Shifting Back To The East ...

That chart at the bottom is from a recent Economist article. It’s interesting how economic power has shifted first from East to West and now back to the East. In the early centuries China and India were the largest economies, then Europe became preeminent. America’s turn came in the 1900s and with the exception of Japan’s surge in the 60’s and the 70’s, the twentieth Century was our time to shine. Now China is about to become the world’s largest economy and we will cede some influence to East Asia and possibly India.

The Middle Kingdom has pulled more people out of poverty since 1979 than any country has ever done in history. Now it has set its sights on bigger fish, its ‘Made in China 2025’ initiative. China wants the domestic content of “core materials,” that is the secret sauce of technology and pharmaceuticals, to increase dramatically. We are scared.

The tariff spat we are now in with China is only partly about dollars and cents. It is also about our fear of the inexorable rise of China. The current administration does not see the global economy as a win-win proposition but as win-lose. If they win then we must lose.

But remember the old adage, ‘everything is not lost that is in peril.’ Back in the 1980s the Japanese with their rigid organization and unbeatable quality were going to rule the world. That didn’t happen. China will continue to rise but don’t give up on America just yet. The Middle Kingdom has still not been seriously tested. It has been nearly 40 years since they experienced any real recession. The stimulus and borrowing required to keep its growth going today is getting more and more expensive. And 75% of middle and upper class Chinese net worth is tied up in housing. There is a lot of froth here. Some analysts estimate that there are more than 50 million unoccupied housing units in China held for speculative purposes. A big decline in housing prices would put the central government to a real test.

China is a threat but there is no need to get hysterical. Opening up China’s markets and stopping the extortion and theft of America’s technology must be a U.S. priority but even more important, America needs to take steps to keep our economy competitive. This includes more infrastructure spending, an emphasis on education, including workforce development, and a sensible immigration policy that allows us to keep the best and the brightest. The March to the East is not a done deal.

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