U.S. And Chinese Economic Trends

“Although China and United States are competitors, China and the United States are indeed partners in trade.” — Zhu Rongji



I saw this Reuters article on how economists foretell of U.S. decline, China’s ascension, and since my teenage son is studying Mandarin, I posted it to his wall on Facebook. My mom, also an avid Facebooker, suggested we read the reader comments also, since there was a lot of disagreement. So I thought I’d elaborate on why I sent it to him.

I don’t think the U.S. is going to drop out of the economic top ten any time soon, I just think since the end of the Cold War that it’s enjoyed an unrivaled preeminence that is coming to an end. I think there are things that the U.S. could do to put off that trend, like tax reform and immigration reform, but that policy makers don’t understand these issues and that even among those who do there’s insufficient political will to take these things on. That said, I don’t think it’s so much that the U.S. is in decline so much as that other countries are catching up, which doesn’t strike me as a bad thing.

China is also doing a much better job building relationships with countries where incomes are low but natural resources abound. For example, China has been increasing their presence in Ghana’s oil sector at the Americans’ expense. They’re also doing a good job shepherding their own natural resources, for example with farsighted policies on rare earth metals extraction — metals needed in a variety of industries for which they currently are the only economically viable source.

That’s not to say the Chinese have every advantage. Their huge agrarian population keeps labor costs low, but that also means their GDP per capita will be lower than that in Western countries for a long time, even as they get squeezed in the other direction by countries like Vietnam that are emerging as cheaper outsourcing destinations.

The American educational system for all its faults is also better overall than theirs. Even their K-12 system isn’t focusing on the right things. Over there it’s all rote memorization of facts, and very little emphasis on understanding the connections among things — sort of like NCLB tests from hell. That’s an okay system for a manufacturing economy, but a terrible one for a service economy where innovation is key.

So my point wasn’t that the Chinese were taking over the world, just that there’s a difference between a large economy and a dynamic economy, and these days they seem to be both, and there are worse uses of time for a young person than to be learning Mandarin.

One Comment

  1. Comment by Tom N:

    When I was in Ethiopia last year, I was amazed at the number of Chinese people who now live there. When I was there, 12 years ago, I saw none. Now there are many. The Chinese government also builds things for them (and thereby creating relationships). They are doing a much better job of this sort of thing now than we are.

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