Friday, November 06, 2020

Conflict with China (5) Economic Power

The United States became a major economic power before it became a global military power. The nation did not need military dominance to become the strongest economy in the world. Its businesspeople achieved that through trade, investment and hard work. This economic strength made military dominance possible. Now, the massive military spending that the US wastes in futile attempts to maintain its position as a global hegemon has become a drag on the economy that it cannot afford. I presume the Chinese are smart enough not to make that mistake.

The Chinese have already become a major economic power without the need for military dominance. It is already close to being the largest economy in the world. Given that it has achieved that position without needing to become a military hegemon, I presume, that it will not need to seek that role to maintain its economic strength.

Chinese economic influence in the world will continue to grow significantly.

  • China is becoming the largest economic market in the world, which will provide local support for developing industries.

  • China is already the world leader in several high-tech industries. Chinese companies are highly-skilled in the production of IT-related products.

  • China has a well-educated work force. It produces more graduates in maths, science and technology than any nation in the world.

  • China is spending more on research and development than the United States. R&D in the United States is skewed towards military activities, which puts it at a disadvantage in general economic production.

  • China is building transport infrastructure that links it with South Asia and Central Asia, which will expand its economic influence in the nations in the region. The United States has limited influence in these nations. It can park its aircraft carrier on either side of Asia, but it cannot prevent a growing flow of oil and trade across Asia.

Americans like to claim that globalisation has allowed the Chinese to steal their wealth. That is not true. Expanding economic trade makes most people better off because specialisation allows good and services to be produced more cheaply. The Americans who worked in the rust belt industries that could not compete have suffered, but most Americans are better off, because they have access to a huge range of cheap goods at Walmart.

That’s the way that international trade works. The people employed in industries that cannot compete effectively usually lose out, but everyone else is made better off because they gain access to cheaper goods and services.

Donald Trump is talking about decoupling from China and turning the United States into a manufacturing powerhouse. That is naïve. The United States simply does not have the people to be able to become self-sufficient and produce everything that people need. If the US does try to produce everything it consumes, the price of everything will go up, and most Americans will be made worse off.

The Chinese economy will most likely continue to be a powerful force in the world. Rather than hoping it will not happen, or trying to prevent it from happening, the United States needs to get used to the idea that the Chinese economy might become large than its own economy. That is not a bad thing. Free trade in which each country specialises in what it is good at will make people in both nations better off.

If American politicians continue to push for conflict with China, the smaller nations of the world will suffer. Because they are both nuclear powesr, China and United States are unlikely to go to war with each other. It is more likely that other nations will get caught in the crossfire of an unnecessary struggle.

There is plenty of room in the world for both the United States and China. They are on opposite sides of the earth, so there is no need for them to be treading on each others’ toes. There are plenty of less developed countries for them to invest in and trade with. The world does not need these two nations in conflict with each other.

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