. To understand why, it is necessary to follow the flow of surplus through the system.³²

American consumers purchased Chinese goods, generating export earnings for Chinese firms. A conventional trade story largely ends there. Goods are exchanged for money, both sides benefit, and the transaction is complete. A surplus-allocation perspective begins where the conventional trade story ends. The critical question is not whether China earned dollars but what happened to those dollars after they were earned.³³

They did not simply flow into household consumption. Nor did they return to the United States in the form of large-scale purchases of American manufactured goods. Instead, a substantial portion was captured by Chinese institutions and redirected into investment, reserve accumulation, and financial assets. This outcome reflected the same institutional logic discussed in the previous chapters. The One Child Policy reduced dependency burdens and household consumption claims. Financial repression limited the returns available to savers. Capital controls restricted alternative investment opportunities. State-controlled banks captured a significant portion of national savings. Together, these institutions increased the share of national income available for investment and reserve accumulation.³⁴

Those reserves required a destination. Dollar-denominated assets became one of the primary outlets. Treasury securities were particularly attractive because they combined safety, liquidity, and scale. Chinese institutions therefore accumulated enormous quantities of reserves while simultaneously helping finance the deficits that generated those reserves in the first place. China’s foreign-exchange reserves grew from roughly $200 billion at the beginning of the century to nearly $4 trillion at their peak, illustrating the extraordinary scale of the capital involved.³⁵

China did not merely accumulate reserves. It accumulated claims on the American financial system. Chinese holdings of U.S. Treasury securities eventually exceeded $1.3 trillion, making China one of the largest foreign creditors of the United States. More broadly, foreign official institutions collectively accumulated trillions of dollars in Treasury securities, agency debt, and other dollar-denominated assets. These purchases were not simply portfolio choices made by individual households seeking the highest return. They reflected the reserve-management objectives of governments, central banks, and state-directed financial institutions. The resulting demand helped support the market for dollar assets while reinforcing the low-yield environment that characterized much of the Chimerica era.³⁶

This created a self-reinforcing cycle. American demand generated Chinese export earnings, export earnings generated reserve accumulation, reserve accumulation generated demand for dollar assets, and demand for dollar assets helped suppress yields. Lower yields supported credit expansion, asset appreciation, and consumer spending, which in turn sustained demand for imports and generated additional Chinese export earnings.³⁷

The relationship did not require explicit coordination. It emerged naturally from the interaction of two systems pursuing different objectives. China sought industrialization, capability accumulation, export growth, and reserve acquisition. The United States sought growth, consumption, monetary stability, and the advantages associated with reserve-currency status. The interaction of those objectives produced outcomes that neither side fully controlled but from which both initially benefited.³⁸

This perspective helps clarify why concepts such as the “global savings glut” were simultaneously insightful and incomplete. Ben Bernanke correctly identified a major phenomenon: large quantities of capital were flowing into American financial markets from abroad, and those flows contributed to lower yields. Yet the language of a savings glut can obscure the institutional mechanisms involved. The phrase suggests that millions of households independently decided to save more money, thereby pushing down interest rates through ordinary market processes. In reality, a substantial share of the relevant capital flowed through institutions pursuing strategic objectives. Chinese reserve accumulation, state-controlled banking, exchange-rate management, export-led development policies, and the reserve-currency role of the dollar all shaped the process. The savings existed, but the institutions directing those savings mattered as much as the savings themselves. The critical question was not merely why savings increased, but who controlled those savings and where they were deployed.³⁹

This distinction changes the informational meaning of interest rates. In a traditional market framework, interest rates communicate information about the relationship between savings and investment. Lower rates suggest greater willingness to defer consumption, while higher rates suggest stronger demand for capital. The resulting signal reflects underlying preferences. Under Chimerica, however, interest rates increasingly reflected institutional behavior as well. Reserve accumulation affected demand for safe assets. Central banks influenced asset prices. Regulatory structures shaped portfolio decisions. State-controlled banking systems altered capital allocation. Interest rates continued to communicate information, but the information they communicated was no longer purely market information.⁴⁰

The phenomenon appeared most visibly in what Alan Greenspan famously described as a “conundrum.” During the mid-2000s, the Federal Reserve raised short-term interest rates, yet long-term yields remained unusually low. Traditional models struggled to explain why long-term rates remained depressed despite monetary tightening. From the perspective of global capital recycling, however, the outcome becomes less mysterious. Persistent foreign demand for Treasury securities and other dollar-denominated assets helped suppress long-term yields even as domestic monetary conditions tightened.⁴¹

The financial crisis of 2008 and the subsequent era of quantitative easing further complicated the picture. Many observers later treated quantitative easing as the principal cause of low interest rates. Yet quantitative easing operated within an environment already characterized by strong demand for safe assets, large-scale reserve accumulation, and decades of global capital recycling. Central-bank purchases amplified existing trends rather than creating them from nothing. By the time the Federal Reserve launched large-scale asset purchases after 2008, the broader structure supporting unusually low yields was already in place.⁴²

These developments had profound consequences for the broader economy. As yields on safe assets declined, investors increasingly searched for alternative sources of return. Capital flowed into equities, real estate, private equity, venture capital, leveraged finance, and an expanding range of financial instruments. Asset prices rose accordingly, financial activity expanded, and ownership increasingly outperformed production as a source of wealth accumulation.⁴³

None of these developments were independent phenomena.

They were downstream consequences of the same surplus-allocation system.

China captured surplus and redirected it toward investment, reserve accumulation, and capability formation. The United States absorbed the resulting financial flows and redirected much of the adjustment into asset markets. The gains generated by globalization remained real in both countries, but they appeared in different forms because different institutions captured them.⁴⁴

This observation leads directly to one of the most misunderstood features of the Chimerica era. Manufacturing abundance exerted enormous downward pressure on the prices of tradable goods, yet many households simultaneously experienced rising economic insecurity and rising costs. The suppression of yields did not eliminate the economic consequences of surplus accumulation and monetary expansion. It altered where those consequences appeared.

The explanation is not that inflation disappeared.

It is that inflation migrated.⁴⁵

I’ve got Section VI.

VI. The Migration of Inflation

One of the most persistent misconceptions of the post-Cold War era is the belief that globalization suppressed inflation.⁴⁶

The argument appears intuitive. China entered the global economy, manufacturing capacity expanded dramatically, consumer goods became cheaper, and measured inflation remained relatively subdued for much of the period between the 1990s and the pandemic. The conclusion seemed obvious: globalization had reduced inflationary pressures.⁴⁷

The problem is that this interpretation mistakes displacement for elimination.

The Chimerica system unquestionably generated enormous manufacturing abundance. The world’s productive capacity expanded at an extraordinary pace. Consumers gained access to increasingly inexpensive electronics, clothing, appliances, furniture, toys, and countless other manufactured products. In sectors directly exposed to global manufacturing competition, prices often rose more slowly than they otherwise would have and, in some cases, fell outright. Anyone comparing the cost and quality of consumer electronics across several decades can readily observe the effect.⁴⁸

Yet abundance in one part of the economy does not imply abundance everywhere.

The critical question is where the adjustment appears.

If globalization generates substantial downward pressure on tradable manufactured goods, the resulting economic effects must still be transmitted through the broader system. Resources do not simply disappear. Capital does not disappear. Monetary expansion does not cease to exist. The pressures created by the interaction of monetary policy, capital flows, productivity gains, and global manufacturing abundance must emerge somewhere. The issue is not whether adjustment occurs but where it occurs.⁴⁹

The post-Cold War economy exhibited precisely this pattern.

Prices remained relatively restrained in sectors exposed to Chinese manufacturing competition while rising much more rapidly in sectors less exposed to such competition. Housing costs increased. Land values increased. Higher education costs increased. Healthcare expenditures increased. Financial assets appreciated dramatically. In many developed countries, the goods becoming cheaper were often the goods people purchased occasionally, while the items becoming more expensive were the items they could not easily avoid purchasing.⁵⁰

This divergence helps explain a recurring disconnect between official statistics and public perception. Economists frequently pointed to modest consumer-price inflation as evidence that inflationary pressures were under control. Many households, meanwhile, felt that the cost of living was becoming increasingly burdensome. Both observations contained elements of truth because they were describing different parts of the same system. The issue was not whether inflation existed. The issue was where it appeared.⁵¹

Consider a simple comparison. A television that cost thousands of dollars in the 1990s could eventually be replaced by a larger, higher-quality television costing a fraction of the price. During roughly the same period, median home prices in many American metropolitan areas rose several times faster than consumer-price inflation. Tuition costs, healthcare expenditures, and financial assets exhibited similar patterns. The decline in the cost of manufactured goods was real, but so was the increase in the cost of assets and many non-tradable services.⁵²

Housing provides perhaps the clearest example. A house is not merely a consumer good. It is also an asset. When interest rates fall, borrowing becomes cheaper. When yields decline, investors search for alternative stores of value. When asset appreciation becomes a major mechanism of wealth accumulation, housing increasingly attracts financial demand as well as residential demand. The result can be rapidly rising home prices even during periods of relatively modest consumer-price inflation.⁵³

The same dynamic appeared throughout financial markets. As the China–central bank feedback loop helped suppress yields on safe assets, investors increasingly sought returns elsewhere. Capital flowed into equities, commercial real estate, private equity, venture capital, and a growing range of financial instruments. Asset values rose accordingly. The resulting gains generated substantial wealth, but that wealth appeared disproportionately through ownership rather than through lower prices or higher wages.⁵⁴

Education and healthcare followed somewhat different paths but reached similar outcomes. Neither sector was directly exposed to Chinese manufacturing competition. A university degree could not be imported from Guangdong. A medical procedure could not easily be outsourced to Shenzhen. Consequently, the powerful disinflationary forces operating in tradable-goods sectors were largely absent. At the same time, subsidies, regulatory barriers, third-party payment systems, and easy credit often encouraged continued price increases while limiting competitive pressures that might otherwise have restrained costs.⁵⁵

The result was an increasingly uneven inflation landscape. The sectors most exposed to manufacturing abundance experienced relatively restrained price growth, while the sectors least exposed to manufacturing abundance experienced much stronger price growth. Aggregate measures often obscured this divergence by averaging together fundamentally different economic realities.⁵⁶

This observation helps clarify why the Chimerica era generated so much confusion. Traditional inflation narratives assume that monetary expansion eventually produces broadly distributed increases in consumer prices. Yet the interaction of manufacturing abundance, reserve-currency dynamics, global capital recycling, and central-bank policy altered the transmission mechanism. Inflationary pressures were not absent. They were redistributed.⁵⁷

In effect, globalization and monetary expansion often pulled in opposite directions. Manufacturing abundance exerted downward pressure on the prices of tradable goods. Monetary expansion, capital recycling, and financialization exerted upward pressure on assets and non-tradable sectors. The resulting equilibrium produced relatively moderate headline inflation while simultaneously generating dramatic increases in housing prices, land values, financial assets, and other stores of wealth.⁵⁸

The consequences extended beyond prices themselves because different forms of inflation affect different groups in different ways. A decline in the cost of televisions benefits consumers. A doubling of housing costs affects household formation, geographic mobility, wealth accumulation, retirement planning, and long-term financial security. Rising stock markets benefit asset owners. Rising tuition affects students and families. Because inflation migrated unevenly through the economy, its effects were distributed unevenly as well.⁵⁹

Most importantly, the migration of inflation altered incentives. When some forms of activity become increasingly profitable while others become increasingly difficult, individuals adapt. Firms adapt. Investors adapt. Entire economies adapt. The Chimerica system therefore did more than redistribute prices. It reshaped the relative attractiveness of different forms of economic behavior.⁶⁰

That transformation leads directly to the next stage of the story. As returns increasingly concentrated in finance, real estate, and asset ownership, the structure of economic incentives began to change. Production remained essential, but ownership often became more lucrative than production itself. The result was a process commonly described as financialization. Understanding why that occurred requires examining how Chimerica altered the relative returns available throughout the economy.⁶¹

I’ve got Section VII.

VII. Financialization and Distorted Returns

The migration of inflation did more than alter prices.

It altered incentives.⁶²

When economists discuss financialization, they often describe it as the growing importance of finance within modern economies. While broadly accurate, this description leaves an important question unanswered: why did finance become increasingly attractive in the first place?⁶³

Financialization was not simply the result of deregulation, cultural change, investor psychology, or the natural evolution of advanced economies. It emerged because the underlying structure of returns changed. The Chimerica system helped create an environment in which ownership increasingly outperformed production as a mechanism for wealth accumulation.⁶⁴

This outcome followed naturally from the surplus-allocation dynamics described in the previous chapters.

China systematically redirected surplus toward production, investment, and capability accumulation. The United States absorbed the resulting capital flows and redirected much of the adjustment into financial markets. Manufacturing abundance restrained prices in tradable-goods sectors while capital recycling and monetary policy supported rising asset values. The result was an economy in which productive activity remained essential but increasingly competed with asset ownership as a source of returns.⁶⁵

The distinction is important because capitalism depends upon the relationship between production and reward. In a healthy market economy, productive investment is generally rewarded because it expands future output. Entrepreneurs create new firms. Engineers develop new products. Investors finance productive enterprises. Firms build factories, improve processes, and create capabilities. Wealth accumulation remains closely connected to the expansion of productive capacity.⁶⁶

Under Chimerica, that relationship became increasingly complicated.

As manufacturing abundance expanded, competition intensified in many tradable sectors. Margins often came under pressure. Production remained profitable, but the returns available from expanding productive capacity frequently became less attractive relative to the returns available from owning appreciating assets. At the same time, the China–central bank feedback loop helped suppress yields, encouraging investors to search elsewhere for returns. Capital increasingly flowed toward equities, real estate, private equity, venture capital, and other financial assets.⁶⁷

The resulting environment altered investment incentives throughout the economy.

Suppose an investor can finance the construction of a new factory and earn a satisfactory return. That investment expands productive capacity, creates employment, and potentially generates future innovations. Now suppose the same investor can earn an equal or greater return by purchasing an existing asset expected to appreciate because of abundant liquidity, persistent demand, and favorable monetary conditions. Under those circumstances, ownership becomes increasingly competitive with production as a destination for capital.⁶⁸

I’ve got the continuation.

This does not imply that investors behaved irrationally.

On the contrary, they responded rationally to the incentives they faced.

The issue is not the existence of financial markets but the changing relationship between financial returns and productive returns. When asset appreciation consistently outperforms productive investment, capital naturally shifts toward asset ownership.⁶⁹

The effects became visible throughout corporate behavior.

Financial metrics increasingly dominated management decisions. Share repurchases became more common. Mergers and acquisitions often attracted greater attention than productive expansion. Firms devoted increasing resources to optimizing financial performance rather than expanding productive capacity. None of these developments were inherently pathological. They reflected the incentive structure generated by the broader environment.⁷⁰

The same pattern appeared in labor markets.

As financial and asset-oriented sectors expanded, they attracted increasing quantities of talent. Individuals who might previously have entered manufacturing, engineering, industrial management, or applied sciences often found more attractive opportunities in finance, consulting, law, private equity, and related professions. This shift was not necessarily the result of changing preferences. It reflected changing reward structures.⁷¹

Housing illustrates the same phenomenon from a different angle.

Historically, a home functioned primarily as a place to live. During the Chimerica era, housing increasingly functioned as both shelter and investment vehicle. Rising real-estate values transformed homeownership into one of the most important mechanisms of wealth accumulation for many households. Existing homeowners benefited from appreciation, while prospective homeowners faced rising barriers to entry. Housing therefore became both a source of wealth and a source of inequality.⁷²

The cumulative effect was a gradual change in the structure of economic opportunity.

Wealth became increasingly associated with ownership of appreciating assets. Labor income remained important, but it often became less effective as a pathway to wealth accumulation. Productive activity remained necessary, but ownership frequently generated larger rewards than production itself. Individuals, firms, and institutions adapted accordingly.⁷³

This adaptation helps explain a recurring feature of public debate during the period. Aggregate wealth increased. Stock markets performed well. Asset values rose dramatically. Yet many people felt increasingly disconnected from economic success. The apparent contradiction arose because different groups experienced different parts of the same system. Asset owners benefited from appreciation. Individuals attempting to acquire assets faced rising costs. The gains generated by globalization remained real, but they were distributed unevenly.⁷⁴

This observation returns us to the central theme of the essay.

The issue was never whether surplus existed.

The issue was where it went.

China redirected surplus toward industrial capabilities, infrastructure, research, and production. The United States redirected much of the resulting adjustment toward asset markets, financial activity, and ownership-based wealth accumulation. Both societies became wealthier, but they accumulated different forms of wealth because different institutions captured and allocated the surplus.⁷⁵

Over time, these changes affected more than investment patterns. Prices communicate information. Returns communicate information. Economic actors rely on those signals when making decisions about work, savings, education, investment, and long-term planning. As the structure of returns changed, the signals guiding economic behavior changed as well.⁷⁶

Understanding those changes requires looking beyond financialization itself and examining how the informational function of markets was altered by the Chimerica system.⁷⁷

I’ve got Section VIII.

VIII. Signals, Coordination, and Economic Perception

Prices do more than allocate resources.

They communicate information.⁷⁸

Economists have long recognized that prices serve as signals, conveying information about scarcity, demand, opportunity, and risk. No individual possesses complete knowledge of a modern economy. Consumers know only a fraction of what producers know. Producers know only a fraction of what investors know. Investors know only a fraction of what engineers know. Yet millions of people coordinate their activities successfully because prices transmit information that allows decentralized decision-making.⁷⁹

The effectiveness of a market economy depends not merely on prices existing but on prices communicating useful information.

When prices accurately reflect underlying conditions, individuals can make reasonably informed decisions about work, savings, investment, consumption, and long-term planning. When prices become increasingly influenced by forces unrelated to the underlying realities they are supposed to represent, coordination becomes more difficult. Decisions may still appear rational from the perspective of individual actors, yet the aggregate outcome becomes increasingly distorted.⁸⁰

This was one of the least visible but most important consequences of the Chimerica system.

The migration of inflation and the rise of financialization did not simply redistribute wealth. They altered the informational environment in which economic decisions were made. Interest rates increasingly reflected reserve accumulation, global capital recycling, central-bank intervention, and regulatory demand for safe assets. Housing prices increasingly reflected monetary conditions, asset demand, and financial incentives in addition to local supply and demand. Asset prices increasingly reflected liquidity conditions and capital flows as well as expectations about future production.⁸¹

The resulting signals still contained information.

The question was what information they contained.

Consider the role of interest rates. In a traditional market framework, interest rates help coordinate present consumption and future consumption. Individuals who save are rewarded for deferring consumption. Investors compete for access to those savings. The resulting rate reflects the relationship between the supply of savings and the demand for capital.⁸²

Under Chimerica, however, interest rates increasingly reflected institutional decisions as well as private preferences. Chinese reserve accumulation increased demand for dollar assets. Central-bank purchases altered asset prices. Regulatory structures influenced portfolio allocations. Global capital flows affected borrowing costs. Interest rates continued to function, but their informational content became more complicated.⁸³

The practical consequence was that economic actors increasingly struggled to distinguish between scarcity and policy.

Was housing expensive because land was scarce?

Was housing expensive because credit was abundant?

Was housing expensive because investors were searching for yield?

Was housing expensive because zoning restrictions limited supply?

In most cases, the answer was some combination of all four.⁸⁴

The problem is not that multiple factors influenced prices. The problem is that the informational clarity of those prices declined. A signal influenced simultaneously by monetary policy, global capital flows, financial incentives, regulatory structures, and local market conditions becomes harder to interpret than a signal generated primarily through local supply and demand.⁸⁵

The same issue affected household savings.

Historically, a worker could save money in relatively straightforward ways. Bank accounts, bonds, and other traditional savings vehicles generated returns that rewarded deferred consumption. Under prolonged low-interest-rate conditions, those mechanisms became less effective. Individuals seeking financial security increasingly felt compelled to move beyond traditional savings and participate directly in asset markets.⁸⁶

This altered the relationship between saving and investing.

What had once been distinct activities increasingly merged together. Households seeking financial stability often concluded that they needed exposure to equities, real estate, retirement portfolios, or other appreciating assets simply to preserve purchasing power and achieve long-term goals. Participation in financial markets became less a strategy for increasing wealth and more a prerequisite for maintaining it.⁸⁷

The same process affected career decisions.

When ownership consistently outperformed labor income, individuals adapted. Educational choices changed. Professional choices changed. Geographic choices changed. People increasingly sought occupations, credentials, and locations associated with access to appreciating assets or incomes capable of acquiring those assets.⁸⁸

These responses were individually rational.

Collectively, however, they reflected a change in the signals being generated by the economy.

Education provides a useful example. Credential inflation is often explained purely in terms of educational institutions. Yet it can also be understood as a response to uncertainty. When traditional pathways into the middle class become less reliable, individuals seek additional forms of insurance against economic risk. Degrees, certifications, and professional credentials become increasingly valuable not merely because they convey knowledge but because they improve access to scarce opportunities.⁸⁹

The same logic appeared in housing markets. Rising home prices encouraged households to devote greater resources to acquiring property, while investors increasingly treated housing as a financial asset. Families stretched financially to gain access to neighborhoods associated with stronger schools or better long-term prospects. Each individual decision could be rational on its own. Together they reflected an economy increasingly organized around asset acquisition rather than straightforward income accumulation.⁹⁰

None of this implies that markets ceased functioning.

Markets continued to allocate resources. Prices continued to communicate information. Economic growth continued. Innovation continued. Yet the informational environment became progressively more complex because the signals guiding behavior increasingly reflected the interaction of global capital flows, monetary policy, reserve-currency dynamics, and financial incentives rather than purely local conditions.⁹¹

The distinction matters because coordination depends upon information. When signals become more difficult to interpret, economic actors devote increasing resources to understanding the signals themselves. Financial literacy becomes more important. Asset ownership becomes more important. Access to capital becomes more important. Economic success becomes increasingly dependent upon understanding financial systems rather than simply participating in productive activity.⁹²

The result was not economic breakdown.

It was a different form of economic order.

Individuals, firms, and institutions continued adapting to incentives, but the incentives themselves increasingly reflected a world shaped by Chimerica. Ownership often mattered more than production. Financial positioning often mattered more than savings. Asset appreciation often mattered more than wage growth. The economy continued generating wealth, but the pathways through which that wealth was accumulated changed substantially.⁹³

These changes extended beyond financial markets because economic signals influence major life decisions as well as investment decisions. When the relationship between labor, savings, housing, and wealth accumulation changes, household behavior changes as well. Marriage, homeownership, family formation, and long-term commitments all become sensitive to the incentives and uncertainties generated by the broader economic environment.⁹⁴

To understand the full consequences of Chimerica, it is therefore necessary to examine not only how surplus was generated and allocated, but also how those changing signals affected the institutions through which societies reproduce themselves. That is the subject of the next chapter.⁹⁵

I’ve got Section IX.

IX. Breadwinner Jobs and Household Formation

Economic systems do not merely determine what people produce.

They also influence what people believe they can afford.⁹⁶

Decisions about marriage, homeownership, education, retirement, and long-term commitments are shaped by many factors, including culture, religion, social norms, public policy, and personal preference. Yet economic incentives remain important because they influence the perceived costs and benefits of those decisions. A society in which ordinary labor income can reliably support household formation generates different expectations than a society in which access to housing, family life, and long-term financial security increasingly depends upon asset ownership.⁹⁷

This distinction became increasingly important during the Chimerica era.

For much of the twentieth century, manufacturing occupied a unique position within the American economy. Many manufacturing jobs did not require advanced academic credentials, yet they frequently provided sufficient income to support marriage, childrearing, homeownership, and retirement. These jobs were never universal, nor were they available to everyone, but they constituted an important pathway into the middle class. A worker could reasonably expect that stable employment would eventually translate into broader household stability.⁹⁸

The significance of these jobs extended beyond wages alone.

Many manufacturing occupations functioned as what might be called breadwinner jobs. Their economic role was not merely to support individual workers but to support households. The income generated by a single worker often helped finance housing, education, healthcare, and the costs associated with raising children. In effect, these occupations linked productive employment to household formation.⁹⁹

The Chimerica system did not eliminate these jobs entirely, but it altered the environment in which they operated.

Manufacturing abundance generated substantial benefits. Consumer goods became cheaper. Productivity increased. Global production expanded. Yet the same system also subjected many tradable-goods industries to intense competitive pressure. The occupations most exposed to international competition were often the same occupations that had historically served as foundations for middle-class household formation.¹⁰⁰

At the same time, the structure of costs within the domestic economy changed.

Housing became more expensive. Educational costs increased. Healthcare expenditures increased. Asset ownership became increasingly important as a mechanism of wealth accumulation. As a result, labor income alone often became less effective at supporting the same set of life goals that previous generations had associated with stable employment.¹⁰¹

The narrower claim is that Chimerica altered the economics of household formation.

The system changed the relationship between labor income, asset ownership, and long-term financial security. In doing so, it changed the incentives facing individuals making decisions about marriage, housing, and family life.¹⁰²

The contrast with China is instructive.

During the decades of export-led industrialization, Chinese institutions systematically redirected resources away from immediate consumption and toward production. The One Child Policy reduced dependency burdens. Household consumption remained unusually low relative to output, while state institutions captured a substantial share of the resulting surplus and redirected it toward investment and capability accumulation. In effect, China devoted an unusually large share of national resources to production.¹⁰³

I’ve got the continuation.

The United States followed a different path. Many of the occupations most exposed to global competition historically supported middle-class household formation. A manufacturing worker supporting a spouse and children was, in a sense, competing against a system that had deliberately reduced dependency burdens and redirected a larger share of national resources toward industrial expansion. The issue was not merely wage competition between workers. It was competition between different institutional arrangements governing the allocation of surplus.¹⁰⁴

This distinction helps explain why the effects of Chimerica often appeared uneven.

Consumers benefited from lower prices.

Asset owners benefited from appreciation.

Investors benefited from rising financial markets.

Yet many households attempting to move from labor income to long-term stability encountered increasing obstacles. The gains generated by globalization were real, but they often appeared in forms that were less directly connected to the traditional pathways through which middle-class households had historically been formed.¹⁰⁵

Housing illustrates the problem particularly clearly.

A home serves both as shelter and as an asset. When housing prices rise substantially faster than incomes, the transition from renter to owner becomes more difficult. Existing homeowners benefit from appreciation, while prospective homeowners face higher barriers to entry. Since homeownership has historically been closely associated with family formation, community attachment, and long-term planning, rising housing costs can influence a wide range of household decisions even when overall economic growth remains strong.¹⁰⁶

The same logic applies to education.

As economic competition intensifies and traditional pathways become less reliable, individuals often respond by acquiring additional credentials. Degrees and certifications become forms of insurance against economic uncertainty. Yet this process frequently delays wealth accumulation and increases financial burdens during the years when households are traditionally established.¹⁰⁷

These relationships are not mechanical. People do not make major life decisions solely because of housing prices or interest rates. Yet economic signals influence expectations, and expectations influence behavior. When large numbers of individuals conclude that major life milestones have become increasingly difficult to attain, those perceptions eventually affect social outcomes.¹⁰⁸

This is why household formation belongs within the broader Chimerica story.

The issue is not primarily demographics.

The issue is the changing relationship between labor, assets, and economic security.

The migration of inflation into housing, education, healthcare, and financial assets altered the incentives facing households. Financialization altered the relationship between labor and wealth. Asset appreciation altered the cost of entry into many of the institutions associated with middle-class life.¹⁰⁹

The result was a system in which globalization generated substantial prosperity while simultaneously changing the pathways through which that prosperity was translated into household stability. The effects were gradual rather than sudden, but they accumulated over decades. Understanding those effects is important because they illustrate how institutional choices influence not only macroeconomic outcomes but also the ordinary decisions through which societies sustain themselves.¹¹⁰

The significance of these developments becomes clearer when compared with the conventional explanations offered for the post-Cold War economy. Many of those explanations identify genuine phenomena, but they often treat institutions as secondary variables rather than central ones. To evaluate the Chimerica framework properly, it is therefore necessary to compare it directly with the competing explanations that have been offered for the same set of outcomes.¹¹¹

I’ve got Section X.

X. Competing Explanations

Any argument as broad as the one presented in this essay must confront alternative explanations. The purpose of the Chimerica framework is not to deny the importance of demographics, technological change, productivity growth, financial regulation, monetary policy, or savings behavior. All of these factors mattered. The question is whether they are sufficient to explain the distinctive combination of low interest rates, asset inflation, financialization, capability transfer, and failed convergence that characterized the post-Cold War era.¹¹²

The weakness shared by many conventional explanations is not that they are incorrect. It is that they often treat institutions as passive background conditions rather than active participants in the process. As a result, they frequently describe important outcomes without fully explaining why those outcomes emerged in the particular form they did.¹¹³

The global savings glut hypothesis provides a useful example. Ben Bernanke correctly identified a major phenomenon: large quantities of capital were flowing into American financial markets from abroad. Those inflows contributed to lower yields and helped explain why interest rates remained below historical norms for much of the period. In that respect, the theory captures an important part of reality.¹¹⁴

The difficulty lies in the language of “savings.” The term naturally suggests households choosing to consume less and save more. Yet a substantial portion of the relevant capital did not originate from ordinary household decisions operating through free markets. It passed through institutions pursuing explicit policy objectives. Chinese reserve accumulation, state-controlled banking, exchange-rate management, export-led development strategies, and the reserve-currency role of the dollar all played central roles in generating and directing those flows. The savings existed, but the institutional mechanisms governing those savings were equally important. The theory therefore describes the outcome more effectively than the process that generated it.¹¹⁵

Demographic explanations face a similar limitation. Aging populations can increase savings rates, reduce labor-force growth, and alter investment patterns. Demographics unquestionably influenced the global economy. Yet demographics alone cannot explain why adjustment appeared in some sectors rather than others, why asset inflation became so pronounced, or why manufacturing abundance coincided with rising costs in housing, education, and healthcare. Demographic pressures operate through institutions rather than independently of them.¹¹⁶

The same issue arises with secular stagnation. According to this view, developed economies gradually exhausted their most attractive investment opportunities, causing growth to slow and interest rates to decline. There is some evidence supporting this interpretation. Yet the Chimerica era also witnessed one of the largest industrial buildouts in human history. China invested enormous resources into infrastructure, manufacturing, logistics, energy systems, telecommunications, research facilities, and urban development. The issue may therefore have been less a shortage of investment opportunities than a shift in where investment opportunities existed and who controlled them.¹¹⁷

The safe-asset-shortage hypothesis encounters a similar problem. There is considerable evidence that demand for safe, liquid assets increased relative to supply. But why did that demand increase? The answer leads directly back to institutions. Reserve-currency arrangements, banking regulations, central-bank policies, reserve-accumulation strategies, and global capital flows all influenced both the demand for safe assets and the structure of financial markets. The shortage itself may therefore be better understood as a consequence of institutional arrangements rather than an independent causal force.¹¹⁸

Even technological explanations, despite their obvious importance, often suffer from a similar blind spot. Technological change unquestionably transformed labor markets, business organization, communication, logistics, and productivity. Yet technology does not operate independently of institutions. The same technology can produce very different outcomes under different systems of allocation. A productivity-enhancing innovation may strengthen decentralized markets, state-directed industrial systems, financialized economies, or authoritarian regimes depending upon who captures the resulting surplus and how it is deployed.¹¹⁹

I’ve got the continuation of Section X.

This observation points toward a broader issue. Many conventional explanations focus on individual variables while treating the surrounding institutional framework as fixed. Demographics, technology, savings behavior, productivity growth, and monetary policy are all analyzed as though they operate within a neutral environment. The central claim of this essay is that the environment itself was an active part of the story.¹²⁰

Chimerica was not merely a market outcome requiring explanation.

It was an institutional system.¹²¹

The United States supplied reserve assets, consumer demand, financial depth, and technological openness. China supplied labor, industrial policy, state-directed finance, and mechanisms for capturing and redirecting surplus. The resulting equilibrium reflected the interaction of these institutions rather than the operation of any single variable in isolation.¹²²

Once this possibility is recognized, many apparently separate phenomena begin to look related. Low interest rates, asset inflation, financialization, capability transfer, manufacturing displacement, and failed convergence cease to appear as independent puzzles. Instead, they become different manifestations of the same underlying process: the generation, capture, and allocation of surplus through competing institutional systems.¹²³

This does not mean competing explanations should be discarded. On the contrary, many capture important pieces of the puzzle. Demographics mattered. Technology mattered. Savings behavior mattered. Monetary policy mattered. Financial regulation mattered. The disagreement concerns the level of analysis. The Chimerica framework argues that these forces operated through institutions that captured surplus, allocated resources, accumulated capabilities, and shaped economic signals.¹²⁴

Without understanding those institutions, the individual variables remain incomplete explanations.¹²⁵

This distinction becomes especially important when considering one of the most common explanations for China’s rise itself: the claim that China’s success was primarily the result of currency manipulation. Exchange-rate policy undoubtedly played a role. Yet focusing exclusively on exchange rates risks overlooking the deeper structure of the system. To understand Chimerica fully, it is necessary to look beyond currency values and examine the relationship between reserve-currency status, surplus capture, capital allocation, and institutional incentives.¹²⁶

I’ve got Section XI.

XI. Currency Manipulation, Dollar Hegemony, and Institutional Complementarity

Few explanations of China’s rise have been more popular than the claim that China succeeded primarily through currency manipulation. According to this view, Chinese authorities artificially suppressed the value of the yuan, making Chinese exports cheaper, foreign imports more expensive, and domestic producers more competitive. The resulting trade surpluses fueled industrialization, reserve accumulation, and economic growth.¹²⁷

There is considerable truth in this argument. Exchange-rate policy played an important role in China’s development strategy, particularly during the decades when export-led growth occupied the center of the Chinese model. An undervalued currency can encourage exports, discourage imports, and support reserve accumulation. Any serious account of China’s rise must acknowledge these effects.¹²⁸

The problem is that currency manipulation explains only part of the story.

Focusing exclusively on exchange rates risks portraying China as an actor operating upon the global economy while everyone else merely reacted. In reality, Chimerica was an interactive system in which American and Chinese institutions reinforced one another. China’s export strategy depended not only on exchange-rate policy but also on the existence of a reserve-currency issuer capable of absorbing persistent trade deficits and supplying the financial assets necessary to sustain them.¹²⁹

This distinction is important because discussions of trade imbalances often focus on goods while neglecting the financial side of the transaction. Every trade deficit has a corresponding financial counterpart. If China exported more goods than it imported, someone elsewhere had to supply the assets that made those transactions possible. In the Chimerica system, those assets were overwhelmingly dollar-denominated.¹³⁰

From China’s perspective, the United States provided two essential ingredients. The first was demand. Export-led industrialization requires customers. The second was monetary infrastructure. The dollar’s role as the world’s reserve currency created a deep and liquid pool of financial assets capable of absorbing enormous quantities of surplus capital.¹³¹

China accumulated dollars through trade and then recycled a substantial portion of those dollars back into the American financial system. Treasury securities, agency debt, and other dollar-denominated assets became repositories for the surplus generated by China’s export machine. This process helped finance American deficits while simultaneously supporting China’s industrialization strategy.¹³²

Viewed from this perspective, the relationship begins to look less like unilateral manipulation and more like institutional complementarity.

China sought export growth, reserve accumulation, industrial expansion, and capability acquisition. The United States supplied demand, reserve assets, financial depth, and technological openness. Each side reinforced the behavior of the other. American consumers purchased Chinese goods. Chinese institutions accumulated dollar reserves. Those reserves were recycled into American financial assets. The resulting capital flows helped support the low-interest-rate environment that sustained further consumption and borrowing.¹³³

This is one reason the conventional currency-manipulation narrative often feels incomplete. It correctly identifies an important policy tool while overlooking the larger system within which that tool operated. Exchange-rate management mattered, but it mattered because it interacted with institutions capable of sustaining the resulting flows.¹³⁴

I’ve got the continuation of Section XI.

The distinction becomes clearer when considering a simple counterfactual. Suppose China had attempted the same strategy against a country lacking reserve-currency status, deep capital markets, and the ability to absorb persistent deficits. The strategy would have encountered far stricter constraints. Reserve accumulation would have been more difficult. Financial recycling would have been more difficult. The scale of the resulting industrialization would likely have been smaller. China’s rise therefore depended not only upon Chinese policy but also upon the institutional characteristics of the United States.¹³⁵

This observation returns us to the essay’s central theme.

The critical issue was never simply the generation of surplus.

The critical issue was who captured that surplus and how it was allocated.¹³⁶

China’s institutions captured surplus and redirected it toward industrialization, infrastructure, research, technology acquisition, and capability accumulation. American institutions captured surplus differently. Consumers benefited from lower prices. Retailers benefited from global sourcing. Technology firms benefited from increasingly sophisticated manufacturing ecosystems. Financial institutions benefited from capital inflows and rising asset values. Investors benefited from appreciating financial assets.

The gains were real on both sides.

The allocation differed.¹³⁷

This difference helps explain why so many participants could simultaneously be correct about different aspects of the system. Advocates of engagement correctly observed rising living standards, expanding trade, and lower prices for manufactured goods. Critics correctly observed industrial displacement, financialization, and growing strategic dependence. Both were observing real consequences of the same institutional arrangement. The disagreement concerned which consequences mattered most over the long term.¹³⁸

This is also where the technology-transfer issue becomes particularly important. Economic integration did not merely move goods across borders. It moved knowledge, expertise, organizational practices, engineering talent, and industrial capabilities. Factories were not simply production sites. They were learning environments. Supply chains were not simply logistics networks. They were mechanisms for transmitting knowledge.¹³⁹

Throughout much of the Cold War, American policymakers generally assumed that advanced capabilities strengthened rival systems. Export controls, technology restrictions, and organizations such as COCOM reflected this assumption. Whether every restriction was justified is less important than the underlying principle: capabilities were treated as strategic assets.¹⁴⁰

The engagement era adopted a different assumption. Chinese students entered Western universities. Chinese researchers entered Western laboratories. Joint ventures proliferated. Technology partnerships expanded. Foreign corporations established research centers inside China. American universities opened programs and campuses in China. Programs such as the Thousand Talents Program actively sought to attract foreign expertise and accelerate capability acquisition.¹⁴¹

Again, the issue is not whether any individual exchange was harmful.

The issue is whether the broader assumption was correct.

Why would capabilities weaken the institutions acquiring them?

Why would a more technologically advanced Communist Party become less capable of governing?

Why would greater industrial expertise reduce state capacity?

Why would a richer authoritarian regime become less able to pursue its strategic objectives?¹⁴²

The logic underlying Cold War technology controls assumed the opposite. It assumed that capabilities strengthen institutions. Yet much of the engagement strategy implicitly assumed that capabilities would somehow dissolve the institutions acquiring them.¹⁴³

This contradiction lies at the heart of the convergence debate.

The expectation that trade would transform China rested on the assumption that prosperity would override institutional continuity. The historical record suggests a different pattern. Prosperity generally flows through institutions rather than around them. Institutions determine who captures the gains, how those gains are allocated, and which capabilities emerge from them.¹⁴⁴

The Chimerica experience therefore suggests a broader lesson about globalization. Economic integration should not be understood simply as the movement of goods and capital. It is also the movement of capabilities. Production transfers knowledge. Knowledge generates capabilities. Capabilities alter future possibilities. The long-term consequences of integration therefore depend not merely on the quantity of trade but on the institutional systems that capture and direct the resulting surplus.¹⁴⁵

This brings us to the central conclusion of the essay. The most important error of the engagement era was not a mistaken forecast about China’s future behavior. It was a mistaken understanding of the relationship between prosperity and institutions. The final chapter draws together the economic and geopolitical strands of the argument and considers what the Chimerica experience reveals about globalization, development, and the limits of convergence theory.¹⁴⁶

Here’s the conclusion with superscripts inserted.

XII. Conclusion: Institutional Amplification

The post-Cold War era was shaped by a powerful expectation. Economic integration would generate prosperity, prosperity would encourage liberalization, and liberalization would gradually produce convergence between rival systems. As China became wealthier, more educated, more urbanized, and more technologically sophisticated, it was widely assumed that its political institutions would eventually evolve in the direction of the developed democracies with which it traded.¹⁴⁷

The results were far more complicated.

China became wealthier.

China became more technologically advanced.

China became more integrated into the global economy.

China became more capable.

What it did not become was politically convergent.¹⁴⁸

This outcome surprised many observers because the dominant frameworks of the period focused primarily on the creation of wealth. Economists analyzed trade flows, productivity gains, interest rates, savings behavior, and comparative advantage. Policymakers focused on engagement, modernization, and integration. Both groups often treated institutions as secondary variables. The assumption was that prosperity would ultimately reshape the institutions through which it flowed.¹⁴⁹

The central argument of this essay has been that the causal relationship frequently runs in the opposite direction.

Prosperity does not bypass institutions.

It flows through them.

Institutions determine who captures the gains generated by economic activity. Institutions determine how those gains are allocated. Institutions determine whether surplus becomes consumption, investment, infrastructure, military power, research capacity, financial assets, or productive capabilities. As a result, prosperity often strengthens the institutions through which it flows rather than replacing them.¹⁵⁰

The Chimerica system illustrates this dynamic particularly clearly. China’s institutions repeatedly redirected surplus toward capability accumulation, industrial expansion, infrastructure, technological development, and strategic investment. The United States captured many of the same gains through lower consumer prices, expanding financial markets, rising asset values, and ownership-based wealth accumulation. Both societies became wealthier. The difference lay in where the gains accumulated and what forms they ultimately took.¹⁵¹

This divergence helps explain many of the defining features of the era. Manufacturing abundance coincided with asset inflation because surplus was being redirected through different channels. Low interest rates persisted because global capital flows reflected institutional objectives as well as market preferences. Financialization expanded because ownership increasingly outperformed production as a destination for capital. Convergence failed because the institutions expected to disappear survived long enough to capture the gains.¹⁵²

Most importantly, the Chimerica experience suggests that capabilities are not politically neutral. Production transfers knowledge. Knowledge creates capabilities. Capabilities strengthen the institutions that acquire them. Throughout history, industrialization has generally made states, parties, bureaucracies, militaries, and ruling elites more capable rather than less. China’s trajectory was therefore less a historical anomaly than a familiar pattern operating on an unprecedented scale.¹⁵³

The broader lesson extends beyond China.

Globalization should not be understood simply as the movement of goods, capital, and people. It is also the movement of capabilities. The long-term consequences of economic integration therefore depend not merely on the volume of trade but on the institutions directing the resulting surplus.¹⁵⁴

This is why the debate over globalization often became so polarized. Supporters pointed to lower prices, rising consumption, and aggregate growth. Critics pointed to deindustrialization, financialization, strategic dependence, and capability transfer. Both identified genuine phenomena because both were observing different parts of the same system. The gains were real. The costs were real. The disagreement concerned where the gains accumulated and what they ultimately produced.¹⁵⁵

The history of Chimerica therefore suggests a simple principle: prosperity does not determine who captures the gains generated by prosperity.

Institutions determine who captures them.¹⁵⁶

The post-Cold War consensus expected convergence.

What emerged instead was institutional amplification.

Prosperity flowed through institutions that remained intact, strengthening them rather than replacing them. The result was not a world becoming more alike, but a world in which different systems became more capable versions of themselves.¹⁵⁷

Endnotes

1. William J. Clinton, “Remarks on China Trade Relations,” Paul H. Nitze School of Advanced International Studies, Johns Hopkins University, Washington, DC, March 8, 2000.

2. William J. Clinton, “Remarks on China Trade Relations”; and Niall Ferguson and Moritz Schularick, “The End of Chimerica,” International Finance 10, no. 3 (2007): 215–239.

3. Varieties of Democracy Institute, Democracy Report 2025 (Gothenburg: V-Dem Institute, 2025); and Monty G. Marshall, Ted Robert Gurr, and Keith Jaggers, Polity IV Project: Political Regime Characteristics and Transitions (Center for Systemic Peace).

4. U.S. Bureau of Labor Statistics, Consumer Price Index Detailed Reports; S&P Dow Jones Indices, S&P CoreLogic Case-Shiller U.S. National Home Price Index; College Board, Trends in College Pricing; and Centers for Medicare & Medicaid Services, National Health Expenditure Data.

5. Taha Choukhmane, Nicolas Coeurdacier, and Keyu Jin, “The One-Child Policy and Household Saving,” Journal of the European Economic Association 20, no. 6 (2022): 2447–2490; Michael Pettis, The Great Rebalancing: Trade, Conflict, and the Perilous Road Ahead for the World Economy (Princeton: Princeton University Press, 2013); and U.S. Senate Permanent Subcommittee on Investigations, Threats to the U.S. Research Enterprise: China’s Talent Recruitment Plans (Washington, DC: U.S. Senate, 2019).

6. Niall Ferguson and Moritz Schularick, “The End of Chimerica,” International Finance 10, no. 3 (2007): 215–239.

7. Douglass C. North, John Joseph Wallis, and Barry R. Weingast, Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History (Cambridge: Cambridge University Press, 2009); and Daron Acemoglu and James A. Robinson, Why Nations Fail: The Origins of Power, Prosperity, and Poverty (New York: Crown, 2012).

8. Barry Naughton, The Chinese Economy: Adaptation and Growth (Cambridge, MA: MIT Press, 2007); Nicholas R. Lardy, Markets over Mao: The Rise of Private Business in China (Washington, DC: Peterson Institute for International Economics, 2014).

9. Taha Choukhmane, Nicolas Coeurdacier, and Keyu Jin, “The One-Child Policy and Household Saving,” Journal of the European Economic Association 20, no. 6 (2022): 2447–2490.

10. Choukhmane, Coeurdacier, and Jin, “The One-Child Policy and Household Saving,” 2447–2490.

11. World Bank, “Households and NPISHs Final Consumption Expenditure (% of GDP) – China,” World Development Indicators, indicator NE.CON.PRVT.ZS.

12. Michael Pettis, The Great Rebalancing: Trade, Conflict, and the Perilous Road Ahead for the World Economy (Princeton: Princeton University Press, 2013); Nicholas R. Lardy, Markets over Mao: The Rise of Private Business in China (Washington, DC: Peterson Institute for International Economics, 2014).

13. World Bank, “Gross Capital Formation (% of GDP) – China,” World Development Indicators; Pettis, The Great Rebalancing; Lardy, Markets over Mao.

14. Kenneth J. Arrow, “The Economic Implications of Learning by Doing,” Review of Economic Studies 29, no. 3 (1962): 155–173; David J. Teece, “Profiting from Technological Innovation: Implications for Integration, Collaboration, Licensing and Public Policy,” Research Policy 15, no. 6 (1986): 285–305.

15. Kenneth J. Arrow, “The Economic Implications of Learning by Doing,” Review of Economic Studies 29, no. 3 (1962): 155–73; Richard R. Nelson and Sidney G. Winter, An Evolutionary Theory of Economic Change (Cambridge, MA: Harvard University Press, 1982).

16. Alice H. Amsden, The Rise of “The Rest”: Challenges to the West from Late-Industrializing Economies (New York: Oxford University Press, 2001); Barry Naughton, The Chinese Economy: Adaptation and Growth (Cambridge, MA: MIT Press, 2007).

17. Kenneth J. Arrow, “The Economic Implications of Learning by Doing,” 155–73; David J. Teece, “Profiting from Technological Innovation: Implications for Integration, Collaboration, Licensing and Public Policy,” Research Policy 15, no. 6 (1986): 285–305.

18. Michael E. Porter, The Competitive Advantage of Nations (New York: Free Press, 1990); Alfred D. Chandler Jr., Scale and Scope: The Dynamics of Industrial Capitalism (Cambridge, MA: Harvard University Press, 1990).

19. Patrick McGee, Apple in China: The Capture of the World’s Greatest Company (New York: Scribner, 2025).

20. Barry Naughton, The Chinese Economy; Nicholas R. Lardy, Markets over Mao: The Rise of Private Business in China (Washington, DC: Peterson Institute for International Economics, 2014); U.S.-China Economic and Security Review Commission, 2023 Report to Congress (Washington, DC: USCC, 2023).

21. Patrick McGee, Apple in China; U.S. Senate Permanent Subcommittee on Investigations, Threats to the U.S. Research Enterprise: China’s Talent Recruitment Plans (Washington, DC: U.S. Government Publishing Office, 2019).

22. Kenneth J. Arrow, “The Economic Implications of Learning by Doing,” 155–73; Patrick McGee, Apple in China.

23. Patrick McGee, Apple in China; Alfred D. Chandler Jr., Scale and Scope: The Dynamics of Industrial Capitalism.

24. Michael Mastanduno, Economic Containment: COCOM and the Politics of East-West Trade (Ithaca, NY: Cornell University Press, 1992).

25. U.S. Senate Permanent Subcommittee on Investigations, Threats to the U.S. Research Enterprise: China’s Talent Recruitment Plans; U.S.-China Economic and Security Review Commission, 2023 Report to Congress.

26. Samuel P. Huntington, The Third Wave: Democratization in the Late Twentieth Century (Norman: University of Oklahoma Press, 1991); Douglass C. North, John Joseph Wallis, and Barry R. Weingast, Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History (Cambridge: Cambridge University Press, 2009); Daron Acemoglu and James A. Robinson, Why Nations Fail: The Origins of Power, Prosperity, and Poverty (New York: Crown, 2012).

27. William J. Clinton, “Remarks on China Trade Relations.”

28. Seymour Martin Lipset, “Some Social Requisites of Democracy: Economic Development and Political Legitimacy,” American Political Science Review 53, no. 1 (1959): 69–105.

29. Clinton, “Remarks on China Trade Relations.”

30. Ben S. Bernanke, “The Global Saving Glut and the U.S. Current Account Deficit,” remarks at the Sandridge Lecture, Virginia Association of Economists, Richmond, Virginia, March 10, 2005; and Lawrence H. Summers, “U.S. Economic Prospects: Secular Stagnation, Hysteresis, and the Zero Lower Bound,” Business Economics 49, no. 2 (2014): 65–73.

31. Ben S. Bernanke, “The Global Saving Glut and the U.S. Current Account Deficit”; Claudio Borio and Piti Disyatat, “Global Imbalances and the Financial Crisis: Link or No Link?” BIS Working Papers No. 346 (2011).

32. Douglass C. North, John Joseph Wallis, and Barry R. Weingast, Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History (Cambridge: Cambridge University Press, 2009); Michael Pettis, The Great Rebalancing: Trade, Conflict, and the Perilous Road Ahead for the World Economy (Princeton: Princeton University Press, 2013).

33. Michael Pettis, The Great Rebalancing; Barry Naughton, The Chinese Economy: Adaptation and Growth (Cambridge, MA: MIT Press, 2007).

34. Taha Choukhmane, Nicolas Coeurdacier, and Keyu Jin, “The One-Child Policy and Household Saving,” Journal of the European Economic Association 20, no. 6 (2022): 2447–2490; Michael Pettis, The Great Rebalancing; Nicholas R. Lardy, Markets over Mao: The Rise of Private Business in China (Washington, DC: Peterson Institute for International Economics, 2014).

35. State Administration of Foreign Exchange, People’s Republic of China, official foreign exchange reserve statistics.

36. U.S. Department of the Treasury, Treasury International Capital (TIC) System, “Major Foreign Holders of Treasury Securities”; Brad W. Setser, various analyses of Chinese reserve accumulation and Treasury holdings.

37. Niall Ferguson and Moritz Schularick, “The End of Chimerica,” International Finance 10, no. 3 (2007): 215–239.

38. Ferguson and Schularick, “The End of Chimerica”; Pettis, The Great Rebalancing.

39. Bernanke, “The Global Saving Glut and the U.S. Current Account Deficit”; Pettis, The Great Rebalancing.

40. Friedrich A. Hayek, Prices and Production, 2nd ed. (London: Routledge, 1935); North, Wallis, and Weingast, Violence and Social Orders.

41. Alan Greenspan, testimony before the Joint Economic Committee, U.S. Congress, 2005; Bernanke, “The Global Saving Glut and the U.S. Current Account Deficit.”

42. Ben S. Bernanke, The Courage to Act: A Memoir of a Crisis and Its Aftermath (New York: W. W. Norton, 2015); Board of Governors of the Federal Reserve System, Large-Scale Asset Purchase program documentation.

43. Federal Reserve, Financial Accounts of the United States; S&P Dow Jones Indices, S&P CoreLogic Case-Shiller U.S. National Home Price Index.

44. Pettis, The Great Rebalancing; North, Wallis, and Weingast, Violence and Social Orders.

45. U.S. Bureau of Labor Statistics, Consumer Price Index Detailed Reports; S&P Dow Jones Indices, S&P CoreLogic Case-Shiller U.S. National Home Price Index; College Board, Trends in College Pricing; Centers for Medicare & Medicaid Services, National Health Expenditure Data.

46. Michael Pettis, The Great Rebalancing: Trade, Conflict, and the Perilous Road Ahead for the World Economy (Princeton: Princeton University Press, 2013); and Niall Ferguson and Moritz Schularick, “The End of Chimerica,” International Finance 10, no. 3 (2007): 215–239.

47. U.S. Bureau of Labor Statistics, Consumer Price Index Detailed Reports; and Ben S. Bernanke, “The Global Saving Glut and the U.S. Current Account Deficit,” remarks at the Sandridge Lecture, Virginia Association of Economists, March 10, 2005.

48. Federal Reserve Bank of Dallas, “Globalization and Inflation”; and U.S. Bureau of Labor Statistics, Consumer Price Index Detailed Reports.

49. Michael Pettis, The Great Rebalancing; Douglass C. North, John Joseph Wallis, and Barry R. Weingast, Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History (Cambridge: Cambridge University Press, 2009).

50. U.S. Bureau of Labor Statistics, Consumer Price Index Detailed Reports; S&P Dow Jones Indices, S&P CoreLogic Case-Shiller U.S. National Home Price Index; College Board, Trends in College Pricing; and Centers for Medicare & Medicaid Services, National Health Expenditure Data.

51. Robert J. Shiller, Irrational Exuberance, 3rd ed. (Princeton: Princeton University Press, 2015); U.S. Bureau of Labor Statistics, Consumer Price Index Detailed Reports.

52. S&P Dow Jones Indices, S&P CoreLogic Case-Shiller U.S. National Home Price Index; College Board, Trends in College Pricing; Centers for Medicare & Medicaid Services, National Health Expenditure Data.

53. Edward L. Glaeser and Joseph Gyourko, Rethinking Federal Housing Policy (Washington, DC: AEI Press, 2008); Robert J. Shiller, Irrational Exuberance, 3rd ed. (Princeton: Princeton University Press, 2015).

54. Ben S. Bernanke, “The Global Saving Glut and the U.S. Current Account Deficit”; Michael Pettis, The Great Rebalancing.

55. William J. Baumol, “Macroeconomics of Unbalanced Growth: The Anatomy of Urban Crisis,” American Economic Review 57, no. 3 (1967): 415–426; and Milton Friedman and Rose Friedman, Free to Choose (New York: Harcourt Brace Jovanovich, 1980).

56. U.S. Bureau of Labor Statistics, Consumer Price Index Detailed Reports; and Michael Pettis, The Great Rebalancing.

57. Claudio Borio and Piti Disyatat, “Global Imbalances and the Financial Crisis: Link or No Link?” BIS Working Paper No. 346 (2011); Ben S. Bernanke, “The Global Saving Glut and the U.S. Current Account Deficit.”

58. Niall Ferguson and Moritz Schularick, “The End of Chimerica”; Michael Pettis, The Great Rebalancing.

59. Robert J. Shiller, Irrational Exuberance; S&P Dow Jones Indices, S&P CoreLogic Case-Shiller U.S. National Home Price Index; College Board, Trends in College Pricing.

60. Douglass C. North, John Joseph Wallis, and Barry R. Weingast, Violence and Social Orders; Daron Acemoglu and James A. Robinson, Why Nations Fail: The Origins of Power, Prosperity, and Poverty (New York: Crown, 2012).

61. Greta R. Krippner, Capitalizing on Crisis: The Political Origins of the Rise of Finance (Cambridge, MA: Harvard University Press, 2011); Gerald F. Davis, Managed by the Markets: How Finance Re-Shaped America (New York: Oxford University Press, 2009).

62. Greta R. Krippner, Capitalizing on Crisis: The Political Origins of the Rise of Finance (Cambridge, MA: Harvard University Press, 2011).

63. Gerald F. Davis, Managed by the Markets: How Finance Re-Shaped America (New York: Oxford University Press, 2009); Greta R. Krippner, Capitalizing on Crisis.

64. Michael Pettis, The Great Rebalancing: Trade, Conflict, and the Perilous Road Ahead for the World Economy (Princeton: Princeton University Press, 2013); Niall Ferguson and Moritz Schularick, “The End of Chimerica,” International Finance 10, no. 3 (2007): 215–239.

65. Pettis, The Great Rebalancing; Douglass C. North, John Joseph Wallis, and Barry R. Weingast, Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History (Cambridge: Cambridge University Press, 2009).

66. Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (1776); Joseph A. Schumpeter, Capitalism, Socialism and Democracy (New York: Harper, 1942).

67. Ben S. Bernanke, “The Global Saving Glut and the U.S. Current Account Deficit,” remarks at the Sandridge Lecture, Virginia Association of Economists, March 10, 2005; Michael Pettis, The Great Rebalancing.

68. Friedrich A. Hayek, Prices and Production, 2nd ed. (London: Routledge, 1935); Ludwig von Mises, Human Action (New Haven: Yale University Press, 1949).

69. Eugene F. Fama, “Efficient Capital Markets: A Review of Theory and Empirical Work,” Journal of Finance 25, no. 2 (1970): 383–417; Gerald F. Davis, Managed by the Markets.

70. William Lazonick, “Profits Without Prosperity,” Harvard Business Review 92, no. 9 (2014): 46–55; Gerald F. Davis, Managed by the Markets.

71. Thomas Philippon, The Great Reversal: How America Gave Up on Free Markets (Cambridge, MA: Harvard University Press, 2019); Greta R. Krippner, Capitalizing on Crisis.

72. Edward L. Glaeser and Joseph Gyourko, Rethinking Federal Housing Policy (Washington, DC: AEI Press, 2008); Robert J. Shiller, Irrational Exuberance, 3rd ed. (Princeton: Princeton University Press, 2015).

73. Thomas Piketty, Capital in the Twenty-First Century (Cambridge, MA: Harvard University Press, 2014); Gerald F. Davis, Managed by the Markets.

74. Piketty, Capital in the Twenty-First Century; Federal Reserve, Distributional Financial Accounts of the United States.

75. Michael Pettis, The Great Rebalancing; Douglass C. North, John Joseph Wallis, and Barry R. Weingast, Violence and Social Orders.

76. Friedrich A. Hayek, “The Use of Knowledge in Society,” American Economic Review 35, no. 4 (1945): 519–530.

77. Friedrich A. Hayek, “The Use of Knowledge in Society”; Douglass C. North, Institutions, Institutional Change and Economic Performance (Cambridge: Cambridge University Press, 1990).

78. Friedrich A. Hayek, “The Use of Knowledge in Society,” American Economic Review 35, no. 4 (1945): 519–530.

79. Hayek, “The Use of Knowledge in Society”; Leonard E. Read, “I, Pencil,” The Freeman (December 1958).

80. F. A. Hayek, Individualism and Economic Order (Chicago: University of Chicago Press, 1948); Douglass C. North, Institutions, Institutional Change and Economic Performance (Cambridge: Cambridge University Press, 1990).

81. Michael Pettis, The Great Rebalancing: Trade, Conflict, and the Perilous Road Ahead for the World Economy (Princeton: Princeton University Press, 2013); Niall Ferguson and Moritz Schularick, “The End of Chimerica,” International Finance 10, no. 3 (2007): 215–239.

82. Eugen von Böhm-Bawerk, Capital and Interest (South Holland, IL: Libertarian Press, 1959); Ludwig von Mises, Human Action (New Haven: Yale University Press, 1949).

83. Ben S. Bernanke, “The Global Saving Glut and the U.S. Current Account Deficit,” remarks at the Sandridge Lecture, Virginia Association of Economists, March 10, 2005; Alan Greenspan, testimony before the Joint Economic Committee, U.S. Congress, 2005.

84. Edward L. Glaeser and Joseph Gyourko, Rethinking Federal Housing Policy (Washington, DC: AEI Press, 2008); William A. Fischel, Zoning Rules! The Economics of Land Use Regulation (Cambridge, MA: Lincoln Institute of Land Policy, 2015).

85. Friedrich A. Hayek, “The Use of Knowledge in Society”; Douglass C. North, Institutions, Institutional Change and Economic Performance.

86. Ben S. Bernanke, “The Global Saving Glut and the U.S. Current Account Deficit”; Michael Pettis, The Great Rebalancing.

87. Burton G. Malkiel, A Random Walk Down Wall Street, 12th ed. (New York: W. W. Norton, 2019); Federal Reserve, Survey of Consumer Finances.

88. Thomas Piketty, Capital in the Twenty-First Century (Cambridge, MA: Harvard University Press, 2014); Gerald F. Davis, Managed by the Markets: How Finance Re-Shaped America (New York: Oxford University Press, 2009).

89. Randall Collins, The Credential Society (New York: Academic Press, 1979); Bryan Caplan, The Case Against Education (Princeton: Princeton University Press, 2018).

90. Robert J. Shiller, Irrational Exuberance, 3rd ed. (Princeton: Princeton University Press, 2015); Edward L. Glaeser and Joseph Gyourko, Rethinking Federal Housing Policy.

91. Friedrich A. Hayek, “The Use of Knowledge in Society”; Michael Pettis, The Great Rebalancing.

92. Douglass C. North, Institutions, Institutional Change and Economic Performance; Gerald F. Davis, Managed by the Markets.

93. Greta R. Krippner, Capitalizing on Crisis: The Political Origins of the Rise of Finance (Cambridge, MA: Harvard University Press, 2011); Gerald F. Davis, Managed by the Markets.

94. Robert D. Putnam, Our Kids: The American Dream in Crisis (New York: Simon & Schuster, 2015); Richard V. Reeves, Dream Hoarders (Washington, DC: Brookings Institution Press, 2017).

95. Douglass C. North, Institutions, Institutional Change and Economic Performance; Friedrich A. Hayek, “The Use of Knowledge in Society.”

96. Gary S. Becker, A Treatise on the Family, enlarged ed. (Cambridge, MA: Harvard University Press, 1991); and Douglass C. North, Institutions, Institutional Change and Economic Performance (Cambridge: Cambridge University Press, 1990).

97. Becker, A Treatise on the Family; Robert D. Putnam, Our Kids: The American Dream in Crisis (New York: Simon & Schuster, 2015).

98. Claudia Goldin and Lawrence F. Katz, The Race between Education and Technology (Cambridge, MA: Harvard University Press, 2008); Richard B. Freeman, “The Great Doubling: The Challenge of the New Global Labor Market,” in Global Capitalism Unbound, ed. Richard B. Freeman (Kalamazoo, MI: W.E. Upjohn Institute, 2008).

99. Gary S. Becker, A Treatise on the Family; Robert D. Putnam, Our Kids.

100. David H. Autor, David Dorn, and Gordon H. Hanson, “The China Syndrome: Local Labor Market Effects of Import Competition in the United States,” American Economic Review 103, no. 6 (2013): 2121–2168.

101. S&P Dow Jones Indices, S&P CoreLogic Case-Shiller U.S. National Home Price Index; College Board, Trends in College Pricing; Centers for Medicare & Medicaid Services, National Health Expenditure Data.

102. Gary S. Becker, A Treatise on the Family; Douglass C. North, Institutions, Institutional Change and Economic Performance.

103. Michael Pettis, The Great Rebalancing: Trade, Conflict, and the Perilous Road Ahead for the World Economy (Princeton: Princeton University Press, 2013); Taha Choukhmane, Nicolas Coeurdacier, and Keyu Jin, “The One-Child Policy and Household Saving,” Journal of the European Economic Association 20, no. 6 (2022): 2447–2490.

104. David H. Autor, David Dorn, and Gordon H. Hanson, “The China Syndrome”; Michael Pettis, The Great Rebalancing.

105. Thomas Piketty, Capital in the Twenty-First Century (Cambridge, MA: Harvard University Press, 2014); Federal Reserve, Distributional Financial Accounts of the United States.

106. Edward L. Glaeser and Joseph Gyourko, Rethinking Federal Housing Policy (Washington, DC: AEI Press, 2008); Robert J. Shiller, Irrational Exuberance, 3rd ed. (Princeton: Princeton University Press, 2015).

107. Randall Collins, The Credential Society (New York: Academic Press, 1979); Bryan Caplan, The Case Against Education (Princeton: Princeton University Press, 2018).

108. Gary S. Becker, A Treatise on the Family; Robert D. Putnam, Our Kids.

109. Michael Pettis, The Great Rebalancing; Greta R. Krippner, Capitalizing on Crisis: The Political Origins of the Rise of Finance (Cambridge, MA: Harvard University Press, 2011).

110. Douglass C. North, Institutions, Institutional Change and Economic Performance; Gary S. Becker, A Treatise on the Family.

111. Douglass C. North, Institutions, Institutional Change and Economic Performance; Daron Acemoglu and James A. Robinson, Why Nations Fail: The Origins of Power, Prosperity, and Poverty (New York: Crown, 2012).

112. Ben S. Bernanke, “The Global Saving Glut and the U.S. Current Account Deficit,” remarks at the Sandridge Lecture, Virginia Association of Economists, March 10, 2005; Lawrence H. Summers, “U.S. Economic Prospects: Secular Stagnation, Hysteresis, and the Zero Lower Bound,” Business Economics 49, no. 2 (2014): 65–73; Michael Pettis, The Great Rebalancing: Trade, Conflict, and the Perilous Road Ahead for the World Economy (Princeton: Princeton University Press, 2013).

113. Douglass C. North, Institutions, Institutional Change and Economic Performance (Cambridge: Cambridge University Press, 1990); Douglass C. North, John Joseph Wallis, and Barry R. Weingast, Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History (Cambridge: Cambridge University Press, 2009).

114. Ben S. Bernanke, “The Global Saving Glut and the U.S. Current Account Deficit.”

115. Michael Pettis, The Great Rebalancing; Nicholas R. Lardy, Markets over Mao: The Rise of Private Business in China (Washington, DC: Peterson Institute for International Economics, 2014); State Administration of Foreign Exchange, People’s Republic of China, official foreign exchange reserve statistics.

116. Charles Goodhart and Manoj Pradhan, The Great Demographic Reversal (Cham: Palgrave Macmillan, 2020); Michael Pettis, The Great Rebalancing.

117. Lawrence H. Summers, “U.S. Economic Prospects”; Barry Naughton, The Chinese Economy: Adaptation and Growth (Cambridge, MA: MIT Press, 2007).

118. Ricardo J. Caballero, Emmanuel Farhi, and Pierre-Olivier Gourinchas, “The Safe Assets Shortage Conundrum,” Journal of Economic Perspectives 31, no. 3 (2017): 29–46; Michael Pettis, The Great Rebalancing.

119. Douglass C. North, Institutions, Institutional Change and Economic Performance; Daron Acemoglu and James A. Robinson, Why Nations Fail: The Origins of Power, Prosperity, and Poverty (New York: Crown, 2012).

120. Douglass C. North, Institutions, Institutional Change and Economic Performance.

121. Niall Ferguson and Moritz Schularick, “The End of Chimerica,” International Finance 10, no. 3 (2007): 215–239.

122. Ferguson and Schularick, “The End of Chimerica”; Michael Pettis, The Great Rebalancing.

123. Pettis, The Great Rebalancing; Douglass C. North, John Joseph Wallis, and Barry R. Weingast, Violence and Social Orders.

124. Ben S. Bernanke, “The Global Saving Glut and the U.S. Current Account Deficit”; Lawrence H. Summers, “U.S. Economic Prospects”; Douglass C. North, Institutions, Institutional Change and Economic Performance.

125. Douglass C. North, Institutions, Institutional Change and Economic Performance; Daron Acemoglu and James A. Robinson, Why Nations Fail.

126. Ronald I. McKinnon and Gunther Schnabl, “China’s Exchange Rate and International Adjustment in Wages, Prices, and Interest Rates,” CESifo Studies 55, no. 3–4 (2009): 271–297; Michael Pettis, The Great Rebalancing.

127. Ronald I. McKinnon and Gunther Schnabl, “China’s Exchange Rate and International Adjustment in Wages, Prices, and Interest Rates,” CESifo Studies 55, nos. 3–4 (2009): 271–297; Nicholas R. Lardy, Markets over Mao: The Rise of Private Business in China (Washington, DC: Peterson Institute for International Economics, 2014).

128. Barry Naughton, The Chinese Economy: Adaptation and Growth (Cambridge, MA: MIT Press, 2007); Ronald I. McKinnon and Gunther Schnabl, “China’s Exchange Rate and International Adjustment.”

129. Niall Ferguson and Moritz Schularick, “The End of Chimerica,” International Finance 10, no. 3 (2007): 215–239; Michael Pettis, The Great Rebalancing: Trade, Conflict, and the Perilous Road Ahead for the World Economy (Princeton: Princeton University Press, 2013).

130. Robert Z. Aliber, “The Costs and Benefits of the U.S. Role as a Reserve Currency Country,” World Economy 2, no. 1 (1979): 27–45; Michael Pettis, The Great Rebalancing.

131. Barry Eichengreen, Exorbitant Privilege: The Rise and Fall of the Dollar (New York: Oxford University Press, 2011).

132. U.S. Department of the Treasury, Treasury International Capital (TIC) System, “Major Foreign Holders of Treasury Securities”; State Administration of Foreign Exchange, People’s Republic of China, official foreign exchange reserve statistics.

133. Ferguson and Schularick, “The End of Chimerica”; Pettis, The Great Rebalancing.

134. Ronald I. McKinnon and Gunther Schnabl, “China’s Exchange Rate and International Adjustment”; Barry Eichengreen, Exorbitant Privilege.

135. Barry Eichengreen, Exorbitant Privilege; Robert Z. Aliber, “The Costs and Benefits of the U.S. Role as a Reserve Currency Country.”

136. Douglass C. North, Institutions, Institutional Change and Economic Performance (Cambridge: Cambridge University Press, 1990); Douglass C. North, John Joseph Wallis, and Barry R. Weingast, Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History (Cambridge: Cambridge University Press, 2009).

137. Michael Pettis, The Great Rebalancing; Patrick McGee, Apple in China: The Capture of the World’s Greatest Company (New York: Scribner, 2025).

138. David H. Autor, David Dorn, and Gordon H. Hanson, “The China Syndrome: Local Labor Market Effects of Import Competition in the United States,” American Economic Review 103, no. 6 (2013): 2121–2168; Ferguson and Schularick, “The End of Chimerica.”

139. Patrick McGee, Apple in China; Terence Kealey, Sex, Science and Profits (London: William Heinemann, 1984).

140. Michael Mastanduno, Economic Containment: CoCom and the Politics of East-West Trade (Ithaca, NY: Cornell University Press, 1992).

141. Elsa B. Kania and Lorand Laskai, “Myths and Realities of China’s Talent Programs,” Center for a New American Security, 2021; Patrick McGee, Apple in China.

142. Douglass C. North, Institutions, Institutional Change and Economic Performance; Daron Acemoglu and James A. Robinson, Why Nations Fail: The Origins of Power, Prosperity, and Poverty (New York: Crown, 2012).

143. Michael Mastanduno, Economic Containment; Douglass C. North, Institutions, Institutional Change and Economic Performance.

144. North, Institutions, Institutional Change and Economic Performance; Samuel P. Huntington, The Third Wave: Democratization in the Late Twentieth Century (Norman: University of Oklahoma Press, 1991).

145. Terence Kealey, Sex, Science and Profits; Patrick McGee, Apple in China; Douglass C. North, Institutions, Institutional Change and Economic Performance.

146. Douglass C. North, Institutions, Institutional Change and Economic Performance; Daron Acemoglu and James A. Robinson, Why Nations Fail.

147. William J. Clinton, “Remarks on Passage of the China Trade Bill,” Paul H. Nitze School of Advanced International Studies, Johns Hopkins University, Washington, DC, March 8, 2000; Seymour Martin Lipset, “Some Social Requisites of Democracy: Economic Development and Political Legitimacy,” American Political Science Review 53, no. 1 (1959): 69–105.

148. Varieties of Democracy Institute, Democracy Report (various years); Polity IV Project, Political Regime Characteristics and Transitions, 1800–2018.

149. Samuel P. Huntington, The Third Wave: Democratization in the Late Twentieth Century (Norman: University of Oklahoma Press, 1991); William J. Clinton, “Remarks on Passage of the China Trade Bill.”

150. Douglass C. North, Institutions, Institutional Change and Economic Performance (Cambridge: Cambridge University Press, 1990); Douglass C. North, John Joseph Wallis, and Barry R. Weingast, Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History (Cambridge: Cambridge University Press, 2009).

151. Michael Pettis, The Great Rebalancing: Trade, Conflict, and the Perilous Road Ahead for the World Economy (Princeton: Princeton University Press, 2013); Niall Ferguson and Moritz Schularick, “The End of Chimerica,” International Finance 10, no. 3 (2007): 215–239.

152. Ben S. Bernanke, “The Global Saving Glut and the U.S. Current Account Deficit,” remarks at the Sandridge Lecture, Virginia Association of Economists, March 10, 2005; Greta R. Krippner, Capitalizing on Crisis: The Political Origins of the Rise of Finance (Cambridge, MA: Harvard University Press, 2011); Michael Pettis, The Great Rebalancing.

153. Terence Kealey, Sex, Science and Profits (London: William Heinemann, 1984); Patrick McGee, Apple in China: The Capture of the World’s Greatest Company (New York: Scribner, 2025); Douglass C. North, Institutions, Institutional Change and Economic Performance.

154. Douglass C. North, Institutions, Institutional Change and Economic Performance; Patrick McGee, Apple in China.

155. David H. Autor, David Dorn, and Gordon H. Hanson, “The China Syndrome: Local Labor Market Effects of Import Competition in the United States,” American Economic Review 103, no. 6 (2013): 2121–2168; Ferguson and Schularick, “The End of Chimerica”; Michael Pettis, The Great Rebalancing.

156. Douglass C. North, Institutions, Institutional Change and Economic Performance; Daron Acemoglu and James A. Robinson, Why Nations Fail: The Origins of Power, Prosperity, and Poverty (New York: Crown, 2012).

157. Douglass C. North, John Joseph Wallis, and Barry R. Weingast, Violence and Social Orders; Douglass C. North, Institutions, Institutional Change and Economic Performance.