A Response to Gideon Rachman’s “Think Again: American Decline”
Last month the Council on Foreign Relations listed as a “must read” an article by Gideon Rachman, originally published in the magazine Foreign Policy. In it, Rachman details the “economic threat that China poses to America.”
Here at FutureofUSChinaTrade.com we’ve always taken the angle that China does not pose an economic threat to America. Economic integration, trade, globalization – they’re not zero-sum games; there is not one winner at the expense of a bunch of losers. Instead, economic integration is (to one extent or another) a rising tide that lifts all ships (see here for some facts about the benefits of trade).
America does indeed face some very serious economic threats. But they’re not coming from across the ocean. (For a discussion on this topic, see Issues in Depth: Is China Rising? Is the US Declining?)
On the statement, “China will implode sooner or later” Rachman says “Don’t count on it.” China does have deep structural imbalances, and some experts say those imbalances destine China to Japan’s fate. Yet other experts point out that China is not Japan and may be better able to transition from growth that is led by exports (based on a transition from agriculture to industry, and fueled by mercantilist policies) – to growth that is based on a balance between exports and domestic consumption balance and fueled by productivity-boosting innovations. Can China make that transition? Of course – but it won’t be easy (and it’s not inevitable).
Rachman also talks about American decline and points to China’s 9-10 percent growth rate and the fact that China could be No. 1 well before 2027. China is growing so quickly because of the huge productivity gains that come from transitioning agriculture-based economic activity to industry-based economic activity (and then becoming more industrially advanced). That’s really the typical economic growth story. Once China has completed its transition, growth will be driven by productivity gains (as it is in the US) and, necessarily, much slower than 9-10 percent. What’s more, China has more than four times as many people as the U.S. does – so it is inevitable that China’s economy, measured by total GDP, will be bigger than the US’ (unless China is to stay an under-developed economy forever – and that doesn’t benefit anyone).
All that said, the data do point to the fact that on many measures (education, health, infrastructure) US competitiveness is declining relative to other countries (including China). That is very worrisome regardless of what China is doing, because a decline on those measures portends a lesser ability to grow productivity – and productivity growth is what drives the US economy. I think it’s dangerous when American policymakers point to China and blame it for America’s economic woes – that leads to fear-based protectionist policymaking. What could be helpful is fostering America’s competitive spirit (not one that erects trade barriers but one that fuels innovation) – this is the “Sputnik moment” President Obama referred to in his State of the Union.
Finally, Rachman tells us we shouldn’t be so sure that globalization is not a zero-sum game. He says that trade is only mutually beneficial (win-win) as long as the game isn’t rigged. But in reality things aren’t so black-and-white. Clearly, both China and the US have “rigged” the game in some respects. Yet both our economies (and the companies doing business there) benefit enormously from the economic integration of China and the U.S. And, the game is not completely rigged – trade isn’t completely free, but it’s also not completely fettered. The gains from trade could be larger if trade were freer, but we do gain from the trade that does go on.
When people ask if FutureofUSChinaTrade.com is pro-trade I say “Yes, when trade is mutually beneficial.” And it is possible for trade to be mutually beneficial. American and Chinese leaders should encourage the ways that economic integration can be made more free, but they must also be constantly vigilant about measures that make trade less free.
