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.

 

Advertisements

An effort to understand Australian Sinophobia

Since I spend my holidays in Australia, I find a need to understand the extraordinarily vicious Sinophobia thereabouts. In our time, perhaps New Zealand is the only country where it is worse, but that is not by much. Russophobia is part of the picture as well, but not as bad as in that very weird country, the United States.

So let me suggest the following:

1. The weakness of Australian governance, especially at a national level. No matter what party has been in power over the last decade or more, it has characteristically been weak and torn by inner strife. They spend most of their time turfing out one leader and finding another, so much that elections are a waste of time and money. When a government is weak, it likes to find an external threat.

2. There are two caveats here. To begin with, the general populace is largely positive with regard to China. Survey after survey indicates around 65 percent are positively disposed. Further, the political subclass is split, with significant portions across the limited political spectrum engaging with China. For now, the Sinophobic element is able to set the agenda, making use of a gaggle of rabid ‘commentators’ and ‘advisors’ who do not realise they are being used. Australia also has a compliant corporate and state-owned media (ABC and SBS) playing the same tune.

3. At a deeper level, the Sinophobic narrative – with its distortions and deliberate misinformation – taps into a vast storehouse of Australian racism from the past. This comes form a time when the population was less than 10 million and was largely descended from British immigrants. In this context, the ‘yellow peril’ was invoked, an obviously racist trope and part of the white Australia policy. This is really nasty material, which many of us thought had been left behind.

4. The Sinophobic propaganda is a signal of an ongoing identity crisis. Since 1972 and the end of the white Australia policy, Australia has seen British descendants become a minority. Western European descendants (like myself) will also soon be a minority. Most immigrants come from East Asia, the Subcontinent and Africa. For example, Chinese is the second most spoken language in Australia now. As this shift happens, with about 200,000 immigrants per year, the demographics and culture have been changing. In this context, the racist invocation has become more shrill as Australia makes the transition to a Eurasian nation. That it alienates a significant portion of the population should be obvious.

5. The rampant Sinophobia may also be seen as a symptom of the difficulty of figuring how to deal with a declining United States. That the USA is in decline is obvious to everyone. Asian countries have by and large figured this out and have been working to solve their own problems. But Australia is trapped. It gambled on alliance with the United States after the Second World War, but the governing bodies know full well that the USA today would neither want nor be able to lift a finger to help Australia. Further, for some time now, Australia’s number one economic partner has been China, which has enabled Australia to avoid a recession for 27 years. Australian policy setters, along with the woeful media, are unable to manage this situation. Either break with the United States or break with China. The latter option would have severe economic and social consequences, while the former would simply challenge the whole political culture of the last 70 or more years.

6. At the deepest level, this Sinophobia is part of the long-standing colonial and anti-colonial struggle. The anti-colonial project I have in mind is the one that came to the fore in the twentieth century. As the Soviet Union realised (in the 1930s) that the Russian Revolution was in part an anti-colonial revolution, and as it began to support at many levels the global anti-colonial struggle in the name of opposing capitalist imperialism, the century was determined at many levels by this struggle.

With its immense economic power and socialist political structures, China has now taken the lead in the anti-colonial project. We see this with the world-changing Belt and Road Initiative, Africa-China Cooperation, the Asia Infrastructure Bank and the Shanghai Cooperation Organisation. The latest element of this is the shift away from the US dollar in international transactions and reserves (for example, China plans in March to trade oil in Renminbi, the most significant shift from the last item that is still almost exclusively done in US dollars).

In response, a small number of countries – 15 at most – have made an effort to counter this anti-colonial project. Of course, they are former colonial powers, pushing a tired agenda that is too little, too late. The catch is that some of the former colonies have joined this new colonial bandwagon. These are not the countries that achieved independence in the twentieth century, but earlier. The United States, Canada, New Zealand and Australia are the culprits. While we may think this is perverse, it is useful to recall that each of them has been a colonial power on their own. Australia, for example, was for long a colonial master of Papua New Guinea and still sees itself as a master. That China has now engaged with Papua New Guinea and is doing what Australia never did – improve the basic infrastructure in Papua New Guinea so that it may actually develop economically – is seen as an affront to Australia’s continuing colonial arrogance.

 

Political weakness, a storehouse of racism, an identity crisis, a declining and angry United States, and the anti-colonial project – these are the factors that seem to be important. There may be more, but none are particularly pleasant. No wonder, then, that in 2017 and 2018, Australia was voted the least friendly country by Chinese surveys.