Will the downgrading of America’s creditworthiness on the one hand and the even more acute slump in the economy of Communist China on the other become the deciding factors in the competition between economic models in the emerging 21st century cold war?

As President Biden convenes a trilateral meeting of allied Pacific leaders at Camp David, doubts are increasingly being raised on whether the dollar can maintain its status as the leading denomination of global trade. Yet as the Chinese party boss, Xi Jinping, travels to a summit in South Africa, China’s economy shows signs of cracking up. 

The summit next week at Johannesburg is a two-day meeting of the Beijing-led group that includes Russia, South Africa, and Brazil. A fifth Brics member, India, has become closer to America in recent years under Prime Minister Modi, and sees itself as a competitor of Communist China.

Mr. Xi is hoping to use the Brics-backed, Beijing-based New Development Bank to create alternatives to American-led global lending institutions like the World Bank and the International Monetary Fund. Yet, growing global disappointment in the usurious lending practices associated with Beijing’s Belt and Road Initiative and emerging economic weaknesses in China’s economy could slow Mr. Xi’s stride.    

On Friday, China Evergrande Group filed for protection under the United States bankruptcy code, Reuters reports. Other government-owned property firms are collapsing, exposing deep economic ills. The government’s target 2023 growth rate of 5 percent is widely predicted to be unmet. 

Data on Communist China’s rapid growth in the last few decades have been highly suspect from the outset. As local party leaders report to their superiors, the practice has been to fudge numbers upward to bolster their leadership bona fides, a foreign diplomat who was long based in the country told the Sun. Then these superiors report to their higher-ups, and all the way to Beijing, where published data end up inflated. 

Now things are getting even worse. In the property market, “you’ve got the makings of a zombie economy,” the CEO of China Beige Book International, Leland Miller, told Grant’s Interest Rate Observer last year. To meet Beijing’s annual growth projections, he explained, the government would grant credit to the property sector, which would build endless unneeded structures. 

With loose government-supplied loans, “the property sector, and infrastructure development, and reckless credit expansion were creating these high levels of growth,” Mr. Miller adds. Then, at one point the government decided that “if we continue down this road, we’re going to potentially run out of road,” he said. 

The collapse of government-owned property companies is increasingly harming the banking sector as well. Factories are being shut down, and layoffs raise government fears of public unrest. After the collapse of a shadow bank, the Zhongzhi group, police visited the homes of investors who lost their money and warned them against protesting in public, Bloomberg reports. 

At the same time, even as President Biden is consolidating counter-China alliances, America faces economic troubles as well.       

Fitch’s recent downgrade of America’s own debt to AA- from AA worries investors. One factor that helped America overcome adversaries in the Cold War of the 20th century was its free rules-based economy. Yet, growing government debt coupled with periodic political battles over raising Washington’s ability to increase its debt even further are raising doubts around the world. 

America’s $32.6 trillion debt is sparking global concerns as doubts grow about the Biden administration’s ability to maintain America’s creditworthiness. Part of the problem is unsound money that lacks a legal definition in terms of gold or silver, a problem that has been festering since President Nixon closed the so-called gold window at which foreign governments could redeem American dollars at a 35th of an ounce of gold. The IMF now specifically forbids the use of gold as a currency denominator. 

Beside returning to the gold standard, economists are reasoning out such schemes as pegging the dollar to stablecoins — blockchain-based assets backed by bank deposits and Treasury securities, as Brian P. Brooks and Charles W. Calomiris recently wrote in the Wall Street Journal.

Some, like the Council of Foreign Relations’ Brad Setser, claim that the size of loose money debt is in fact an asset. The dollar’s global power “isn’t a reward for winning a fiscal beauty contest,” he writes, dismissing Fitch’s downgrade and arguing that further bond sales could help, rather than hurt, efforts to maintain the primacy of the dollar and the euro as the top denominations in global trade. 

While that analysis seems to understate worries over America’s credit crunch crisis, the economic battle lines in Cold War II seem similar to the ones that underlined its predecessor. The more America sticks to a free, ruled based economy, the more likely it is to beat a top-heavy Marxist-managed system, as Mr. Xi’s woes demonstrate.