“Certainly attitudes in the U.S. are going to have to change, because the U.S. will not permanently be the global leader the way things are going.”
That bold statement, made to a reporter last month by James Bullard, president of the St. Louis Federal Reserve Board, isn’t getting the attention it deserves. He went on to explain that China is already the second largest economy in the world, and, depending on which economist you believe, it will surpass the United States sometime between 2016 and 2028.
Bullard went on to speculate that eventually China will match us in per capita income as well, which would mean an extraordinary shift in market power, and with it, the global balance of power. If that happens, he said, “The U.S. would be playing a role to China similar to the role the U.K. plays to the U.S. today… People think it’s 50-75 years away but it’s probably only 25 or 20 years away, something like that.”
Sobering thoughts indeed. Even if Bullard is wrong about the timing, and the shift is 75 years away, the fact that relatively few of us will still be around to see it at that time is small consolation. And that doesn’t even get to India, which lags far behind China but will sooner or later be on the same trajectory.
The interesting thing about this prediction is that it does not appear to be based on the “correctness” of Chinese economic policies or any failures of U.S. policy. It is based largely on differential growth rates and the fact that, in economics as in so many other parts of life, size matters.
China’s growth rate has been declining, but it is still 7.5 percent, while the United States in a very good year might eke out 3 percent. If those rates are sustained, you can see the inevitability of what Bullard is talking about. While the ability of the Chinese to sustain that level of growth is hotly debated, there is much less argument about the possibility of the United States ever matching it. We are a mature, slow-growth economy, and that does not seem likely to change, barring some entirely unforeseeable turn of events. And, even if the Chinese slow down, they have a long way to go before they drop to our current growth level, and a lot of catching up is going to occur in the meantime.
Interestingly for an economist, Bullard also notes the psychological effect this trend is going to have:
“The U.S. is just used to being so much bigger than all of its typical rivals, both in terms of population and in terms of GDP, that it can heavily influence policy on many dimensions… This really dictates the world we live in… A lot of people who’ve grown up with that, it’s been that way their whole life—they’re just not used to thinking about a world where you’re going to have to make more alliances, you’re not going to be the big kid on the block.”
This will be a bitter pill for many people, particularly for our politicians who have been trumpeting “American exceptionalism” at every opportunity. It’s a safe prediction that we’re going to be hearing a lot more about “Chinese exceptionalism” in the years to come. Size matters in part because it allows you to define the terms of engagement in ways that favor you and not them.
That, however, suggests a course of action for the U.S. (and others) to fend off, or at least postpone, what appears to be inevitable. And that solution is to get bigger. That doesn’t mean having more babies; although, that would not be a bad thing. In the current context, it means making common cause with our like-minded partners to form economic blocs that are as large or larger than the ones we are already facing.
Right now we have two of those opportunities staring us in the face: The Trans-Pacific Partnership and Transatlantic Trade and Investment Partnership. The latter in particular, if done correctly, would create the largest, wealthiest consumer market in the world. Both will also set standards and rules of economic engagement that reflect Western, rule-of-law-oriented governance. That would be win-win.
We can grow more through trade liberalization, and we can establish rules of the game that reflect our values and priorities and those of our friends, which will be increasingly important as we move into the world Bullard foresees. That not only buys us time; it will be an enduring monument to what our country has stood for and fought for throughout our existence. Size matters, indeed, but there is more than one way to be big.
William A. Reinsch is president of the National Foreign Trade Council and former Under Secretary for Export Administration in the Commerce Department.