Outgoing Director of the White House National Economic Council Larry Summers sure knows how to make the obvious seem newsworthy to the Wall Street Journal. Speaking with an elite group of American investors keen to capitalize on rapidly emerging market opportunities in Southeast Asia, Summers revealed to his audience what is by now conventional wisdom to anyone who bothers reading the newspaper once every year or so. According to the Journal, Summers told his audience that “The history of the early 21st century ‘will be about how the world adjusted to the movement of the theater of history toward China.'”
No kidding.
Still, the Journal contextualizes the current situation with some sobering, if widely known stats:
Underscoring the tension between the countries, Min Zhu, special advisor for the International Monetary Fund in Washington and former deputy governor of the People’s Bank of China, told the same forum that the weight of global GDP is shifting toward China and other fast-growing emerging economies while richer nations still face high debt and weak growth.
Given current trends, emerging markets and developing countries will account for 60% of global gross domestic product in six years, he said. “It is a different world,”Mr. Zhu said.
Robert Diamond, head of Barclays PLC, said U.S. businesses could pick up the mantle but lack the confidence to start hiring because of concerns the country isn’t on the right path with spending, deficits and taxes.
Meanwhile, China is moving up the value chain into high-tech capital goods and is poised to account for about a third of global manufacturing of advanced machinery and equipment within a decade, from about 8% today, Mr. Zhu said. “China will probably lead a global manufacturing restructuring. That will be a big impact for advanced economies, particularly for economies that want to export tech goods.”
But this is only part of the story. What the Journal fails to point out is that the gradual transition of hegemony between the United States and China is currently being threatened by Washington’s insistence that Beijing dispense with its clever practice of currency manipulation, tinkering that has artificially driven down the price of Chinese money, and therefore also the price of Chinese commodities. The effect has been dramatic, as US manufacturing sectors have struggled to compete with attractive Chinese exports being sold well below cost.
Trouble is, as President Barack Obama rudely discovered this past week in his failed trip to the Far East, China refuses to be hectored on the issue of currency manipulation by an administration guilty of precisely the same thing (but for an entirely different purpose).
But even if the Fed were to abandon its newly minted policy of Quantitative Easing (if this makes no sense to you, and it shouldn’t, click here for an entertaining primer), it’s far from clear that China would be persuaded to follow suit. Thomas P.M. Barnett, in an unusually smart essay in yesterday’s World Politics Review worth quoting at length, explains why:
China’s demographic clock is ticking like no other nation’s in human history. Already losing its cheap-labor advantage right now, China is set to stockpile elders from here on out at a pace never before witnessed. By 2050, it will have more non-working old people (400 million plus) than America’s total projected population (400 million). At that point, the U.S. median age will still be just below 40, while China’s will be closer to 50. It took Europe a century for its elder population to gradually rise from 10 percent of total population to the 20-percent level. America’s still-unfolding journey along the same path will run about six decades. But China will have 20 years, if it’s lucky.
That should explain what’s driving China’s seemingly selfish economic strategy.
The world is now rolling the dice on one massive demographic bet: that the seemingly inexhaustible engine of Asia’s savings will be able to sustain both an aged West and a rapidly aging East until a new regional source of accumulated savings emerges to drive the global economy. That begs the question of whether or not China will have enough time to nurture its replacement in the role of global financier in either the Islamic belt, sub-Saharan Africa, Latin America or some combination thereof.
Understand, too, that young growing countries tend to deficit-spend, just like older ones. It’s the middle-aged ones — like both China and America today — that are supposed to rack up the savings. But the U.S. continues to blow its wad as the Boomers start marching into retirement, while China’s middle-aged window will slam shut more rapidly than that of any civilization in human history.
It’s about time someone other than Fareed Zakaria attempts to short-circuit the fear-mongering, lunatic predictions emanating from the far right concerning the rise of China. As Barnett rightly points out,
Our sense of scale is completely out of whack. The U.S. freaks out politically because a million or so Latinos show up inside America each year. But to approximate China’s domestic challenges, we’d need to invite roughly twice the population of Latin America (a billion-plus souls) into the country to achieve the same demographic density, with three-quarters of them impoverished to achieve the same poverty density. Clearly, our political and economic system might operate more rigidly under such circumstances.
As things now stand, we interpret China’s efforts to advance its economic “rise” as necessarily coming at our expense. By that logic, however, China cannot succeed without destroying the U.S. economy. Meanwhile, given our penchant for decrying China’s lack of democracy, the Chinese interpret our efforts at “rebalancing” the global economy to be nothing less than an attempt to destroy the ruling Communist Party’s primary source of political legitimacy — namely, China’s ongoing per capita income expansion. …
The truly ironic part is that we need Chinese savings to revitalize America’s economy — right now. But instead of welcoming that investment instinct, we spot bogeyman intentions behind every Chinese move to enter the U.S. market.
Coming into office last year, Barack Obama gave every indication of being above that sort of fear-mongering. But after his recent electoral “shellacking,” the president apparently senses that his political back is up against the wall. He’ll now be doing whatever’s necessary to avoid what he perceives to be the real ideological Armageddon on the horizon: a Tea Party president in the White House come 2013.
Which, I suppose, drives at the heart of all matters of political economy: namely, the degree to which smart economics is all too frequently sacrificed at the altar of political expediency, no matter how sympathetic its ends. The United States has successfully avoided crashing into the shoals of poor economic stewardship during the Cold War and immediate neoliberal period following the collapse of the Soviet Union. But as the 2008 financial and economic crisis seems to suggest, time may be running out on American faith in hypercapitalist free markets.
Given these gathering clouds, and caught between the twin threats of Tea Party potency and perceived threats of China’s rise to international prominence, one worries that President Obama may fall victim to the time-worn tendency to make the good the enemy of the best. Or, perhaps in the current situation, it’s a case of rendering the bad the enemy of the worst.
Michael Busch, a Foreign Policy In Focus contributor, teaches international relations at the City College of New York and serves as research associate at the Ralph Bunche Institute for International Studies. He is currently working on a doctorate in political science at the Graduate Center, City University of New York.