The resilience of a socialist market economy

In the article copied below are some useful insights into the current ‘trade war’ that the USA has launched against China (among many other countries). I am not sure the article – by John Ross – fully understands the socialist market economy of China, but the reality is that this economy is far more integrated, resilient and advanced than the chaotic and hollowed-out capitalist market economy of the USA – which Ross does analyse quite well. One thing is increasingly clear: the US advisors who are calling the shots are both annoyed and alarmed that they are hurting and now slipping behind.

Global Times, 13 May 2019:

Current US administration actions on trade make it important to carry out a calm objective comparison of the economic situation of China and the US. This is particularly necessary because the US administration engages in inaccurate boasting while China tends to present its economic situation in a calm, even modest, way. But, in very serious matters, there is no virtue in exaggeration — there is only virtue in realism.

Factual comparison of the economic situations of China and the US reveals the following: growth under the Trump administration is extremely slow by US historical standards, while China’s economy is growing twice as fast as the US and has greater resilience than the US, and China’s methods of macroeconomic control are much stronger than those of the US. These relative situations are confirmed by both the latest economic data and long-term economic trends.

To accurately analyze US economic dynamics it is necessary to remove false claims made by the US administration. President Trump has repeatedly claimed that “America’s economy is booming like never before,” but when this claim was made to delegates at the UN General Assembly, the Washington Post noted that “people actually laughed.” Such skepticism was justified. Facts show that under President Trump, the US is currently experiencing the slowest economic growth of any presidency since World War II.

Using the method by which the US presents data, peak growth under Trump of 4.2 percent in the second quarter of 2018 was significantly lower than the 5.1 percent under Obama, 7.0 percent under George W Bush, or 7.5 percent under Clinton. These peaks were in turn lower than under former US presidents since World War II. Peak growth under Nixon was 11.3 percent.

To make an accurate comparison to China, it should be understood that the way the US presents economic data differs from China and most countries. China states its economic growth as the increase from one quarter compared to the same quarter in the previous year – that is real year-on-year growth. The US presents economic growth as one quarter’s growth compared to the previous quarter presented at an annualized rate – approximately multiplied by four. This greatly exaggerates short-term US growth. The real highest year-on-year growth achieved under President Trump, making an accurate comparison with China, is only 3.2 percent.

China’s economic growth of 6.4 percent in the first quarter of 2019 was therefore twice the peak growth under Trump. But this still understates China’s growth lead over the US. US growth is more cyclical than China’s and falls to lower levels – during the last five years US growth fell to 1.3 percent during 2016. In that five-year period US average growth was 2.6 percent, whereas China’s was 6.8 percent — two and a half times as fast as the US. China’s lowest growth was 6.4 percent – almost five times as fast as the lowest US growth.

This determines the economic problem currently facing the US administration. US growth in the last quarter of 3.2 percent was a peak in the current business cycle – unsustainably above average growth. Therefore, US growth is likely to decline during 2019. The IMF projects US growth to fall as low as 2.3 percent for the year compared to China’s projected 6.3 percent. More worryingly for President Trump, as 2020 is a presidential election year, the IMF projects US growth to fall to only 1.9 percent in that year, while China’s growth is projected as above 6 percent.

This forecast of a US economic slowdown explains both current domestic economic demands by the US President and the administration’s position in trade talks. China does not undergo significant cyclical slowdowns because it has a socialist economy.  Tom Orlik, author of a serious Western study of China’s economy, Understanding China’s Economic Indicators, summarized why China had a more resilient economy: “Most economies can pull two levers to bolster growth: fiscal and monetary. China has a third option. The National Development and Reform Commission can accelerate the flow of investment projects.”

The dilemma the US faces amid threats of an economic slowdown, is that it rejects state intervention in the economy and is already running a very large budget deficit. Therefore, the only weapon available to attempt to limit an economic slowdown, which would affect the 2020 presidential election, is to reduce interest rates. Consequently, President Trump has recently launched public attacks on the US Federal Reserve, demanding that it reduce interest rates.

This threat of a US economic slowdown simultaneously explains the aggressive approach taken by the US in trade talks and the sharp falls on the US share market in reaction to this. Foreseeing that China’s economy will continue to grow far faster than that of the US, and that the US will slow, US neo-cons are desperate to attempt to slow China’s economy through tariffs. However, US stock market thinks that the combination of a slowing economy and tariffs would be toxic.

 

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6 thoughts on “The resilience of a socialist market economy

  1. Adam Tooze in this lecture gives a fairly good overview (not endorsement) of the “grand strategy” that Trump and the US foreign policy cohort are undertaking re China. He does not attempt to explain any of China’s actions. Rather he tries to make sense of the way the US admin has been going about things lately.

      1. Very interesting, although I am wary of laying most of the blame on Trump. He is more of a symptom of a reality that has been there for some time. While I am much more interested in analysing the Chinese economic, political and social situation, it is increasingly obvious that the US economy has for some time now lost its ability to innovate and has thus fallen behind on so many counts.

  2. I agree. USA ambiton v strength is mismatched. Trouble for all othersbecause of the failed bully tactics and the craven acolytes like Oz who can’t work out out the issues. Cheers

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