US should not be so quick to talk up its economic superiority over China
- Divisive talk to encourage the creation of rival power blocs is not welcome when the world is facing global challenges that require multilateral solutions
- Besides, the US is in no place to gloat, as its investments in infrastructure and energy will take time to bear fruit, and its robust consumer spending won’t last
This glowing interpretation can be put on the words of US ambassador to Japan Rahm Emanuel, who spoke recently to the Foreign Correspondents’ Club of Japan (although he might not welcome the link to the words of journalist Lincoln Steffens who used them after visiting Soviet Russia in 1919).
As Emanuel sees it, the US economy is growing ever stronger as the nation becomes an energy supplier to the world in a time of shortages. The US lead in energy is the “new arsenal of democracy”, he declared, and America is unrivalled in areas like semiconductors, data centres and many more.
Japan and others are flocking to invest in the US, where private firms are joining public-sector entities to invest in areas like infrastructure. The US model grows increasingly attractive to the world, he suggested, exuding confidence to the point of triumphalism.
But Emanuel’s predictions on the course of the US economy over the short to medium term and his vision of a new form of US-led globalisation appear shortsighted. They are questionable on economic grounds.
Globalisation from here on will be about “stability and sustainability” rather than “efficiency and cost”, he suggested. Global manufacturing will bifurcate into two spheres, one led by the US and its democratic values-conscious allies while others coalesce around a narrower China-led model.
Choosing which bloc to join will involve not only value judgments but also the risk of having trade and investment sanctions levied against those who join a China-led model. Sanctions can lead to economic or even physical confrontation, just as real wars – as Carl von Clausewitz famously put it – are an extension of politics.
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US households accumulated about US$2.3 trillion in savings in 2020 and through the summer of 2021, above and beyond what they would have saved according to pre-pandemic trends. But, since then, they have “decumulated about one-quarter of these excess savings”.
This has buoyed US household consumption, which accounts for 70 per cent of GDP, and it remains high as inflation bites and unemployment rises. It is good that the US is finally boosting capital investment but that will not compensate once a consumer recession hits.
There is already the possibility of a global economic recession unless China can shake off its pandemic blues and supply-chain interruptions to act as a locomotive again. It is plain daft and frankly irresponsible to invite a recession by dividing the global economic order at a time like this.
Anthony Rowley is a veteran journalist specialising in Asian economic and financial affairs