China’s economy should take the lead by 2017 and is already the world’s top traderMonday, January 20, 2014
US is No. 2! And that’s great news
The Washington Post (*)
Already, China is the world’s top trading nation, edging the United States in total imports and exports in 2012. And Arvind Subramanian, an economist formerly with the International Monetary Fund, predicts that by 2030 the world will have four major economic players: China will be the heavyweight, followed by the United States and European Union, with economies about half as large, and then India close behind.
Time to panic? A recent Chicago Council survey found that only nine percent of the people in the US believe that Chinese growth will mostly benefit the United States, while 40 percent think it will be mostly negative for them. And a 2012 YouGov survey suggests that about half of Americans would prefer to see the United States stay on top, even with anemic economic growth, rather than grow rapidly but be overtaken by China. You only need recall President Obama and Mitt Romney sparring over who would be tougher on China to see how Washington channels this popular angst.
Certainly, China’s growth poses some challenges — but the opportunities it offers far outweigh them. And no matter the hand-wringing, losing the title of largest economy doesn’t really matter much to the quality of life of US citizens.
Regardless of its current perch atop the global economy, the United States is only the 19th least corrupt nation, according to Transparency International. It rates 67th in equality of pay between men and women according to the 2013 Gender Gap Report from the World Economic Forum. And among 31 high-income countries belonging to the Organization for Economic Co-operation and Development, the United States ranked third in GDP per capita as of 2011 — but 27th in life expectancy, 29th in infant mortality, 23rd in unemployment, 27th in math test scores (as of 2012) and 30th in income equality.
In fact, the link between the absolute size of your economy and pretty much any measure that truly matters is incredibly weak. Whenever China takes over the top spot, it will still lag far behind the world’s leading countries on indicators reflecting quality of life. For starters, there are a lot more people sharing China’s GDP; even the rosiest forecasts for the country’s economic growth suggest that per capita income will be lower than in the United States for decades to come. The average US national lives five years longer than the average person in China, and civil and political rights in the world’s soon-to-be-biggest economy are routinely abused. Living in a Unites States that ranks second in GDP to China will still be far, far better than living in China.
There are some real economic costs related to losing the top spot in the GDP rankings, but they are small and manageable. The dollar might lose its dominance as the currency of choice for central bank reserves and trading, and some predict that will increase the cost of US borrowing and exporting. In fact, the dollar share of global reserves has already fallen from about 80 percent in the 1970s to about 40 percent today, with the euro and the renminbi gaining ground, but there isn’t much sign that that has spooked global markets. Meanwhile, businesses in the rest of the world still manage to export, even though they must go through the trouble of exchanging currencies.
And if you want further reassurance that you don’t need to be large to be rich, remember that in tiny Luxembourg, average incomes are almost twice those in the United States.
Of more concern to Washington might be that having the world’s largest economy helps the United States maintain the planet’s largest defence budget. At the moment, America accounts for about four out of every 10 dollars in global defense spending; China, in second place, accounts for less than one out of 10. But one way to think about this is to ask how much the three-quarters increase in defense spending between 2000 and 2011 enhanced the US’s well-being. It is distinctly unclear that having one of the world’s largest defense budgets, rather than the largest, poses an existential threat to US citizens’ quality of life.
While the downsides are limited, the upside to the United States of losing the top GDP spot is immense. The country’s declining economic primacy is mainly a result of the developing economies becoming larger, healthier, more educated, more free and less violent. And there is little doubt the United States benefits from that. Just over the past few years, for example, US export markets in Asia, Africa and Latin America have grown rapidly. Three-fifths of the US’s exports go to the developing world, and that suggests that about six million US nationals are employed providing goods and services to emerging markets. As the developing world gets richer, it will import more — and create more jobs here.
The rest of the world is also inventing more stuff, from modular building techniques in China to new drug therapies and low-water cement-manufacturing processes in India to mobile banking applications in Kenya. We can benefit from those inventions as much as we already benefit from foreign innovators coming to the United States. Among the patents awarded in 2011 to teams at the 10most innovative US universities, for example, three-quarters involved a foreign-born researcher, according to the Partnership for a New American Economy. As more people in developing countries go to college and as more firms there research and develop new products, there’s a potential for increased innovation in both the West and the Rest. That could bring faster progress in a number of different areas here at home, from connectivity to health.
And growth in the developing world, even if it means that some populous economies may eventually grow larger than the United States, also means that there are more places for US nationals to travel in security and comfort, and more places to learn, work or while away our retirement years. US nationals can get health care at Bumrungrad International Hospital in Bangkok — accredited by the Joint Commission International, which certifies health-care organizations worldwide — for a fraction of the cost they can in Bethesda. Or their kids can attend college at the University of Cape Town, rated higher than Georgetown University in international rankings but one-fifth as expensive. Or perhaps they can get jobs at one of the new breed of world-class multinational firms based in the developing world, such as Tata or Huawei.
The Unites States’ tenure on top is ending because much of the world is becoming more like the US in many ways: richer, more democratic, more secure. The world increasingly shares aspirations, priorities and attitudes similar to ours. This is a success story for US stewardship of the global economy.
So celebrate with me: We’re No. 2!
Charles Kenny is a senior fellow at the Centre for Global Development. This essay is adapted from his new book, The Upside of Down: Why the Rise of the Rest Is Good for the West.
Pablo Toledo, the editor of English on the side, which is regularly published in this space on Mondays, is on holiday until February 20