Shifting Superpower Country Status

March 17, 2015


Will China be the next global superpower? Is the US just okay with that?

News reports say that Germany, Great Britain, France and Italy are joining the China-led Asian Infrastructure Investment Bank, which is a rival to the US-led World Bank in DC.

It caused me to remember CPA Senior Economist Greg Autry's presentation in San Diego last October. It was titled "National Security Concerns with the Current U.S. Trade Regime".  In it, he made two major points:  First, productive capacity rather than mere technical superiority wins wars.  Second, he opined, as I mentioned in the opening line, that "The U.S. seems to have decided that China will be the next superpower, and we are okay with that."

When the U.S. led the world after World War II, we were the only viable dominant economy by far.  We led the creation of the Bretton Woods system which included the World Trade Organization (then the GATT), the World Bank and the International Monetary Fund.  We could largely write the rules because of our economic might.  Not necessarily because of clever trade and other international agreements.

In 1974, the U.S. was still the world's largest creditor nation.  We began running modern trade deficits. The Nixon administration was not happy with the deficits, wanted to fix them, but did not.  Since then, we've decided trade deficits are ok.  We've allowed, indeed defended, continued de-industrialization and deepening deficits.  Our multidimensional supply chains have been hollowed out.  Our home-grown innovation is commercialized and produced elsewhere, giving - yes giving - others technological competitiveness to undermine our prior superiority. 

In 2014, forty annual trade deficits later, we are the world's largest creditor nation.  We continue to fetishize an economy built on services and product design with little production. Personal economic security among the populace is low.  Income inequality is high. Other nations wonder why they should follow our lead.

The Trans-Pacific Partnership (TPP) is another folly.  After many bilateral and multilateral trade treaties, we have not harvested the pro-growth fruit they promised.  Instead, we harvested deindustrialization and hollowed out productive capacity because we are pursuiing "global supply chains". This may satisfy some special interests, but not the national interest.

The Administration sells the TPP as a China containment strategy, albeit a softer version than against the USSR.  "We want to write the rules for Asia trade," says Obama and Michael Froman. How does this make sense? The US basically wrote the rules for the GATT and WTO, then said China joining the WTO meant they would abide by western rules, but that did not work out.  So we are writing another agreement, without China? This will be make them play fair?  And if this is to contain China, why is the administration saying China is welcome to join?  If NATO helped contain the USSR, it would not make sense for the USSR to join. In what universe does this make sense?

We are funding China's rise.  China is an export based economy with trade cheating tactics to get the job done for their state-owned economy in which state-owned enterprises are a tool of the communist party that runs the country under the guise of a government. The US is now the global importer of last resort, with our consumption fueling the growth of others.  We funded China's rise last year through our $348 billion trade deficit.  Much of this money, helpful foreign cash for them, went to state coffers to continue the country's growth. They did not need to tax their citizens to get the money, because we provided it.

The point is that economic strength based upon diverse industrial productive capacity provides true global strength.  It is the basis for hegemony or superpower status. Politicians, diplomats, international relations types, "strategic" thinkers have forgotten that. 

Liberals won't pursue this strength, because of hegemonic and industrial discomfort.  Conservatives won't pursue this strength, because of a blinders-on focus on tax cuts and regulations.  Libertarians won't pursue this strength, because they don't want strategically effective government and they defend cheap imports from foreign trade cheaters.

Our Founding Fathers knew that they could not simply rely on cheap goods from Europe, but had to invest in building this country. It worked.  By the beginning of the 20th Century as we had grown from a colony to a superpower.  Astounding!  While it was not all peaches and cream, they had vision and determination to build our country.  They defined and pursued the national interest.  They achieved broadly shared prosperity.  We are now squandering that achievement. With massive outflows of cash, industrial production, and technical knowledge.

Some of our strongest allies - Germany, France, Great Britain, and Italy - see our decline. So they are joining the China-led Asian Infrastructure Development Bank. Another step in the progression.

Reversing the trend requires a focus upon fundamentals, upon the national interest.  We need to rebuild our diverse productive capacity. This means establishing a goal to balance trade, and then figuring out the best way to achieve the goal.  This means focusing upon the strategy to re-industrialize.  And then figuring out the best way to achieve that goal - based upon what works rather than what folks believe. This means telling multinationals that their pet projects will be ignored unless they serve the national interest.

This is all in our control. We don't need permission from other countries. The national interest must be defined, pursued, and achieved with single minded focus.

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