China 3 USA 0 – Beijing inflicts a severe economic defeat on America — Analysis

It is clear that the US economy has serious issues. The fact that inflation in the US reached 7.5% in January was its highest point in 40 years. This will lead to a slowdown in the US economy, and will inevitably have major consequences on the global economy. 

This inflation rate is significantly higher than the 1.5% in China in the same period, which was its primary economic rival. US inflation is five times higher than China’s. These relative inflation levels have extremely restrictive effects on American economic policy – it will be forced to implement measures to slow its economy. China has the potential to provide additional stimulus for its economy without creating inflationary pressures. China’s economic growth is faster than that of the US. 

This is just one of many symptoms the US has experienced in the face of China’s economic decline. This in turn has serious political consequences in the US as well as internationally.

Analyzing first the domestic US political situation, unsurprisingly this high inflation has led to falling living standards for the overwhelming majority of the population, and has drastically undermined support for Biden’s administration. This is the latest average opinion polls54% of Americans are dissatisfied with the Biden government, and only 40% agree. 

The economic situation is the main driving force behind Biden’s fall in support. Surveys reveal that 68% Americans see the economy as the greatest problem facing them. This is almost double the number of those who identified Covid (37%).

This is because the US lost the war on China’s economy. The United States began its trade offensive in 2018 by unilaterally imposition of tariffs on Chinese imports. It was intended to lower the US’s trade deficit, and also to rebuild its manufacturing industries. However, data shows the US has failed to achieve either. 

Its balance of goods trade deficit stood at $792 billion in 2017, one year before Trump launched his trade war. By 2021, it had reached $1.078 million.   

More narrowly regarding China, the US, despite its tariffs, succeeded in only slightly reducing its bilateral goods trade deficit – from $375 billion in 2017 to $355 billion in 2021. Simultaneously the US trade deficit in goods with the rest the world exploded from $417billion to $723billion. The US’s attempt to decrease its trade deficit proved futile. 

Neither did the US succeed in damaging China’s overall trade. Beijing’s trade surplus rose from $420 billion in 2017 to $676 billion in 2021. Last year, China’s exports and imports rose by 30%.

China’s economic performance was also affected by the US loss in the trade war. Between 2017 and 2021, the US economy grew by 7.3%, while China’s grew by 25.1% – three times as much as the US. Since the beginning of the Covid pandemic, America’s economic performance relative to China deteriorated further. Naturally both economies slowed due to the pandemic, but since 2019 China’s economy has grown by 10.5% and the US by 2.1% – China has grown five times as much as the US.

The reasons behind this US failure are not in dispute. Paradoxically, the world’s supposed “number one capitalist economy”The US has been creating very few capital. Instead, the US has become an economy overwhelmingly dominated by consumption – short-term gratification instead of long-term investment in development. After taking into consideration depreciation, US net capital created was only 0.1% of US gross national income by 2020. The level it was at the height the US postwar boom in 1960s is now less than 10%. Such a level of investment means that the US is scarcely expanding its capital stock – consequently its economic growth is very slow.

There are well-established and rational technical solutions to these problems. But they would require sharp changes in Washington’s foreign and domestic policy. 

The huge level of US military expenditure, $905 billion in 2021, higher than the next seven countries combined, could be sharply cut, releasing major resources for investment – but that would require an abandonment of aggressive US foreign policy. 

Abandoning trade tariffs against China, which costs every US household hundreds of dollars a year, would reduce inflation – but would require abandoning the aggressive trade war against China.

The grotesquely inefficient US healthcare system, using 19.7% of GDP but creating one of the lowest levels of life expectancy in any advanced economy, could be rationalized, releasing huge resources for investment – but that would require confronting and defeating entrenched special interest groups in the US.

The US will not be ready to make such significant changes, and it will continue to suffer from slow growth. Meanwhile, China’s economy will continue to grow much more rapidly. This is evident in China’s economic victory over the US in its trade war and how it dealt with the Covid pandemic. 

Unfortunately, US hostility will continue to grow despite China’s recent economic success. Like a cornered tiger, America may become even more aggressive – as shown in its recent policies on Ukraine and Taiwan. You cannot reason with a tiger, and any weakness you show will just increase your attacks. It is best to use force to stop it and to impose defeats upon them. That’s what China has achieved in its ongoing economic victory over the US.