Why the US Economy Is Booming While China’s Is Collapsing

“Every so often, a grand thesis captures the world’s imagination,” began an article in the The New Yorker in 2008. “The latest … is that America’s time of global dominance is finished, and that new powers, such as China, India, and Russia, are poised to take over.” There has been no shortage of optimism about China since, like a 2011 Foreign Affairs headlined the “The Inevitable Superpower” and a 2018 piece from The Economist that “The Chinese century is well under way.” What a difference the past few years have made.

Conventional wisdom that China’s economy would eclipse the U.S. in a decade—maybe even sooner—is looking uncertain. The view that China was the emerging geopolitical power, with developing nations tucked under its wings, is looking similarly shaky. It is now unclear whether China’s GDP will ever surpass the U.S. and nations around the world are rethinking their ties to Beijing and the debt trap that is the Belt and Road Initiative.

Meanwhile, China’s population growth is done. Chinese entrepreneurs are leaving the country. Optimism is dimming among Chinese youth. The Chinese stock market is tanking. Foreign direct investment is in freefall, as global business seeks alternatives to the “world’s factory” that don’t come with the same geopolitical risk, and Big State political meddling. The economic indicators are so bad that Beijing is pulling many of them from public view.

As for the U.S., it is chugging along as the world’s fastest-growing and most dynamic economy. Inflation is down while jobs, real wages, and productivity are going up.

What happened? China is showing the inevitable limits of a state directed economy and society, when political diktats begin to trump open-market economic self-interest. One can’t grow the economy forever under state-controlled enterprise and subsidized infrastructure, EVs, and real estate, particularly while tightening political control over both the masses and your leading entrepreneurs. Just listen to the warning from Chinese businessman Chen Tianyong as to why he was packing up: “China’s economy is like a giant ship heading to the precipice. Without fundamental changes, it’s inevitable that the ship will be wrecked and the passengers will die.”

The genius of China’s former leader Deng Xiaoping was to move the country, beginning almost 50 years ago, from a state-directed economy toward global capitalism. This economic opening allowed China to unleash the talents of hundreds of millions of entrepreneurial people. The results have been staggering: In just a handful of decades China has moved from a relatively poor, rural society to home of the world’s largest middle-class.

Unfortunately, China’s current leader Xi Jinping—heady with the geopolitical influence that economic strength brings—is too focused on concentrating his power. Economic dynamism flourishes with freedom—freedom to think, create, speak, travel, do business with whomever you want—all bound within the rule of law that ensures a fair and open business playing field.

It’s no accident that most of the major technological breakthroughs—from the silicon chip, computers, and smartphones to the internet and AI—come from the U.S. and its democratic allies. The more educated and free a society is to express itself, the more likely it will be a font of the technologies and ideas that transform economies and cultures, as well as likely to keep attracting the best and brightest from around the world to join the innovation party.

That is not to say the U.S. is short of challenges. The Biden Administration must accelerate the push to reinvest in our heartland economies and our people, in order to combat economic inequities that are the root cause of anti-democratic movements here and abroad. These investments at home must be combined with a robust ally-shoring regime that expands our economic integration and production with countries that share our values, in turn strengthening our collective economic and political hand in a global competition against authoritarianism.

Yet the U.S. is not seizing the moment. President Biden is preoccupied with securing his reelection; the prospect of Donald Trump returning to the White House poses grave risks. What with his overt embrace of Russian President Vladimir Putin, and his de facto one of China’s global leadership role by defaulting on America’s own. Trump is already putting the future of a democratic Ukraine (and possibly other NATO allies) at risk by instructing House Republicans, where an aid package has stalled, they can’t help Ukraine.

The world’s other rich and democratic nations now face the daunting prospect of having to either “Trumpproof” a Western alliance or pray Biden gets re-elected in November. A prudent course of action for the U.S. President would be to affirm the set of collective economic and political alliances, supply and trade regimes that consolidate and strengthen the U.S. rules-based order.

Taking advantage of Chinese economic missteps, democratic allies also need to supercharge their efforts at rewiring and “recoupling” of critical supply chains out of China and into countries invested and committed to that order.

If done right, ally-shoring can offer all countries a more attractive trade, investment, and development “offer” than that of a diminished China. It will also send a clear message to China that the U.S. and its allies will end dependencies that can be used for political and economic blackmail, as China had hoped.

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