China Center for International Economic Exchanges

Chen Wenling: It is time to Show Trump A few Calculations!
Date:Apr 07,2018    Source:CCIEE

The first calculation: What is the current and future position of the United States?

The US president Trump keeps saying “America first” and “Make America Great Again”, which seems to be the source of the current US strategy, policy and action. It makes people feel that the United States is no longer the world’s superpower, it is not as powerful as before.

According to the public opinion survey conducted by the Pew Survey Center in the United States, there are now more people who consider China as the world’s most powerful country. There are also some Chinese scholars who believe that China has far exceeded the United States. Furthermore, some international organizations, think tanks, and scholars around the world share the same view. For example, the World Bank and the IMF had proposed in 2014 that the total amount of China’s GDP according to purchasing power parity overtook the United States.

It is necessary for the United States, China, and the entire world to figure out exactly what is the position of the United States in the world? The answer will help us decide if the new direction of the US strategy is right or wrong.

In terms of the hegemonic position of the U.S. dollar, the U.S. is still the world’s number one, and it will continue to be the dominating power for quite a while. At the Global Think Tank Summit held by the China Center for International Economic Exchanges in 2011, Dr. Henry Kissinger made a point in his speech, saying that it took a very long time for the US dollar to replace the British pound, implying that it will also take a very long time for RMB to replace the US dollar. Therefore, the current status of the U.S. dollar shows us that the U.S. hegemonic status will not disappear in the short term, and it will remain the world’s superpower for a long period of time.

From the perspective of total economic output, especially per capita GDP, the United States will remain to be number one for a long time. According to the average annual exchange rate of the US dollar in 2017, the total US GDP was $19.36 trillion, which accounted for 24% of the total global GDP. China’s total GDP was $12.2 trillion, accounting for 15% of the global GDP, and 63.2% of the United States. If China’s average annual growth remains to be 6% in the future, and the US average annual growth rate is 2%, the total size of the Chinese economy will be the same as that of the United States by 2035.

What is the current position the United States in the world? The answer must be based on numbers, not feelings or illusions. Even if China can catch the United States by 2035, the GDP per capita of the United States will be four times more than that of China per capita because China has 1.37 billion people, while the United States currently has 320 million people only. If calculated with GDP per capita, it will take China at least 50 years to catch the US. We have also bear in mind that the total economic output of the United States will certainly increase in the future.

From the viewpoint of science, technology and education, especially the high-tech industry, the United States rank the first in the world and such position is likely to remain in the future. More than 70% of the world’s Nobel Prize winners come from the US, 80% of the world’s leading scientific research are from the United States. Among the top 500 scientific research institutions in the world in 2015, there are 198 US universities and research institutions, nine of the top 10 research institutes come from the United States. The United States has the most leading research papers in 108 fields. Before the Second World War, the British and Germans have won the most Nobel Prize in Natural Science, however, the United States has taken almost all the natural science awards ever since.

In the aspects of manufacturing industry development, the U.S. manufacturing is generally in the middle and high-end of the global value Chain and has the best innovation capacity. Although the output value of China’s manufacturing surpassed that of the United States in 2010, accounting for more than 25% of the world’s manufacturing output, China is still in the process of industrial upgrading. Miao Wei, Minister of the Industry and Information Technology of the PRC, once divided the global manufacturing into four teams. The first-tier team is a global innovation center of science and technology, led by the United States; the second team specializes in high-end manufacturing, including the EU and Japan; the third team is in the middle and low end of the manufacturing, and China belongs to this team; the fourth team is mainly the resource-exporting country.

From the perspective of military strength, the United States will remain the world’s number one for a long time. In 2018, the U.S. military expenditure exceeded $700 billion, accounting for one-third of the world’s total, while China’s military expenditures accounted for only one-fourth of the U.S., and the U.S. annual military spending is even greater than the total expenditures of other nine of the world’s top ten countries. Apart from that, the United States is the world’s biggest export of military weapons, accounting for 34% of the global arms sales and sell to 98 countries and regions.

Of course, the United States still dominate many other aspects in the world, such as the largest number of multinational corporations, renowned brands, Internet root servers and service capabilities. Therefore, the slogan of “America First” and “Making America Great Again” are false propositions. In recent decades, the US has produced or participated in different warfare which cost the country more than $10 trillion. The disparity between the rich and the poor in the United States is getting bigger and the damage to America’s social psychology is serious, but we do not understand why is it so urgent and necessary to make the United States great again.

The fundamental problem of the United States is not the external competition or threats, but the internal division and increasingly explicit social contradictions within the United States. China does not even pose a threat to the United States. A rising China will help the US development. In addition, President Xi Jinping’s brilliance, endurance, and strength play a decisive role in maintaining a stable U.S.-China relation. Trump’s strategic turn is too early and too fast, it is totally wrong to treat China as a strategic competitor and a target of containment. He has chosen the wrong time, wrong opponent, wrong direction, and wrong method.

The second calculation: In the US-China economic relationship, is the United States a loser or gainer?

President Trump needs to realize that the United States is a gainer rather than a loser in the US-China economic relationship. However, he keeps saying that the US-China trade deficit is the greatest damage to the United States.

In fact, the trade deficit is exactly what the US has gained. When the international monetary system collapsed from the Bretton Woods system in 1971, the U.S. dollar has become a credit currency and was no longer linked to gold. The U.S. dollar was merely a piece of paper, a symbol of currency under the support of state credit. The cost of such a paper is only four cents, regardless its face value. With the piece of paper, the United States have purchased a large number of goods. In fact, the larger the so-called trade deficit, the more benefits the US receive from that country.

As mentioned above, the U.S. has benefited the most from China because China’s trade surplus with the U.S. accounted for more than 40% of U.S. trade deficit. In fact, the low price and a large amount of goods from China are being used to support the high consumption, high welfare, low cost, low prices and inflation in the US. This is a huge contribution to the United States, but unfortunately the US often use the trade deficit to condemn and impose a sanction on China, which is a big joke. This also undermines the great benefits that the United States receives and the welfare of the American people. As a president, he should be able to acknowledge this fact and the actual benefits.

The third calculation: the United States wrong the world, or the United States is the world?

The President of the United States now feels that almost all countries in the world did not treat him correctly. This is a very complicated question and we have to look at it from a longer period of time. Historically, the reason why the United States has become the largest and most powerful country for such a long time is that the United States has taken the advantages of the rest of the world.

First of all, the dollar hegemony. The United States made the currency of credit into the settlement currency, reserve currency, a currency for direct transactions, and it has earned money and products from all over the world. In 1971, President Nixon unilaterally enacted a plan that ended dollar convertibility to gold and stopped other currencies from pegging to the dollar, which led to the collapse of the Bretton Woods system. The US dialed to keep an appointment with the world. In the evolution of the world currency system, the sequel has not been cured so far.

Second, the outbreak of the 2008 financial crisis in the United States began with the subprime mortgage crisis, which has triggered a global financial crisis. The United States is the perpetrator. By issuing a large number of banknotes, implementing four rounds of quantitative easing monetary policy, abusing the quasi-international currency status of the US dollar, the United States has gradually transferred the domestic crisis to the rest of the world and dissolved a huge amount of inflated virtual derivatives. The price is paid by other countries as the European debt crisis broke out and the economic development in developing countries has been hit hard one after another in the past 10 years.

Third, the regional crisis created by the United States, including the wars in Syria and Iraq has divided these countries produced a massive amount of refugees and worldwide crisis. In 2015 alone, 60 million refugees were emerged due to the Syrian crisis and other reasons. Germany has adopted an open policy for refugee and millions of refugees flooded into Germany in a few years, which led to unprecedented difficulties and criticism for Angela Merkel. Nonetheless, the United States has refused to allow refugees enter the US.

Fourth, the United States was originally a founder, leader, and builder of international trade and investment, and international order. Now it is walking in the opposite direction. Withdrawing from UNESCO, from the Paris agreement and even threatened to withdraw from the WTO if it fails to meet the requirement of the United States. As can be seen that the United States has given up all the principles and international regulations and order that have been established through decades of efforts.

The fourth calculation: Who will suffer more in the US-China confrontation?

The key to the current competition between China and the United States is not who will win but who can afford to lose. The confrontation in economy and trade will only make both parties suffer and there will be no winner. From a long-term perspective, the United States cannot afford to lose and it will suffer more. The lasting social problems of the United States cannot be solved by trade wars. There will be consequences if the trade war breaks out between China and the US.

First of all, the U.S. federal debt will continues to increase. When Obama took office, the U.S. federal debt was $10.6 trillion, nearly $20 trillion in July 2017, and the average debt per capita was about 60,000 U.S. dollar. Today, Trump continues to raise debts, increase military spending and infrastructure investment, the tax reduction alone will increase spending by $1.4 trillion. The Obama administration experienced government shutdown twice and the Trump administration suffered a government shutdown last year. The trade war will only increase the United States’ high debt and produce fears.

Second, the trade war between the two major powers will endanger the international economic and trade order. The total trade volume of China and the United States now accounts for about 25% of the world’s total, the total economic output accounts for about 40% and the total population accounts for about 23%. As for the SDR basket, the US dollar and the Yuan account for 52%. If China and the United States choose to cooperate with each other, they will benefit themselves and the rest of the world, otherwise they will bring chaos to the world.

Third, China will definitely take effective measures to fight back. China does not want a trade war, but it is not afraid to fight in a trade war. On the one hand, China is actively looking for better solutions for conflicts, on the other hand, it will not wait to be killed. The irrational protectionism of the United States will eventually shoot itself in the feet. Looking back at the protectionism that the United States adopted to limit the export of high-tech products to China, which in turn forced China’s high-tech industry to accelerate its development. What is particularly important is that China is a major market for many US commodities, including aircraft (2,000 orders by 2030), agricultural products such as soybeans, grain and beef, as well as some high-tech products.

China has the fastest growth of the U.S. exports and if the US loses this huge market, it will be a big hit for the U.S. Of course, China will also suffer from the trade war. However, as the Belt and Road Initiative continue to progress, China will build a closer economic relation with its neighboring countries, gradually form a diversified global market, so that we will not enter a dead end because of the trade war. Lack of the United States and desperation, while the United States will be hit hard because of the lack of China.

Last but not least, the United States will lose its reputation. What the US is doing now has disrupted the international trade regulation and theories. In February this year, Stephen Roach, an economist at Yale University in the United States, pointed out in an article entitled “How to Lose a Trade War” that the trade war will disadvantage the U.S. and undermine the stability of the international order. There is no winning strategy in the trade war. As a country ruled by law, the United States can hardly act outside of a global trading system. There are many other people also hold the same view in the United States. Currently, Trump considers the trade war as a global big sale and a bargaining field, and no one can pull back the wild horse. European countries, Germany, Asian countries, South Korea, Japan, and North America, Canada, Mexico reacted more fiercely to the trade war than China. If the US launch the trade war against 101 countries that have a trade with the United States, a worldwide economic war will break out and the US will suffer the most.

Despite the twists and turns, the U.S.-China relations will continue to move forward. Generally speaking, the U.S.-China relations have developed forward for several decades, but the process is full of contradictions and problems. We will see continuous frictions and competition between the two countries during Trump’s presidency, which is normal. Nonetheless, things will end badly if Trump amplitude and intensity of the friction and competition between China and the US.

The whole world has already seen that China is striving to promote better international relations, so that the U.S.-China relations can move in a cooperative way rather than antagonistic. China is working hard on allowing more countries and regions to build and share development and peace. China is inclusive and will certainly be the winner. President Trump and its followers should stop making further mistakes and think twice before it actions. Dealing with the U.S.-US relations is not like sending a casual message on tweet.

 

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