Is Wall Street on the wrong side of the Silk Curtain?

From the Sea of Japan in the north to the Straits of Malacca in the south, a “Silk Curtain” has descended on the Asia Pacific region as an increasingly intense U.S.-China rivalry unfolds in China’s backyard, more than 6,000 miles from the coast of California.  

This Silk Curtain differs in several ways from the “Iron Curtain” at the center of Winston Churchill’s 1946 speech in Fulton, Mo., widely thought of as the starting gun for the Cold War between the Soviet Union and the United States.  

First, the Silk Curtain is flexible, constantly moving to and fro as the winds of events and alliances shift. Second, it is permeable — cyber attacks, trade, investment and shipping move through it, despite the risks. And third, it is more flammable, with flashpoints all along the curtain throwing off dangerous sparks.  

Billionaire investor and Bridgewater founder Ray Dalio, in his new book on the changing world order, seems to be on the China side of the Silk Curtain. He paints a picture of an America in decline and a China destined to be the next dominant superpower as he invests in China’s future. Leading American financial firms such as Blackrock, JP Morgan, Goldman Sachs and Citibank are also charging into China, without concern of the long-term risks or of strengthening China’s chances of replacing America as the world’s dominant superpower. 

I say this because, while becoming a superpower is a tall order, remaining one is even harder.  

America requires more than just having the largest economy and military in the world. It requires social and political stability at home, trust and credibility with allies, being a science and technology superpower, a financial superpower, and a cyber, intelligence and space superpower — all rolled into one.  

Staying a superpower requires financial security at home, ambition all around, credibility and trust, and a sharp eye on emerging rivals. Hubris leading to an overly ambitious foreign policy and complacency at home are what topples a superpower. And nothing concentrates the mind like a peer rival with a full head of steam. 

History teaches us that any superpower has to be the leading financial power. From Italy to the Spanish, Dutch and British empires, and then to post-World War II America, the need to stay at the edge of financial innovation is clear.  

Unfortunately, America has followed what John Kenneth Galbraith called “a kind of sophisticated stupidity,” having strategically stumbled over the past few decades. For example, America needs to reaffirm that we are, first and foremost, a maritime power. This is even more important now given that 90 percent of global commerce is by sea and 90 percent of global data flow through undersea cables.  

Meanwhile, China has become the largest economy — and arguably the most dominant power — in Asia, representing 50 percent of the region’s GDP and military spending. China aims to end America’s reign as a superpower and return glory and Taiwan to the motherland by 2030. China’s strategy is stunningly simple: dividing both America and the West while expanding its economic power in Asia and the Eurasian landmass.  

America’s response begins with politics, an agenda that will strengthen America in its rivalry with China. For example, for Republicans, this means deciding whether to become a majority, governing party, rather than just settling for a role as an opposition, blocking party. As a lifelong Republican, I believe we urgently need a fresh agenda with some change-ups and curve balls. 

To win the U.S.-China rivalry, America needs to confront, compete and coordinate at home and abroad. To move beyond both the failed “panda bear” engagement and the erratic “bull in a China shop” approach to one with the courage of the lion and the agility of the fox. This requires a blend of increasing deterrence, a sense of urgency for domestic reforms, and patiently executing a long-term strategy to outcompete and outmaneuver China.  

This decade likely will determine the outcome of this power rivalry because it represents China’s window of opportunity and America’s window of vulnerability. Restoring America’s brand, balance sheet, and the financial security and mobility of the middle class is the linchpin to win the rivalry. We must face the future with both paranoid equanimity and naked confidence. 

Carl T. Delfeld is president of the Economic Security Council. His long career in the financial services industry includes co-founding Pacifica Holdings, serving on the U.S. National Committee on Pacific Economic Cooperation, and chairing the Asian Pension Forum. He is a former staffer of the Senate Finance Committee and U.S. Joint Economic Committee, and former consultant to the U.S. Treasury. He is the author of the forthcoming book,“Power Rivals: America and China’s Superpower Struggle.”