President Trump held a special press conference to make what are clearly fraudulent claims on US economic growth – claiming 2nd quarter US GDP growth was ‘historic’. These claims were exposed as false even by serious Western media. As it is crucial to have an accurate analysis of the real state of the US economy this is given here.
As always in serious matters there is no virtue in ‘pessimism’, no virtue in ‘optimism’, only a virtue in realism. Application of the method of ‘seek truth from facts’ shows:
First the Trump administration’s claims will be examined, then the demolition of these claims in the serious Western media, and then the detailed factual situation of the US economy will be analysed.
Serious Western analysis of the data
President Trump at his press conference claimed annualised 4.1% growth in the US economy between the 1st and 2nd quarters of 2018 was of ‘historic importance’. Numerous US media immediately pointed this out as false. In fact, US growth in the 2nd quarter of 2018 was lower even than its peak under Obama.
Ian Bremmer, President of the Eurasia Group, the US’s most influential political risk analysis company, put out a Tweet listing the fastest annualised growth rates in any quarter since the 2008 financial crisis – 5.1% in Q2 2014, 4.9% in Q3 2014, 4.7% in Q4 2011, 4.5% in Q4 2009. Therefore, far from being historically high, Trump’s 4.1% was actually lower than four quarters during the Obama administration.
The New York Times noted: ‘the economy exceeded 4 percent annual growth four times during the Obama administration, with the highest level…. occurring in… 2014.’ As Table 1 shows, using the same method of calculation as the claim for a 4.1% US growth rate, maximum growth under Obama was 5.1%. However, this peak under Obama was far lower than under former US Presidents – under George W Bush peak US growth was 7.0% and under Clinton 7.5%. Earlier Presidents achieved even higher growth rates such as 10.3% under Nixon. Therefore, far from being ‘historic’, the growth rate under Trump in the 2nd quarter of 2018 was striking only in that it was lower than under previous US Presidents.
Other claims by Trump at the press conference were equally false. For example: ‘We have added 3.7 million new jobs since the election, a number that is unthinkable.’ The New York Times noted: ‘In fact, the economy added more jobs in a comparable period before his election.
‘In the 19 months from December 2016 to June 2018, the economy added just under 3.7 million jobs. In the 19 months before Mr. Trump’s election, the economy added 4.3 million jobs.’
Other US media seriously analysed the 2nd quarter economic data. The Washington Post featured the following factually accurate analysis:
‘“Over the last 12 months, the economy has grown by 2.8 percent, which is a bit better than it has done recently, but is in no way the strongest growth during this expansion,” said Paul Ashworth, chief U.S. economist at Capital Economics. The U.S. economy grew by 2.9 percent in 2015.’
The Financial Times was scathing, noting that 2.8% 2nd quarter 2018 growth, which as already seen was not particularly high by previous standards, was partially due to one off factors: ‘Among those factors was an increase in exports that many economists believe was caused by foreign buyers of soyabeans and other US exports trying to get ahead of tit-for-tat tariffs imposed by the US and its trading partners…
‘the 9.3 per cent increase in exports in the second quarter had been distorted by an 80 per cent annualised jump in exports of foods, feeds and beverages, driven mainly by a spike in soyabean and corn shipments to avoid tariffs.’
Similarly, the Financial Times noted Trump’s distortion of trade data: ‘One example involved a $50bn reduction in the US trade deficit, which Mr Trump said left him particularly pleased…
‘That fall, however, reversed an increase of more than $50bn seen in the same measure last year… ‘Trade data released separately this month showed that the US’s deficit in goods and services with the world had grown by $17.9bn in the first five months of this year versus the same period of 2017.’
As serious Western media immediately refuted Trump’s inaccurate claims it is disturbing that sections of the media instead reported ‘fake news’ from the Trump press conference as accurate.
The US year on year growth rate is 2.8%
This situation becomes even more serious when a detailed analysis is made of the US figures. To do this it is important to understand that there is a crucial difference between the way China’s and US economic growth is announced:
For this reason, China’s method, calculating the real year on year growth, is more robust than the US method and is therefore used here.
Figure 1 therefore shows real US GDP growth in the 2nd quarter of 2018 compared to a year earlier was 2.8% - as accurately stated by serious US economists such as Ashworth cited above. This chart confirms year on year peak growth under Trump, 2.8%, was lower than 3.8% under Obama, 4.3% under George W Bush, and 5.3% under Clinton.
However, to most accurately evaluate the situation it is necessary to recall that the US economy shows business cycle fluctuations. Therefore, to assess 2nd quarter growth it is necessary to analyse which position in the business cycle the most recent growth occupies and to compare it to average medium/long term US growth. Fortunately, this is rather easy as the US economy has a rather stable medium/long term growth rate. Using a moving average to eliminate purely short-term fluctuations, the three-year moving annual moving average of US GDP growth is 2.1%, the five-year moving average is 2.4%, the 7-year moving average is 2.3%, and the 20-year moving average 2.2%. This consistency, to within 0.3% over the medium and long term, means the US annual growth rate over anything except the very short term is predictable (only a 10-year moving average shows a significantly lower growth rate, at 1.6%, due to the impact of the 2008 international financial crisis).
Figure 1 therefore compares current US growth to a 20-year moving average of 2.2% - this figure is so close to that for other periods that taking another medium/long term moving average would make no significant difference.
The trough of the most recent US business cycle was 1.3% in the 2nd quarter of 2016 - 0.9% below its long-term growth rate. Even calculating in an extremely mechanical way, it would be assumed that at the top of the business cycle, to maintain the long-term average, US annual GDP growth would reach 0.9% above its 2.2% long term average – which would predict a peak growth rate of 3.1%, which is actually above the 2.8% in the latest quarter. The growth rate in the 2nd quarter of 2018, far from being ‘historic’, therefore was merely a normal business cycle fluctuation and, as already shown, was a lower figure than under other US presidents.
Why does the Trump administration make exaggerated claims?
Finally, if it has been shown that the Trump administration’s claims on the US economy are false, and even the serious US media knows they are false, why are they made?
The problem for the Trump administration is that because what is occurring in 2018 is a normal business cycle upturn this will inevitably be followed by a US business cycle downturn. At that time the pain caused by the tariffs which it has introduced affecting US companies, workers, farmers and consumers will become much greater. It is for this reason that the Trump administration has to go very rapidly, making exaggerated claims, to take advantage of what it sees as a narrow window of opportunity.
This situation is clear not only from the fundamental data on the dynamics of the US economy given above but also from the projections of the IMF. Figure 2 therefore shows the IMF’s latest projections for the US economy. As may be seen the IMF projects US growth in 2018 at 2.9%, maintenance of a still above medium/long term average growth rate of 2.7% in 2019, but then falling to a below average growth rate of 1.9% in 2020, and to only 1.7% in 2021 - almost back to 2016’s extremely poor performance. While the precise details of the IMF projections can be discussed the fundamental dynamics it projects are simply those of a normal US business cycles and are fully in line with the data given above.
The factual situation of the US economy is clear.
(1) Strictly mathematically the US formula for calculating the 2nd quarter growth rate, which is used in this article, is:.
(Q2/Q1) raised to the 4th power -1
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The Chinese edition of this article originally appeared at Guancha.cn
The US issuing almost simultaneously a series of economic ‘demands’ to China, and withdrawing from the nuclear arms agreement with Iran and re-imposing sanctions on that country, has now led to very wide layers understanding that actions by the US administration are at present attempting to de facto impose an international ‘economic dictatorship’.This is a sharp turn in international opinion because this understanding goes far beyond those who are opponents of the US or are in general favourable to China. Analysis must therefore understand this turn clearly.
US economic moves against China
Taking first US economic steps against China, it is worth quoting Martin Wolf, as he is chief economic commentator of the Financial Times and one of the most influential journalists in the West – one who is not at all aligned with China. Wolf’s attack on US economic proposals to China can only be described as savage. It is therefore worth quoting to understand the full force of his attack.
Under the title ‘Donald Trump declares trade war on China - no sovereign power could accept the humiliating demands being made by the US.’ Wolf noted:
‘The Trump administration has presented China with an ultimatum on trade. That is what the US’s “draft framework” for the trade talks with Chinese officials in Beijing last week actually is. China could not accede to its demands. The US administration is either so foolish that it does not understand this or so arrogant that it does not care.
‘What is to be made of these [US] demands? The call for a reduction of the bilateral deficits by $200bn (up from $100bn) is ridiculous. It would require the Chinese state to take control over the economy — precisely what, in other respects, the US demands it not do.
‘It is a violation of the principles of non-discrimination, multilateralism and market-conformity that underpin the trading system the US created. It should be ashamed of itself. It ignores the overwhelming probability that this will not reduce overall US deficits, particularly given US fiscal irresponsibility. It ignores the inevitable adverse effects on third countries.
‘The demand that China have exactly the same tariffs as the US is almost as ridiculous. There is no economic case for such a policy…
‘China could never accept the idea that the US may prevent it from upgrading its technology.
‘The notion that the US may insist on unrestricted access for investment in China while reserving the right to restrict Chinese investment, as it wishes, must also be unacceptable.
‘Finally, the idea that the US will be judge, jury and executioner, while China will be deprived of the rights to retaliate or seek recourse to the WTO is crazy. No great sovereign power could accept such a humiliation. For China, it would be a modern version of the “unequal treaties” of the 19th century…
‘Americans who are better aware of the national interest than the administration need to understand that the US will find itself on its own if it seeks conflict. That is what must happen when a leader turns into a self-regarding bully.’
Even many forces in the West who did not understand as clearly as Wolf the unacceptable nature of US demands on China were however clarified on the character of the present US international economic approach by the US threat to re-impose economic sanctions on Iran after US withdrawal from the nuclear pact with that country. The Financial Times analysed:
‘A French senior diplomat said: “The US administration announced a gradual reinstatement of the sanctions. We’re going to do everything, in connection to our companies, to defend their interests.” …
‘The US withdrawal “is going to cause considerable economic difficulties, but beyond those economic problems, it’s a matter of principle, to have extraterritorial sanctions,” Mr Le Maire told radio France Culture….
‘In a sign of the gulf between Washington and its European allies opened up by Mr Trump’s repudiation of the accord, Mr Le Maire said: “The international reach of US sanctions makes the US the economic policeman of the planet, and that is not acceptable.”
‘German foreign minister Heiko Maas warned that the US exit from the Iran agreement would undermine trust in international agreements.
‘“The nuclear agreement increased security, and the US exit now threatens to decrease security. It also threatens to undermine trust in international treaties,” he said.
‘In a statement the EU said: “The lifting of nuclear-related sanctions is an essential part of the agreement. The EU has repeatedly stressed that the sanctions lifting has a positive impact on trade and economic relations with Iran. The EU stresses its commitment to ensuring that this can continue to be delivered.”
The US earlier withdrawal from the Paris Climate Change Accord had been opposed by all other Western countries but the effect of this, because it was perceived as relating relating to a longer-term problem, the immediate implications of which were not so clearly understood, produced less immediate impact than the US threats against China and Iran.
Shared future for humanity
In responding to these actions, and the very widespread opposition they have created, a key concept is China’s ‘common future for humanity’. What is happening is that by attacking so many groups of people present US policy is now facing opposition from many layers that are not always automatically friendly to China. The present US policy is in a sense an ‘attack on the people of the world’ – an economic attack on China, a threat to stability and peace in the Middle East against Iran, an attack on numerous countries on climate change. On all these issues – the approach to China, Iran, policy in the Middle East, climate change – present US policy is opposed by an overwhelming majority of countries and of the world’s population. Even in countries where US pressure may force their governments not to actively oppose US policy there is a sharp turn in public opinion against US policy. In summary international discontent with US policy has sharply risen.
But simultaneously, showing the importance of the approach of a ‘common future for humanity’, there is a direct interconnection between China’s national interests and those of other countries. Opposition by other countries to any present attempt by the US administration to establish an ‘economic dictatorship’ for the world aids China’s opposition to unjust US demands against it. Simultaneously, China is the strongest individual country with progressive positions, corresponding to the general interests of humanity, on all these issues. It will therefore be key for China’s foreign policy and diplomacy to find the way to cooperate with all those forces opposing any attempt to impose an ‘economic dictatorship’ on the world. China’s skill in this will be decisive not only for itself but for many countries and for humanity as a whole.
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This article was originally published in Chinese at Sina Finance Opinion Leaders.
China’s tactical response to the US administration’s arbitrary proposed tariffs against China, as well as unjustified US official and unofficial sanctions against Chinese companies such as ZTE and Huawei, must take many factors into account. Some of these can be known only to those directly involved in negotiations. Therefore, the following analysis is not intended to deal with any tactical issue in US-China trade relations. It only deals with one fundamental underlying aspect of the situation – showing that the US’s trade deficit with China is clearly due to US domestic policy and not to China. The facts show clearly the US trade deficit is ‘made in the USA’ and not ‘made in China’.
When did the US trade deficit develop?
The clearest way to see that the US trade deficit is due to US domestic policy, and cannot possibly be a product of China, is to look at the historical development of the US trade balance. This data shows clearly that the US balance of payments began to deteriorate, due to declining US international competitiveness, long before China had achieved a significant position in international trade.
Starting with analysing the US balance of trade in goods, the largest sector of international trade, this is shown in Figure 1. As is clear, for almost a century from 1889 (the earliest year for which there is internationally comparable data) up to the 1970s, the US had a virtually continuous balance of goods trade surplus. This surplus was significant in peacetime, around or above 1% of GNP, and reached far higher levels during World Wars I & II. Adding up annual surpluses and (few) deficits the US balance of trade surplus in 1889-1975 was cumulatively equivalent to a surplus of equal to 64%, almost two thirds, of US GNP. This shows the strong competitivity of US trade in goods throughout this entire period up to the 1970s.
To summarise the overall position, from the end of the 1880s until the 1970s the US was in a surplus on trade in goods almost every year and with an overwhelmingly positive cumulative balance.
This fundamental historical situation can be seen even more clearly in Figure 2, which shows a five-year moving average for the US balance of trade in goods – use of a medium term average clarifies the trend as it eliminates the effect of purely short term fluctuations in individual years. Figure 2 shows that the fundamental US balance of trade in goods was in permanent surplus for over 80 years from 1894 until the mid-1970s.
It may also be seen from Figure 1 and Figure 2 that after the early 1970s the US balance of trade in goods systematically and sharply worsened. Taking individual years, the US balance of goods trade worsened from a surplus of 0.8% of GNP in 1975 to a low point of a deficit of 6.1% of GNP in 2006 immediately prior to the international financial crisis -the US balance of goods trade was still at 4.3% of GNP in 2017. Summing up the years cumulatively, the annual US balance of trade deficits in 1975-2017 was equivalent to a deficit of 96% of US GDP.
Once again, taking a medium term five year moving average shows the trend even more clearly. By this measure US trade in goods remained in permanent surplus until 1980. Then the US balance of goods trade plunged into deep deficit, reaching a peak deficit of 5.8% of GNP by 2012 – by 2017 it was still 4.3% of GDP.
There are therefore two clear and distinct periods in US economic history: the US went from a highly competitive economy in international trade in 1889-1975 to a deeply uncompetitive economy in 1975-2017.
China cannot have been responsible for worsening US international competitiveness
The above data immediately makes clear that it cannot possibly be China that was responsible for the deterioration of the US balance of trade deficit. In the early/mid 1970s, when the US balance of goods trade began to move into sustained deficit, China had not even launched reform and opening up. China’s share both in world GDP and in world trade at that time was extremely low – in 1978 China accounted for a mere 0.5% of world exports of goods and services, and in 1982, the earliest World Bank data, it accounted for 1.1% of world goods exports. In summary, China was an extremely small factor in world trade at the beginning of the 1980s, when the US began to move into a large deficit in world trade in goods, and therefore it cannot be China that is responsible for the US trade deficit.
From the beginning of the 1970s there was, therefore, a fundamental worsening of US competitiveness in goods trade - with the US position deteriorating very seriously from the 1980s onwards. In summary, the deterioration in the US balance of trade in goods, that is the loss of US competitiveness in goods trade, was due to an overall worsening of the US competitive position in international trade – it was not due to China.
The deteriorating overall competitiveness of the US economy
So far only international goods trade has been analysed. While this is the largest part of international trade it is not the only one. In theory it is possible that the US long-term worsening deficit in goods trade could be offset by increasing US competitiveness in other sectors of international transactions. Indeed, factually, the US has run a persistent surplus on its trade in services, and also a surplus on income from US investments overseas compared to income paid to other countries from their investments in the US. Given that dollar income from services or foreign investment is equally as valuable as income from goods exports it is necessary to evaluate the relative importance of these different sectors of international interactions in assessing the overall global competitiveness of the US economy.
To analyse this, Figure 3 therefore shows the three main measures of the US economy’s international position – trade in goods, trade in goods and services, and the total US balance of payments on current account (i.e. including net income from investments in addition to trade). Figure 3 confirms, as would be expected, that the US deficit including services and investment income is is lower than its deficit on goods trade alone - the US balance of payments deficit of payments was 2.4% of GNP, the deficit on trade in goods and services was 2.9% of GNP, and the deficit on trade in goods was 4.3% of GNP.
But Figure 3 also confirms that the US surplus on trade in services and on investment income was quite insufficient to offset the US deep deficit on trade in goods. Once again, analysing both the US combined trade in goods and services, and the US total current account of the balance of payments, the US was in surplus until the 1970s. After that, and in particular from the 1980s onwards, the US plunged into increasing deficit i.e. the overall international competitiveness of the US, taking into account all sectors of its international transactions, severely deteriorated from the beginning of the 1980s.
To clearly illustrate this deteriorating overall international competitiveness of the US economy, Figure 4 shows a five year moving average for the broadest measure of the US’s current international transactions – the US current account of the balance of payments. This shows clearly that, taking a five-year moving average, the US balance of payment remained in fundamental surplus until 1981. After 1981 the US moved into a fundamental deficit. This US balance of payments deficit reached a cumulative peak of 5.2% of GNP by 2012 and it remained in a deficit of 2.3% of GNP in 2017. In summary, the US balance of payments data entirely confirms that not merely in trade in goods but in the widest measure of the international payments position of the US from the beginning of the 1980s the US underwent a fundamental decline in international competitiveness.
For reasons already given this data again confirms clearly that the severe worsening of the US overall balance of payments cannot possibly have been due to China. In 1981 China accounted for only 0.8% of US goods imports, and China’s exports of goods and services were only 0.6% of the world total. What the data shows clearly, instead, is that from the 1980s onwards a general sharp decline of US international competitiveness took place which had nothing to do with China.
The role of East Asia
This overall decline of the competitiveness of the US economy has a simple but inevitable arithmetical consequence. As the overall US deficit becomes larger, reflecting the decline in US competitiveness, then if the deficits with individual countries and regions stays exactly the same as a proportion of the overall US deficit the deficit with individual regions and countries will necessary increase in size – both in dollar terms and as a percentage of US GNP. This merely reflects the fact that the general competitiveness of the US economy was declining and has nothing to do with so called economic ‘aggression’ by other countries – both of East Asia in general and China specifically.
Justin Yifu Lin has analysed in detail the consequences of this fact for China-US relations in several papers – including his article ‘High Tariffs on Chinese Imports Would Weaken America’ and his presentation on ‘Trump Economics and China-US trade imbalances’. As Lin noted:
‘The increase in China’s trade surplus with the US since 1985 has been driven primarily by the evolution of the East Asian economy. As its wage levels rose, the US began importing consumer goods from Japan; then it shifted to importing these goods from the four “Asian tigers” – Hong Kong, Singapore, South Korea, and Taiwan – before finally sourcing most of these imports from China.’
The following analysis, therefore, in the context of the long-term deterioration of the US’s international competitiveness noted above, therefore adds detail and further confirmation to this analysis made by Lin.
To do this Figure 5 shows data for the same trend analysed in constant price terms for the US by Lin, but taken from the IMF’s Direction of Trade Statistics and calculated in current prices. As shown by the trendline there has been no overall increase in the share of East Asia in the US balance of trade deficit in the entire period since 1980 – East Asia is defined here as Mainland China, Japan, the four Asian Tigers (South Korea, Singapore, Taiwan Province of China, Hong Kong Special Administrative Region), and ASEAN members.
But a constant share of East Asia of a US balance of an overall US trade deficit which has been widening necessarily means that the size of the US deficit with East Asia has been increasing – not due to economic ‘aggression’ by East Asia but merely because the overall international competitiveness of the US economy has been worsening.
Figure 6 and Figure 7 show this trend. Although Figure 5 demonstrated that the share of East Asia in the US balance of trade deficit has not been increasing, the overall increase in the US trade deficit, reflecting declining US international competitiveness, means that the US deficit with east Asia has necessarily been widening as a percentage of US GNP - Figure 6 shows this on a year by year basis and Figure 7 uses a five year moving average to make the trend clear. On a year by year basis the US balance of goods trade with East Asia worsened from 0.6% of GNP in 1980 to 2.8% of GNP in 2017, while taking a five year moving average it worsened from 0.8% of GNP to 2.7% of GNP.
But, despite the overall worsening US trade deficit with East Asia as a percentage of US GNP, there has been no increase in the proportion of the US trade deficit accounted for by East Asia - as was shown in Figure 5,. Therefore, the worsening of the US trade deficit with East Asia is due to the deterioration of overall US trade competitiveness, not due to any specific economic actions by East Asia. All that has happened, as Lin has stressed, is that within the overall US deficit with East Asia China’s share has risen and that of other East Asian economies has declined.
A further result of this trend is also that, as Lin has stated:
‘the size of China’s trade surplus with the US has been systematically overstated, because the capital-intensive components of its labor-intensive manufacturing products are primarily imported from South Korea and Taiwan. This is a direct result of the international production network based on each economy’s comparative advantage. As China’s labor costs rise, its trade surplus with the US will be transferred to countries and regions that have lower labor costs and are willing to accommodate labor-intensive manufacturing. One country that will not benefit from this shift in labor-intensive manufacturing is the US, which lost its comparative advantage for such products a half-century ago. The possibility that it will manufacture these types of products again is slim, to say the least.’
This also has a clear consequence. As Lin notes:
‘US consumers will bear the costs of the Trump administration’s tariffs on Chinese imports. US consumer demand for daily necessities will not change simply by raising the costs of imported products. The US will either continue to import from China, with its consumers paying more, or it will import from Vietnam, India, and Africa. However, because prices of goods from these economies are higher, a shift in US imports would cut the bilateral deficit with China, but cause its deficits with these countries to rise. The result, therefore, is the same: the US consumer would pay more for the same products.’
In short, any US attack on China in trade will be paid for by reduced living standards of US consumers, that is the US population.
Finally, there is no space in this article to analyse in detail the reasons for the long worsening of the US balance of trade position since the 1970s which has been factually demonstrated. Here only the most fundamental economic process can be analysed, and its geopolitical consequences noted.
In terms of the most basic economic processes producing the US balance of payments deficit the reason for this was analysed precisely by IMF Managing Director Christine Lagarde. She noted, if there is a balance of payments deficit this ‘imbalance is driven by the fact that a country spends above its income.’ (In technical economic terms a country’s balance of payments deficit is exactly equal to its shortfall of savings compared to investment).
To understand the underlying economic reasons for this situation whereby the US is spending more than its income it is useful to recall the Nazi leader Herman Goring famous declaration that it was necessary for Germany to choose between ‘guns and butter’ and that he preferred guns: ‘guns will make us powerful; butter will only make us fat’. Using this comparison, the US balance of payments deficit, the US ‘spending above its income’, is simply caused by the fact that the US is trying to have both ‘guns and butter’ – but cannot afford both simultaneously.
The US spending above its income derives from the fact that it attempts to maintain very great military expenditures, by far the world’s largest, while simultaneously trying to avoid even worse domestic political discontent than currently exists by avoiding even more severe pressure on US living standards to finance this military expenditure. The fact that the US cannot afford both guns (high military expenditure) and butter (high living standards) means the US is spending above its income and therefore this inevitably causes its balance of payments and balance of trade deficits. To bring US spending down into line with its income, that is to eliminate the balance of payments deficit, either spending on guns or spending on butter will have to be reduced – i.e. eventually the US will be forced to chose between guns and butter.
Given this choice the logical path for the well being of the US people, of course, is to chose to maintain their living standards and to cut back on US military expenditure and the aggressive foreign policy which accompanies it. The latter not only puts downward pressure on US living standards but leads to deaths of US soldiers and spreads chaos in countries in which the US intervenes (e.g. Iraq, Libya). Unfortunately, however, the US political establishment wants the opposite – to maintain military expenditure. This therefore leads simultaneously to economic attacks on the US population and attempts to blame other countries for a balance of payments deficit which, as already shown, was created by US economic policy and not by other countries.
A major geopolitical danger in this situation is therefore that, to attempt to divert attention away from and conceal that the US balance of payments deficit is due to US economic policy itself, US administrations will attempt to blame other countries and carry out economic, or even military, attacks on them. In summary, the danger is that US economic failure will lead to it becoming more aggressive. For this reason China has to have strong military forces to able to defend itself against such unwarranted US attacks and also has to be prepared to deal with US unjustified economic attacks.
To return to the beginning of the article, as already stressed, the analysis here only deals with one fundamental aspect of the situation – that the US balance of trade deficit is ‘made in the US’ and not ‘made in China.’ China’s practical policy in this situation has to take into account numerous factors, but it is important to be entirely clear on the fundamental reasons for the US trade deficit.
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The Chinese language version of this article was originally published by New Finance.
In drawing up its list of tariffs on $50 billion of Chinese products the Trump administration carefully tried to avoid one of the chief bad effects these tariffs will have on the US population by excluding many consumer goods from the list. This was clear proof the administration feared the hostile reaction from US consumers as prices went up on these imported goods in US shops. But by concentrating on trying to lessen the impact on US consumers the Trump administration has necessarily increased the negative effects on US jobs and particularly US manufacturers and farmers. This has meant it has not really concealed the negative effects on the US economy at all. Therefore, within hours of the US announcement, and even before China’s firm response, even Western commentators were accurately pointing out the main groups within the US itself that would be hit by the tariffs.
It is important to understand not only the impact on China of the Trump proposed tariffs but also the impact in the US. It is therefore worth looking at accurate Western studies of this.
Impact on US manufacturers
David Fickling, writing in Bloomberg, noted the effect of the US tariffs may remove as much as half of the benefit which the Trump administration recently gave to US manufacturing companies via tax cuts. Bloomberg’s headline was clear: ‘Trump Tariffs Stick It to U.S. Manufacturers. Firms might as well give back half of that $26 billion-a-year tax cut they just got.’
Fickling entirely accurately analysed the attempted concealment of the impact of the US actions on the US economy and population: ‘the list [of US tariffs] appears to have been chosen with care. Officials started with all products felt to benefit from Chinese industrial policies, before removing those that were "likely to cause disruptions to the U.S. economy," those that would hit consumers' pockets hardest, and those that couldn't have levies for legal or administrative reasons.
‘The protection of individuals' wallets is probably the most important part of that… China has a substantial advantage in this trade war in that the majority of its biggest exports to the U.S. are consumer goods whose purchasers tend to be price-sensitive voters. Trade in the opposite direction focuses far more on intermediate products bought by Chinese companies expected to do their bit for Beijing. By sparing consumers, Lighthizer is sending a strong signal he won't let this fight be lost because of discontent on the home front.
‘That's why, while hundreds of product lines under tariff code 85 (electrical machinery and equipment and parts thereof) will be subject to a 25 percent impost, subsection 8517 -- mobile phones, which constitute about 40 percent of U.S. imports from China for that category -- won't suffer a cent.’
But by exempting many consumer goods, while simultaneously aiming to meet the $50 billion target for sectors hit by tariffs the Trump administration had wanted, the US has been forced to affect a much wider range of non-consumer goods. Again, as the Bloomberg article correctly noted, it is a: ‘fact that the plan will most likely hurt the parts of the economy it purports to help. Another way of looking at the $12.5 billion that will be levied is that it's essentially the government taking back about half of that roughly $26 billion-a-year tax cut it just delivered to manufacturers.
‘Once you consider the ways domestic suppliers could raise prices in response to the reduced competition from China (as is already happening with steel and aluminum), the cost to end-product manufacturers will probably be higher. Producer prices in the sector are already rising at the fastest pace in almost six years; the squeeze to profits should intensify before it eases.
‘The second point is related. The list at present isn't written in stone -- instead it will be put out to industry consultation for 60 days. That gives manufacturers ample time to make their complaints to Washington, and to get their carve-outs in return. The Trump administration isn't famed for its resistance to such influence: 195 of the executive branch's 2,684 appointees are former lobbyists, according to a database by journalism nonprofit ProPublica.
‘Such pushback will probably be to the benefit of a U.S. economy that was doing perfectly well before the current skirmish came along. But it will weaken Washington's hand in the months ahead. The National Association of Manufacturers is already calling for a trade agreement, rather than the current path toward a conflict.’
Fickling’s overall conclusion was entirely accurate: ‘President Donald Trump must now choose whether his main objective is helping American manufacturers, or sticking it to the Chinese. He can't have both.’
US farmers protest
In addition to the impact on US manufacturers the Financial Times particularly noted the effect of the US farm sector and the reactions from it: ‘Max Baucus, a former senator from Montana and US ambassador to China who now serves as the co-chairman of the lobby group Farmers for Free Trade, said farmers were being “squeezed from all sides” by the Trump administration’s attack on China.
‘“First, the tariffs the US announced today will make the [agricultural] equipment and inputs they rely on more expensive. Then they will face new tariffs on their exports when China retaliates,” Mr Baucus said. “American farmers are watching this daily trade escalation closely, and they are worried.”
‘US business groups have called for the Trump administration to rethink its plan for tariffs, arguing that while they shared its concerns about China’s intellectual property regime the White House plan amounted to new taxes on US consumers and businesses… “imposing taxes on products used daily by American consumers and job creators is not the way to achieve those ends,” said Myron Brilliant, the head of international affairs at the US Chamber of Commerce.’
The action China has now announced on US soybeans exports will of course tighten that squeeze on US farmers. The Financial Times noted: ‘John Heisdorffer, president of the American Soybean Association, warned that the Chinese tariff would “have a devastating effect on every soybean farmer in America”. He urged Mr Trump to “engage the Chinese in a constructive manner, not a punitive one”.’
The strategic target of the US tariffs
Bllomberg also analysed that the clear aim of the tariffs was to attempt to block China’s advance into more technologically advanced production. It noted “The tariffs may have only a minor economic impact, increasing levies by $12.5 billion on Chinese shipments to the U.S. that reached $506 billion last year, said Shane Oliver, the head of investment strategy at AMP Capital Investors Ltd. in Sydney. That’s an average tariff increase on overall imports from China of just 2.5 percent, he said.” But: ‘In targeting sectors that Beijing is openly trying to promote, the U.S. is signaling that its strategic aim in the current conflict is preventing China from gaining the global technological leadership that it wants.”’
But in attempting to block China’s rise the Trump administration has launched an attack not only on China but on US companies, workers and farmers. The outcome of the situation will be decided by the interaction of both fronts in this battle.
China's socialist economic 'reform and opening up' improved the lives of a vastly greater proportion of humanity than any other country in human history
An earlier article in this series marking the 40th anniversary of China's 'Reform and Opening Up' showed that China since 1978 is the fastest sustained growth by a major economy in human history. But this historic fact, although extraordinary in its own right, actually considerably understates the immense scale of China's achievement. The reason for this is that China is such a larger part of humanity than any other country which has ever undergone sustained very rapid economic growth - with the enormous improvement in living standards this produces.
To demonstrate this the chart and the table below show the percentage of the world's population at the time when major economies began sustained rapid economic growth. Analysing these historical examples:
Although both the rapidity and scale of China's economic achievement since the beginning of its socialist 'reform and opening up' in 1978 dwarfs any other economic growth in human history even this is not its most important achievement. Most important is the improvement in the lives of ordinary Chinese people. As will be shown in later articles this produced the most rapid increase in living standards of the greatest number of people in human history and mean China accounted for a greater reduction of the number of those living in poverty than the rest of the world put together. These issues will be analysed in future articles in this series.
But there is a fundamental reason that the 'Western media' has to suppress knowledge of the fact that China's growth dwarfs that of any previous country in human history. It is because this unmatched speed and scale of China's economic development was achieved by a socialist and not by a capitalist country and economy. If that fact were widely understood it would change the world's perception of itself. Therefore the 'Western media' has to engage in one of its typical forms of 'fake news' - to suppress knowledge of the fact that China's economic achievement is quite literally without parallel in human history.
China's is the fastest growth by a major economy in human history - 40 years of China's 'reform and opening up'.
2018 marks the 40th anniversary of the beginning of China's 'reform and opening up'. This has produced in China the greatest economic achievement in human history - that statement is not meant as an exaggeration or as polite words, it is a simple statement of objective fact.
The 'Western media' is forced to attempt to factually conceal the scale of China's achievement because to admit it would transform the world's understanding of itself. For developing countries, the overwhelming majority of the world's population, to admit this reality would show that the China's 'economic model' is by far most effective practical way to achieve economic growth, to gigantically and rapidly improve the living standards of the average population, and to radically eliminate poverty. For the advanced economies China's 'socialist market economy', with its decisive role of the state sector, but combined with a private sector, shows a clear and successful alternative to the failure of neo-liberalism in the 'Washington Consensus' and the austerity policies pursued by the advanced countries.
Most terrifyingly of all for the Western media China shows that the most successful economy in the world in producing economic growth and improving living standards is a socialist and not a capitalist one.
Because it is therefore vital for the Western media to prevent the truth about China's economic achievements being widely know this website is therefore going to mark the 40th anniversary of the 'reform and opening up' policy, introduced by Deng Xiaoping and Chen Yun, by a series of articles on the facts of China's economic achievements in 1978-2018. It will demonstrate why it is simply a statement of fact that China's economic achievement in the 40 years of 'reform and opening up' is greatest in human history.
This first article simply deals with the speed of China's economic development. The economic growth rate of China in 1978-2019 is the fastest in a major economy in human history.
Taiwan Province of China, expanding at an average 8.8% and increasing in size almost 27 times in 1950-89;
South Korea expanding at an annual average 8.3% or increasing in size almost 23 times in 1952-91,
Hong Kong SAR growing at an average 8.1% or expanding almost 21 times in 1958-1997, and Singapore growing at an annual average 8.1%, or expanding almost 21 times in 1951-1990. These are shown on the chart.
But all these economies were very small compared to China. Taking really large economies, which are therefore more comparable to China, the fastest growth over a 39 year period ever recorded was Japan in 1950-89 when it expanded at an annual average 6.7% or by almost 13 times.
The facts are therefore clear. China's is the fastest growth ever experienced by a major economy in the whole of human history. There are other features, which will be explored in this series of articles, which are equally striking, but this single fact alone establishes China as an unprecedented economic achievement.
On Friday 2 February sharp turmoil, which had been building for some time, shook US financial markets.
It is important to understand that these trends are not separate. They show that although US economic growth is low by historical standards, with only a 2.5% year on year GDP increase in the year to the 4th quarter of 2017, it is showing signs of overheating:
By coincidence on the morning of the same day an article by me analysing the latest US economic data was published. This clearly predicted these trends - although it was of course written before the events on 2 February. This article is published without change below except for an updating of the US bond yields data to the end of 2 February.
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The new release of US and EU GDP data for the whole of 2017 allows a factual examination of the latest state of the US economy and constitutes a baseline for assessing the future impact of the Trump tax cuts. This new data confirms the following fundamental features of US economic performance.
This situation of the US economy has significant implications for US-China relations. In particular, as the US is unable to speed up its medium/long term growth, those forces in the US seeking to engage in ‘zero-sum game’ competition with China can only achieve their goal of improving the position of the US relative to China by trying to slow China’s economy.
These implications will be considered in the conclusion of the article. However, first, using the approach of ‘seek truth from facts’ the latest data on the US economy will be examined.
US was again the most slowly growing major economic centre
The new data shows that for the second year in succession the US was the world’s most slowly growing major economic centre – see Figure 1:
In addition to the data for the whole of 2017, in the year to the 4th quarter of 2017 the US was still the slowest growing major economic centre – US growth was 2.5%, EU growth 2.6%, and China’s growth 6.8%.
Although the facts of US poor economic performance in 2017 and 2016 are therefore clear this clearly poses a question. To what degree will the US improve this performance? This in turn requires examining both the position of the US in the present business cycle and the medium/long term determinants of the US economic performance.
Position of the US business cycle
In order to separate purely cyclical short-term movements from medium/long term fundamental trends in the US it should be noted that the medium/long term growth of the US economy is one of the world’s most predictable. Analysing the latest data, which go up to the 4th quarter of 2017, Table 1 shows that the three-year moving average of US annual GDP growth is 2.1%, the five-year moving average is 2.3%, the seven-year average is 2.1%, and the 20 year average is 2.2%. Only the 10-year moving average shows a significantly lower average - due to the great impact of the post-2007 ‘Great Recession’. Given that medium and long-term trends closely coincide the US fundamental medium/long term growth rate may therefore be taken as slightly above 2%.
This consistent US medium/long term growth rate also makes it relatively easy to assess the short-term position of the US in the current business cycle. The key features of the latest data, for US economic performance in the final quarter of 2017, are given in Figure 2. This shows that US year on year economic growth in the last quarter of 2017 was 2.5%. This represents an upturn from the very depressed US growth during 2016 – which reached a low point of 1.2% growth in the 2nd quarter of 2016.
To accurately analyse this data, it should be noted that confusion is sometimes created in the media by the fact that the US and China present their quarterly GDP data in different ways. China emphasises the comparison of a quarter with the same period in the previous year. The US highlights the growth from one quarter to the next and annualises this rate. But the US method has the disadvantage that because quarters have different economic characteristics (due to the different number of working days due to holidays, weather effects etc) this method relies on the seasonal adjustment being accurate. But it is well known that the US seasonal adjustment is not accurate – it habitually produces low growth figures for the first quarter and correspondingly high figures in other quarters. It is therefore strongly preferable to use China’s method which, because it compares the same quarters in successive years, does not require any seasonal adjustment and therefore gives true year on year growth figures. All data in this article is therefore for this actual year on year growth.
In addition to showing 2.5% year on year growth for the latest quarter, Figure 2 shows that US annual average GDP growth was below its long-term average of 2.2% for six quarters from the 4th quarter of 2015 to the 1st quarter of 2017. Therefore, merely to maintain the US average growth rate of 2.2%, US growth would be expected to be above its 2.2% average growth rate for a significant period after the beginning of 2017. Figure 2 shows this is occurring, with US growth in the third quarter of 2017 being 2.3% and in the last quarter of 2017 reaching 2.5%. Therefore, the acceleration of US growth in the last quarter of 2017 was a normal business cycle development and did not reflect an acceleration in US medium/long- term growth.
More precisely, given the prolonged (6 quarters) period centring on 2016 when US growth was below its long-term average, this also means that purely for normal business cycle reasons it would be anticipated that for most of 2018 US GDP growth would be above its long-term average of 2.2%. This may allow US growth to overtake that of the EU, but not of course to overtake China. But there is as yet no indication that the US economy will achieve sustained growth of more than three percent growth rate claimed by Trump’s Treasury Secretary Cohn who stated to CNBC in justifying the tax cut that: ‘We think we can pay for the entire tax cut through growth over the cycle… Our plan was based on a 3 percent GDP growth. We think we can now be substantially above 3 percent GDP growth.’
It should be noted that Cohn’s claim is that three percent growth can be achieved over a business cycle – which would indeed be a substantial increase in US medium/long term growth. It is not at all the same as the US achieving three percent growth in a particular quarter or quarters – which has occurred previously and is entirely compatible with the maintenance of the current US medium/long term growth rate of just above 2.2%.
There is, of course, even less evidence that the US economy will achieve 6% growth as claimed by President Trump in his December press conference with Japanese prime minister Abe.
In order to asses the realistic growth rate for the US it is now necessary to analyse the fundamental determinants of US medium/long-term growth.
No basic acceleration in US long term growth
The most fundamental trend in US long term growth is the progressive slowing of the US economy which has been taking place for over 50 years. Figure 3 shows that, taking a 20-year moving average, to remove all short-term effects of business cycles, the US economy has progressively decelerated from 4.4% annual growth in 1969, to 4.1% in 1978, to 3.5% in 2002, to 2.2% in the 4th quarter of 2017. The fact that the US economy has been slowing for over 50 years shows that this process is determined by extremely powerful and long-term forces which will, therefore, be extremely difficult to reverse. The nature of these trends is analysed below – the latest US data, however, clearly shows no acceleration in long-term US growth which remains at 2.2%
US medium-term growth
Turning from long-term to US medium-term growth, this necessarily shows greater fluctuations than US long term growth – as medium term growth rate is affected by business cycles. It is therefore useful, in analysing such cyclical fluctuations, to consider not only the average trend but also to make a comparison of successive peaks and troughs of business cycles. To illustrate these a five-year moving average for US growth is shown in Figure 4 and a three-year average is shown in Figure 5.
• Taking a five-year average, and considering the maximum growth rate in business cycles, the US economy slowed from 5.5% in 1968, to 5.0% in 1987, to 4.5% in 2000, to 3.0% in 2006, to 2.3% in the 4th quarter of 2017.
• Taking a three-year average, the US economy slowed from 5.9% in 1985, to 4.7% in 1999, to 3.7% in 2006, to 2.1% in the 4th quarter of 2017.
Therefore, the long-term tendency of the US economy to slow down is again clear. The trend of the peak growth rates in US business cycles falling over time is precisely in line with the long-term slowing of the US economy.
The chief factors in US medium/long term growth
Having shown the factual trends in US economic growth it is then necessary analyse what produces them. My article 'Trump's Tax Cut - Short Term Gain, Long Term Pain for the US Economy' analysed in detail that statistically the strongest factor determining US medium/long term growth is US net fixed investment (i.e. US gross fixed capital formation minus capital depreciation). Table 2 updates the data regarding this given in the earlier article to now include 2017.
As may be seen, over the short-term there is no strong correlation between US GDP growth and the percentage of net fixed investment in US GDP – the R squared correlation for 1 year is only 0.21. Indeed, as 'Trump's Tax Cut - Short Term Gain, Long Term Pain for the US Economy' showed in detail, there is no structural factor in the US economy which is strongly correlated with US growth in the purely short term. That is, put in other terms, numerous factors (position of the economy in the business cycle, trade, situation of the global economy, weather etc) determine short term US growth. However, as medium and long-term periods are considered, the correlation of US GDP growth with the percentage of net fixed investment in US GDP becomes stronger and stronger. Already over a five-year period the level of net fixed investment in US GDP explains the majority of US GDP growth, and over an eight-year period the R squared correlation is 0.71 – extremely strong.
It is unnecessary for present purposes to establish the direction of causality in this relation. The extremely strong correlation between US GDP growth and the percentage of net fixed investment in US GDP simply means that over the medium/long term it is not possible for the US economy to acclerate without the percentage of US net fixed investment in GDP increasing. This equally means that analysing the percentage of US net fixed investment in US GDP allows the potential for the US to accelerate its medium/long term growth to be determined. This also means that to assess Trump’s possibility to increase US medium/long term growth it is necessary to analyse trends in US fixed investment.
US net fixed investment
Turning to analysis of these factual trends, Figure 6 illustrates the percentage of net fixed investment in US GDP – showing the extremely sharp fall in this which has occurred. This fall corresponds to the long-term slowdown in US growth already analysed.
To be precise, taking peak levels in business cycles:
Economic conclusionsIn summary, the conclusions which follow from the latest US GDP data are clear:
It is of course important to follow and check these trends factually given the importance of the US for the global economy and for China. Given the determinants of US economic performance over the medium/long term it follows that, in addition to factually registering US growth, it is necessary to regularly analyse the percentage of net fixed investment in US GDP in order to see if any new conditions for an acceleration of US medium-long term growth is occurring – so far it has not.
It should also be noted that the Trump tax cut, because it is not matched by government spending reductions, will sharply increase the US budget deficit and therefore, other things remaining equal, it will reduce US domestic savings, and therefore reduce the domestic US capacity to finance investment.
The following dynamic should therefore be anticipated in the US economy, which China’s policy needs to take into account:
Finally, while the focus of this article is economic, it is clear certain geopolitical conclusions flow from these factual trends in the US economy.
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This article was originally published in Chinese at Sina Finance Opinion Leaders.
No recente artigo “A chegada do século da economia chinesa”, Justin Yifu Lin, ex-economista-chefe do Banco Mundial, argumentou que o centro mundial da teoria econômica passaria para a China.
“Eu também fiz uma previsão. No século 21, é bem possível que muitos mestres em Economia despontem a partir do estudo da economia chinesa. A importância de uma teoria depende da importância do fenômeno explicado por essa teoria. Se um fenômeno é importante, então explicar o fenômeno e revelar a lógica causal por trás dele tornam esta uma importante teoria. O que é um fenômeno importante? Os fenômenos que ocorrem em países importantes são importantes. Considerando a história do desenvolvimento da Economia moderna, Adam Smith publicou a Riqueza das Nações. Desde o final do século XVIII até meados do século XX, o centro da economia mundial, de contribuições significativas para a economia, foi o Reino Unido. A grande maioria dos principais estudiosos eram economistas britânicos ou estrangeiros que trabalhavam no Reino Unido.
Após as décadas de 1940 e 1950, a grande maioria dos economistas que fizeram grandes contribuições para a economia era de americanos ou eram economistas estrangeiros que trabalhavam nos Estados Unidos… Após a Primeira Guerra Mundial, o centro da economia mundial se mudou para os Estados Unidos. Os fenômenos econômicos mais importantes são os fenômenos que aparecem no centro da Economia mundial. Com essa transferência, o centro de pesquisa em Economia seguiu o mesmo caminho.
Em termos de paridade de poder de compra [PPP], a China se tornou a maior economia do mundo em 2014. Enquanto o desenvolvimento constante da China continua, então à taxa de câmbio média do mercado, é muito provável que ela se torne a maior economia do mundo até 2025. Atualmente, o país responde por 18% da economia mundial e será mais de 20% até 2025. Em 2050, a economia chinesa provavelmente representará entre 25% e 50% da economia mundial. Portanto, o centro da economia mundial pode mudar dos Estados Unidos para a China.
É muito provável estarmos assistindo à chegada de uma nova era de grande importância para a humanidade porque, de um dos países mais pobres do mundo, a China se tornou um país de renda média e se tornará um país de alta renda. A maioria dos países do mundo agora são países em desenvolvimento – países de baixa renda e países de renda média. Eles têm a vontade de se modernizar e se tornar países de alta renda. Assim sendo, é necessário resumir as inovações teóricas realizadas na experiência econômica da China e desenvolver melhores meios de testar a contribuição dessas teorias”.
De fato, o objetivo é alcançar o crescimento sustentável mais rápido em uma das principais economia da história humana. A China já teve que passar por testes decisivos da superioridade de seu pensamento econômico. Mais fundamentalmente, de positivo, a “economia de mercado socialista”, criada por Deng Xiaoping, Chen Yun e seus colaboradores, foi algo sem precedentes na história humana – uma conquista intelectual e teórica da mais alta ordem. Isso é analisado extensivamente no meu livro O Grande Jogo de Xadrez e de uma maneira mais popular em um artigo cujo título é autoexplicativo: “Deng Xiaoping: o maior economista do mundo”.
O sucesso da China não foi meramente prático, mas teórico, porque suas políticas foram levadas a cabo em clara oposição à teoria econômica ortodoxa ocidental dominante, e com a China apresentando seus próprios conceitos econômicos. Como Justin Lin Yifu observou: “Havia um consenso [ocidental] de que os resultados econômicos da política gradual e de trilha dupla que a China realizava seriam piores… Mas agora, olhando para trás, a China é a economia de crescimento mais rápido e estável das últimas quatro décadas. Os países que sofreram uma reestruturação pela terapia de choque do Consenso de Washington sofreram uma crise de colapso econômico e estagnação”.
To assess the impact of the Trump tax cut on the US economy it is necessary to analyse the interrelation of two processes:
Determinants of US growth
In order to analyse the fundamental factors determining US economic growth in both the short and the medium/long term the correlations between the key structural features of the US economy and the US growth rate are shown in Table 1. This Table shows a clear pattern:
The short-term position of the US business cycle
Analysing first short-term trends in the US economy this is greatly simplified by the fact that US medium/long term growth rate is among the world’s most predictable. Table 1 shows that over a 5-year period US annual average growth is 2.2%, over a 7-year period 2.1%, and over a 20-year period 2.2%. Only a 10-year period shows significantly different growth, at 1.4%, and this is simply a statistical effect of the huge impact of the international financial crisis of 2008. Given all these measures coincide therefore, annual average US GDP growth over the medium/long term may be taken as slightly above 2%. Given this stable medium/long term growth rate short term US business cycle trends simply show oscillations above and below this medium/long term average.
Turning to the present situation of short-term shifts in the US business cycle, Figure 1 confirms that US economic growth in 2016 was extremely slow – only 1.5% for the year as a whole and falling to 1.2% in the second quarter. Given that the US growth rate in 2016 was substantially below its medium/long term average of slightly above 2%, a recovery of US growth was to be expected in 2017 for purely statistical reasons. This has duly occurred, with US year on year growth in the 3rd quarter of 2017 being 2.3% - marginally above the long-term US average.
The Trump tax cut is therefore being injected into an economy which is already recovering from its cyclical downturn in 2016. As the Trump tax cut is not accompanied by any equivalent reduction in US government spending it will therefore significantly increase the US budget deficit - estimates of the final effect of this are that the US budget deficit will increase by at least $1 trillion. A tax reduction which increases the budget deficit, that is which increases US government borrowing, may well increase a short-term recovery which is already occurring.
However, this increased budget deficit, other things being equal, will reduce US total savings – i.e. the sum of household, company and government savings. In the purely short term this fall in the US savings rate will not reduce US growth because, as was already shown, in the short term, i.e. one or two years, net saving and net investment are not closely correlated with US economic growth. Therefore, in the short term, the effect of extra spending arising from increased government borrowing, i.e. extra money flowing to corporations and consumers, may well lead to extra spending boosting already recovering US growth. For this reason, as already noted, in the short term, in 2018, the combination of the cyclical recovery and tax cuts is likely to lead to increase ‘short term gain’.
The medium/long term
However, in the medium/long term, as already noted, key structural features of the US economy, in particular net fixed investment, are extremely highly correlated with US growth. This, therefore, means that over the medium/long term analysing the trend in US net fixed investment gives an extremely clear guide to US economic growth performance.
Necessarily the effect of a greater US budget deficit is to reduce US total savings – other things being equal. As Figure 2 shows the US already passed into almost permanent US budget deficit and government borrowing from the late 1960s onwards – with only a short period of budget surpluses under Clinton. By 2017, although it had recovered from the depths of the international financial crisis, US government borrowing was still 4.0% of GDP even before the Trump tax cut kicks in.
The household and company sectors
In theory, as US total saving is the sum of government, household and company saving, increases in US household and/or company savings could offset a fall in total US saving caused by an increased budget deficit – for example theoretically companies and households benefitting from the tax cut would save their extra income. However, Figure 3 shows, however, that no increase in these other potential sources of US savings was in practice sufficient to overcome the effect of increased US government borrowing resulting from US Federal budget deficits. The result of substantially increased US government borrowing, not offset by trends in the household or company sectors, was therefore to produce a sustained fall in US total savings – that is in US capital creation. US net savings, which had been 13.1% of US Gross National Income (GNI) in the late 1960s, by 2017 had fallen to 1.7% of GNI.
Saving and investment
Turning to the relation between US savings/capital creation and the key chief structural determinant of US economic growth, net fixed investment, it should be recalled that total investment is necessarily equal to total savings. Investment may, however, be financed by either US sources or by borrowing from abroad. Therefore, a reduction in US savings, caused by an increase in the budget deficit due to the tax cuts, necessarily means that US total investment must fall unless an equal foreign source of savings can be found.
US presidents from Reagan to Obama were indeed prepared to use foreign borrowing to offset the decline in US savings - as Figure 4 shows. In the 3rd quarter of 1979, shortly before Regan came to office, the US was actually a net international lender of 1.0% of GNI. However, under Reagan the US embarked on massive international borrowing, this reaching a peak of 3.3% of GNI during his presidency. After a brief decline under George H W Bush, US foreign borrowing then expanded further under Clinton and George W Bush - reaching a peak of 6.1% of GNI in 2005. The shock of the international financial crisis then forced a reduction in US international borrowing, but it still stood at 2.6% of GNI in 2017.
Nevertheless. despite this very large increase in US foreign borrowing Figure 5 shows that this insufficient to entirely offset the decline in US savings and maintain the previous US level of net fixed investment. US net fixed investment fell from 10.5% of GDP in 1978, shortly before Reagan came to office, to a low of 1.7% of GDP in 2010 immediately following the onset of the international financial crisis. US net fixed investment has since recovered to 3.9% of GDP but this remains far below its previous peak level.
Given the extremely strong correlation between US net fixed investment and US economic growth which was already analysed this sharp fall of US net fixed investment necessarily greatly reduces US economic growth.
The slowdown in US growth
Given the close correlation of US net fixed investment with the US growth rate, the necessary result of this sharp fall in US net fixed investment was therefore also a progressive slowdown in the US economy shown in Figure 6.
Taking a 20-year moving average, to eliminate any short-term effects of business cycles, US annual average economic growth has fallen from 4.4% in 1969, to 4.1% in 1978, to 3.5% in 2003, to 2.2% in 2017. The extremely close correlation of the percentage of US net fixed investment in GDP with the US medium/long term growth rates already analysed means that the Trump administration cannot significantly accelerate US economic growth without increasing the percentage of net fixed investment in US GDP.
The choices tracing TrumpThe fundamental determinants of US economic growth therefore clearly show the choices facing the Trump administration which result from the tax cut.
By carrying out a tax cut unaccompanied by any government expenditure reductions the Trump administrations is lowering the level of US domestic savings. This in turn necessarily means a reduction in US investment unless an alternative source of savings can be found.
As previously analysed previous US presidents from Reagan to Obama partially offset this decline in US savings by large scale foreign borrowing. But this large scale foreign borrowing necessarily has consequences for the US balance of payments and therefore for Trump’s pledge to reduce the US trade deficit.
Contradictions of Trump’s policyIt is therefore clear that by its tax cut the Trump administration therefore places itself in an internally contradictory position in which it is impossible to simultaneously meet two of its stated goals:
While the above analysis is made in terms of analysing the fundamental determinants of US growth it is also worth considering other analyses.
The IMF arrives at a fundamentally similar analysis to the above in its latest international projections – predicting a short-term increase in US growth in 2017-2018 but without any medium/long term increase in the US growth rate. Figure 7 shows more precisely that the IMF projects US 2.2% GDP growth in 2017, and 2.3% in 2018, before a decline to 1.9% in 2019, 1.8% in 2020, and 1.7% in 2021 and 2022. Overall the IMF projects annual average US growth in 2016-2022 of 1.9% - which is actually marginally below the average annual medium/long term US growth rate of slightly above 2%. Given the stability of US medium/long term growth, therefore, while the present author would agree with the IMF’s projected general pattern for the US economy, i.e. higher growth in 2017-2018 followed by a slowdown, he considers that US growth will possibly be slightly higher than the 1.9% annual average indicated by the IMF.
Gavyn Davies, former chief economist of Goldman Sachs, who runs one of the world’s most sophisticated ‘now casting models’, similarly concludes that while the pattern of faster US growth in 2017-2018 followed by slowdown is correct he predicts average US growth remaining just above 2%.
Lawrence Summers former US Treasury secretary has the same analysis. He characterises the increase in US growth in 2017-2018 as a ‘sugar high’ – the equivalent of the purely temporary short-term boost in human energy caused by taking a large dose of sugar. His analysis, given the self-explanatory title the: ‘US economy faces a painful comedown from its “sugar high”’ is that: ‘The tax-cut legislation now in committee on Capitol Hill exacerbates every important problem it claims to address, most importantly by leaving the federal government with an entirely inadequate revenue base. The bipartisan Simpson-Bowles budget commission concluded that the federal government needed a revenue base equal to 21 per cent of gross domestic product. In contrast, the tax cut legislation now under consideration would leave the federal government with a revenue basis of 17 per cent of GDP — a difference that works out to $1tn a year within the budget window.
‘This will further starve already inadequate levels of public investment in infrastructure, human capital and science. It will probably mean further cuts in safety net programmes, causing more people to fall behind. And because it will also mean higher deficits and capital costs, it will probably crowd out as much private investment as it stimulates.’
Finally, while the focus of this article is the economic prospects for the US, it is worth noting certain key US domestic and geopolitical trends which follow from this.
Under normal circumstances it would be expected that the relatively more rapid growth of the US economy to be expected in 2017-2018 would lead to favourable approval ratings for a US President. However, in addition to other purely political factors, opinion polls in the US show strong popular disapproval of the proposed tax cuts due to their being considered to be particularly favourable to the rich – polls show up to 58% of the US population disapproving of the tax proposals with only 37% approval. Overall a survey of US opinion polls on 16 December found 58% of US voters disapproving of Trump’s record as President and only 36% approving. It remains to be seen if the economic recovery likely to continue in 2018 will increase President Trump’s approval rating before the fact that the US medium/long term growth rate has not accelerated becomes clear. However, it is clear that a situation of continuing low US medium/long term growth will continue the present situation of instability in US domestic politics.
The reduction of the US savings level due to the increased budget deficit due to the tax cuts also has geopolitical implications. If the Trump administration turns to large scale foreign borrowing to try to increase US investment levels, and therefore accelerate growth, this will necessarily lead to a larger trade deficit. As this would clearly be contrary to one of Trump’s central campaign pledges it will lead to temptations to blame other countries for what are in fact difficulties created by the consequences of the tax cut – China may be a target of this. If, however, the US does not turn to foreign borrowing to boost investment and growth levels then US economic growth will not increase – which may also lead to seeking foreign scapegoats. In summary, the fact that the tax cut will not produce a significant acceleration in US growth, other than in the purely short term recovery in 2017-2018, may increase the temptation of the US to inaccurately blame other countries for what are in fact self-created economic problems exacerbated by the increase in the budget deficit.
In conclusion, the consequences of the US tax cut are therefore clear. They may be easily understood both in terms of the economic fundamentals considered and by those of other analysts including the IMF. The tax cut, by increasing the US budget deficit, will produce a ‘short term gain and long-term pain’, a ‘sugar high’ to use the term of Lawrence Summers. It will further boost a US recovery which is already taking place for statistical reasons in 2017-2018 but at the expense of undermining the US savings level and therefore the ability of the US economy to finance the investment which the data shows to be crucial for any significant increase in the US growth rate.
China’s economic policy, and that of other countries, must therefore be prepared both for the ‘short term gain’ of the US tax cut of 2017-2018 and for the ‘long term pain’, that is the low average US growth rate, that will be caused by the increase in the US budget deficit.
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This article originally appeared in Chinese at Sina Finance Opinion Leaders.
In a recent article ’The Arrival of the Century of Chinese Economics’ Justin Yifu Lin argued that the centre of world theoretical economics would pass to China:
‘I also made a prediction... in the 21st century it is quite possible that many master economists will emerge through the study of China’s economy….
‘The importance of a theory depends on the importance of the phenomenon explained by the theory. If the phenomenon to be explained is important then explaining a phenomenon, and revealing the causal logic behind it, makes this an important theory.
‘What is an important phenomenon? Phenomena occurring in important countries are an important ones. Considering the history of the development of modern economics, Adam Smith published the Wealth of Nations established modern economics. From the late eighteenth century until the mid-twentieth century, the centre of world economics, of significant contributions to economics, was the United Kingdom The vast majority of leading scholars were British or foreign economists working in the United Kingdom. After the 1940s and 1950s, the vast majority of economists who made major contributions to economics were American economists who worked in their United States home or were foreign economists working there....
‘After World War I, the centre of the world economy moved to the United States. The most important economic phenomena are the phenomena appearing in the centre of the world economy. With the transfer of the centre of the world economy, the research centre for world economics also followed.
‘In terms of purchasing power parity [PPP], China became the world’s largest economy in 2014. As long as China’s steady development continues, then at market exchange rates it is very likely that China will become the world’s largest economy by 2025. At present, China's accounts for 18% of the world's economy and this will be more than 20% by 2025. By 2050, China's economy is likely to account for between 25% and 50% of the world economy…. China will be the most important centre of the world economy and the centre of world economics may shift from the United States to China. ...
'It is very likely that we are witnessing the arrival of a new era that is of great importance to humankind because China is became a middle-income country, from one of the world’s poorest countries, and it will become In a high-income country. Most of the countries in the world now are developing countries – low income… countries and… middle-income countries. The have the desire to modernize and become high-income countries. It is therefore necessary to summarize the theoretical innovations made in China's economic experience, and develop better ways to test the contribution of these theories.'
Indeed, in order to achieve the fastest sustained growth in a major economy in human history. China has already had to pass through decisive tests of the superiority of its economic thinking. Most fundamentally, from the positive, the ‘socialist market economy’ created by Deng Xiaoping, Chen Yun and their collaborators was unprecedented in human history – an intellectual and theoretical achievement of the highest order. This is analysed at length in my book The Great Chess Game and in a popular fashion in an article whose title is self-explanatory ‘Deng Xiaoping: the World’s Greatest Economist‘.
China’s success was necessarily not merely practical but theoretical because its policies were carried out in clear opposition to dominant orthodox Western economic theory, and with China putting forward its own economic concepts. As Justin Lin Yifu noted:
‘There was a [Western] consensus that the economic results of the gradual and twin-track policy that China carried out would be worse… But now, looking back, China is the fastest-growing and most stable economy in the past four decades. Countries that have undergone a restructuring by Washington's consensus shock therapy have experienced a crisis of economic collapse and stagnation. '
But if China’s theory of the ‘socialist market economy’ was demonstrated to be superior to those in the West ‘from the positive’ by China’s own economic growth it was also shown to be correct ‘from the negative’ not only in developing countries but in particular by application of dominant Western economic theories in the former Soviet Union. The application of these after 1991, in ‘shock therapy’, produced in the Russia the greatest economic collapse in a major economy in peacetime since the Industrial Revolution with a decline of GDP of 39% in a seven-year period. It was entire possible to predict this disaster in advance, as shown in my article written in April 1992 ‘Why the Economic Reform Succeeded in China and Will Fail in Russia and Eastern Europe’ This article, originally published in Russian, reflected the fact that from 1992-2000 the present author lived in Moscow attempting to persuade the Russian authorities to adopt the approach of China’s economic reform instead of the disaster of Western economics’ ‘shock therapy’. It may be noted that this article was written entirely from the point of view of economic theory, as at that time I had never visited China, nor did I have direct contact with Chinese economists – although I carefully studied material available in the West of Deng Xiaoping, Chen Yun and works on Chinese economic theory.
My agreement with the views of Justin Yifu Lin on the superiority of China’s economic thinking, and of his assessment of the movement of the centre of global economic thinking to China, is therefore not based on recent events but on more than a quarter century of study of China’s economy theory and practice and comparison of its results with dominant ideas in the West.
The present situation of the world economy
Within the overall historical framework outlined above, the aim of the present article is to make a more fine-grained analysis of the present situation – to show that the present situation of the global economy, more specifically of trends in the G7 economies, makes it more urgent to reinforce and speed up a transition of the centre of international economic thinking to China’s ‘socialist market economy’. This is due to the fact that, as will be shown, what was referred to by IMF Managing Director Christine Lagarde as the ‘new mediocre’ in the Western economies is now characterising an entire period of the world economy. More precisely, it will be shown in detail that while the downturn in the advanced G7 economies after the international financial crisis was not as violent as during the Great Depression after 1929, the extremely slow growth that has resulted from the financial crisis has now produced a situation where overall G7 growth is actually slower than in the Great Depression. This situation necessarily has not only economic but geopolitical and domestic political consequences in the G7 - which are briefly mentioned at the end of this article. In order to avoid misunderstanding it should be made clear that while a number of Chinese writers have studied the general historical shift of the centre of economic thought to China the analysis of the present situation of this trend, in relation to the West’s ‘new mediocre’, does not imply their agreement with this specific analysis.
To establish the facts regarding global economic trends, and avoid any suggestion of adopting data excessively favourable to China, the source used for analysis here is the projections for the next five years of the world economy issued twice yearly by the IMF. These indicate essentially the same dynamic for the Western G7 economies as the present author already analysed for the US in 'Why the US Remains Locked in Slow Growth'Why the US remains locked in slow growth' - that is, the IMF predicts there will be a moderate cyclical upturn in the G7 economies 2017-2018 but that this will not turn into a strengthening boom. Instead over a five-year total G7 growth will be low with an economic slowdown in 2019-2020.
Detailed analysis of macro-economic trends confirms that the reasons for the limited scope of the upturn in the G7 economies is the same as in the US. However, detailed presentation of such analysis will be given separately. The aim of the present article is simply to outline the factual predictions of the IMF and to show their implications.
IMF predictionsTurning to trends in the global economy, the IMF’s predictions for the next five years economic growth in the G7 economies are shown in Figure 1. As may be seen, after very low growth in 2016, only 1.4%, the IMF predicts growth in 2017 of 2.0% and in 2018 of 1.9% - a moderate but real upturn. However, G7 growth is then predicted to fall to 1.6% in 2019, and to a poor 1.5% in 2020-2022. The IMF’s projection is therefore a pattern of ‘two good years and then four poor ones’.
The ‘new mediocre’
The cumulative effect of these predictions is that the IMF is projecting that the G7 economies will remain locked in average low growth – the ‘new mediocre’ in Christine Lagarde’s phrase. This ‘mediocre’, low sustained growth, may be particularly clearly seen by taking moving averages for growth of the G7 economies - as such averages focus attention on longer term growth patterns compared to purely cyclical movements. Moving averages for the G7 economies are therefore shown in Figure 2.
Naturally a shorter term five year moving average shows a great cyclical impact of the sharp fall in output during the 2008-2009 international financial crisis, whereas this cyclical effect is almost removed by a long term 20 year moving average, but the fundamental trend of very slow growth, particularly compared to previous performance, is clear whichever period is taken:
In summary, all averages show a severe fall in G7 annual average growth since the beginning of the 21st century and show growth rates of only 1.5%-1.7% in the next five years.
Consequently, the IMF is not projecting that the ‘new mediocre’ was a short-term trend which will be overcome but that it will continue throughout the next five years. The upturn in 2017-2018 is therefore purely cyclical and will not be consolidated into a new longer ‘boom’ - the IMF projects G7 growth will weaken again after two good years.
To take a comparative historical framework to consider present trends it is useful to make a study of present trends in relation to the most well-known of all global economic crises - the ‘Great Depression’ after 1929. Figure 3 therefore shows the yearly development of GDP in the G7 after 1929 and 2007 (i.e. 1930 is one year after 1929, 2008 is one year after 2007 etc). This shows clearly the following key dynamics of the situation after 2007 compared to that after 1929.
To conceptualise this situation whereby overall G7 growth after the international financial crisis will actually be slower than after 1929 then, if the post-1929 situation is referred to as the ‘Great Depression’, then by analogy the new mediocre may perhaps be referred to as the ‘Great Stagnation’.
Economic and geopolitical consequences
Finally, to briefly deal with the economic and geopolitical consequences of these trends, it must first be made quite clear that the above analysis is of the trends in the G7 advanced economies. It is not an analysis of the overall trends in the world economy. Indeed, a key feature of the projections of the IMF is that far faster growth in developing economies than in the G7 will continue as shown in Figure 4.
Therefore, the ‘new mediocre’, is a specific feature of the G7 economies not of other parts of the world economy. In particular while low growth, the ‘new mediocre’, will continue in the G7 economic growth in developing countries will be more rapid - with annual average growth in developing economies in 2016-2022 being projected to be 4.9% compared to only 1.7% in the G7. Furthermore, the IMF projects that 44% of this growth in developing countries, almost half, will be in China itself. China’s key practical international economic projects, such as One Belt One Road, clearly fit within this framework.
Second, the geopolitical and domestic political consequences of this very slow growth in the G7 economies are also clear. The data given above is for total GDP, but annual population growth in the G7 has averaged 0.54% over the last five years. Therefore per capita GDP growth in the G7 is significantly slower than total GDP growth as shown in Figure 5. Over the period 2016-2022 the IMF projections imply annual per capita GDP growth of only 1.1%. Not only is such a growth rate low but it means that any cyclical downturn takes per capita GDP down to extremely low levels. For example, the major political disturbances in 2016, the economically irrational UK vote for Brexit and in particular the election of Trump as President against the opposition of the overwhelming majority of the US political establishment, become readily understandable when it is noted in that year G7 per capita GDP growth fell below 1%. In the US in 2016 year on year per capita GDP growth was only 0.8% and in the second quarter of the year it fell to an extremely low 0.5%.
The evident consequence of such very low economic growth rates in the G7 is therefore that domestic political instability will continue within G7 countries.
Finally, to return directly to the issues dealt with at the beginning of this article, the inability of the G7 ten years after the beginning of the international crisis to overcome these very low growth rates with their destabilising social consequences, and the projection that this will continue for at least a further five years, clearly indicates the inadequacy of dominant Western economic theories. In the 1980s, as Justin Lin Yifu noted, the dominant economic theories in the West, which became the Washington Consensus, produced stagnation in developing economies. But in the 1990s they also produced economic disaster in the former USSR, and since 2007 the inadequacy of dominant Western economic theories has been demonstrated in its failure to be able to solve the problem of the ‘new mediocre’, of the ‘Great Stagnation’, in the Western economies. The IMF’s projections for the next five years merely show that this failure will continue.
The conclusions for China that follow from these international economic trends are both practical and theoretical.
First, the specific feature of any situation must be understood. As Xi Jinping quoted the Chinese philosopher Mencius: ‘As early as over 2,000 years ago, the Chinese people came to recognise that “it is natural for things to be different.”’ Put in terms of European thought it is the words of the Greek philosopher Heraclitus, also over 2,000 years ago, ‘No man ever steps in the same river twice’ - everything which exists is unique both in time and place. Because the most famous crisis in world economic history, that in 1929, saw an extremely rapid economic decline, whereas after World War II there was for a for prolonged period a boom, this can create the false impression that the economy must either be in a state of rapid decline or it will be in ‘boom,. However, the specific character of the present situation in the G7 economies is neither of these – it is a very long period of slow growth, a ‘new mediocre’.
Second, within this overall situation of very slow average growth business cycles still exist. The extremely low growth of the G7 economies in 2016 is therefore logically followed by faster growth in 2017-2018 – the G7 economies are oscillating around their low growth path. What the ‘new mediocre’ does mean, however, is that such upturns are temporary and do not turn into prolonged strong booms. The IMF’s projection of a new downturn in growth in 2019-2020 is therefore precisely an expression of the ‘new mediocre’.
Third, this ‘new mediocre’ inevitably means both geopolitical instability and domestic social and political instability within G7 countries.
Fourth, errors of dominant Western economic theory, of neo-liberalism, which were already shown in the stagnation produced in developing countries in the 1980s, and in the severe economic decline in the former USSR in the 1990s, are again confirmed in the inability of the G7 economies even after a decade to escape from the ‘new mediocre’. Influence of such provenly false ideas in China is therefore also dangerous for China both from the point of view of economic policy and of social stability.
Fifth, to return to this article’s starting point, the situation of the prolonged ‘new mediocre’ in the G7 economies represents part of the transition of the centre of economic thought to China. China’s rapid post-1978 economic development was created by a new economic theory, which became the ‘socialist market economy’ which had no precedent in any country and which proved its correctness through China’s unprecedented economic growth. The correctness of this economic theory was then further confirmed by the failure of Western economic theory in the ‘Washington Consensus’ for developing countries and of ‘shock therapy’ in Russia and the former USSR. The correctness of China’s concepts deriving from these concepts is now being demonstrated again in comparison to the ‘new mediocre’ resulting from the application of dominant Western economic theories in the G7.
Sixth, the spread of initiatives which follow from China’s ‘socialist market economy’ are widely understood to be increasingly crucial globally – the Belt and Broad Initiative (BRI), the Asian Infrastructure Development Bank and others. This also applies to China’s leading role in the struggle against climate change – particularly since US announcement of withdrawal from the Paris Climate Accord. But these are also part of China’s increasing international ‘thought leadership’ – BRI goes beyond the ‘free trade agreement approach’ of US sponsored post World War II trade deals to take in infrastructure and other investment, China’s increasingly leading role on climate change is an expression of its concept of a ‘community of common destiny’. Naturally such an approach has its greatest mass international impact when articulated by China’s political leaders, as for example in the wide international praise given to Xi Jinping’s speech on globalisation at the Davos World Economic Forum analysed in 'How Xi Jinping’s Marxism Out-thinks the West 'How Xi Jinping’s Marxism out-thinks the West'.
But while economists naturally do not have the same mass impact as state leaders this increasing impact of China’s thinking is also clear the more narrowly defined sphere of economics. ‘Classical’ works of China’s economic policy, of the period of launching of its economic reform, have of course for a long period been readily available outside China. But China’s economic success, and the cumulative impact of this in contrast to very slow growth in the West’s ‘new mediocre’, mean products of China’s contemporary economic thinking are also increasingly regularly translated and known among non-Chinese economists – for example Yu Yongding’s column on the prestigious Project Syndicat has appeared for seven years but he is now is frequently quoted in Western mass media on financial issues, Hu Angang’s books on green growth and related issues are translated, numerous works by Justin Yifu Lin on economic development which led to his Centre for New Structural Economics and Institute of South-South Cooperation are available internationally. I know directly from work in Chongyang Institute for Financial Studies, Renmin University of China the increasing international impact and connections of China’s think tanks. But numerous important Chinese economists are not yet available outside China. The combination of very low growth in the advanced Western economies and continued growth in China, is progressively speeding up overcoming this situation.
The G7 ‘new mediocre’ is therefore not merely important in its practical consequences for the world economy: the increasingly proven inability of Western economic thinking to overcome the ‘new mediocre’ is helping create the shift of the centre of world economic theory and thinking to China. As the G7 is incapable of overcoming this very slow growth, the ‘new mediocre’ in the G7 economies means this shift of the centre of international economic practice and thinking to China will intensify.
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This article was originally published in Chinese at Guancha.cn. A shorter version was published in English by Global Times.
 Xi, J. (2014). Exchanges and Mutual Learning Make Civilizations Richer and More Colorful. In J. Xi, The Governance of China (Kindle Edition) (pp. Location 3797-3909). Beijing: Foreign Languages Press.