Category: China

MLLG

China Will Never Catch America

George Noga

China Will Never Catch America

China faces a constellation of overwhelming troubles

GEORGE NOGA
OCT 1, 2023

 

In my post of April 29, 2018, I wrote the following – an incredibly bold prediction that defied all conventional wisdom. Read that post on my website: www.mllg.us.

“China is not nearly as formidable economically as the chattering classes and the mainstream media would have you believe. Its GDP will never catch the US.”

In 2018 it was universally accepted China would pass the US; the only question was how soon. This post revisits that question 5 years later with updated data.

architectural photograph of lighted city sky

At the end of 2023 US GDP will be $26 trillion; China’s will be $19 trillion. If China’s economy grows at 3% and the US grows at 2%, China would not surpass the US until sometime after 2050. If the US grows at only 1.5% (half China’s rate), China would not pass the US until circa 2045. However, long before 2045 China’s economy will falter for all the reasons listed infra. I am more confident now than I was 5 years ago that the Chinese economy never will surpass that of the United States.

Moreover, the true measure of an economy is not nominal GDP, but per capita GDP. The GDP per capita for the US is $70,000; China’s is $13,000, approximately equal to the world average of 200+ countries. The US is greater by a factor of 5.4 times. China cannot even dream of parity with the US. In world rankings of GDP per capita, the US leads all major nations; China is 64th in the world – behind the likes of Panama, Uruguay and Costa Rica – and barely ahead of Equatorial Guinea. Given enough cavemen, their GDP could pass the US – but they still would be living in caves.

Sources of China’s Economic Woes

China faces a constellation of overwhelming economic and political headwinds.

  • Population: Working age population peaked in 2011. It will decrease 25% more by 2050. China will lose 600 million people by the end of this century. China’s fertility rate of 1.15 is the lowest in the world.
  • Demographics: The effects of the one-child policy are coming home to roost. The number of elderly will increase by 300 million prior to 2050. Gender selection has led to 140 million more men than women – another ticking timebomb.
  • Debt: China is burdened with large and rising debt. Local governments no longer can fund infrastructure. There is a debt bubble on real estate waiting to burst.
  • Youth Unemployment: This metric is over 20% and is so bad China quit reporting the data; some estimates are for youth unemployment to hit 50% within one year. The government is telling college graduates to settle for blue-collar jobs. Xi Jinping said young people should work hard jobs and learn to “eat bitterness”.
  • Trade: Exports are down 15% and the US and Europe are reconfiguring their supply chains to exclude China. The US placed bans on technology exports.
  • Ideology: Abandonment of markets and free enterprise in favor of communist ideals is creating serious economic dysfunctions and resource misallocations.
  • Empire: All empires in history have broken up. China is an empire including Tibet, Manchuria, Inner Mongolia and the Uighurs; there is a growing Muslim population in its western provinces. Eventually, China will break apart.

China’s troubles, however serious, do not mean it will be less of a future geopolitical threat. In fact, it may be more of a threat as its manifest weaknesses may lead to more aggressive foreign adventurism. Nonetheless, it is increasingly unlikely China ever will catch the US economy in nominal terms. Regarding GDP per capita, the US is 540% of China and Xi Jinping can’t even dream of catching the USA. China will have all it can handle to remain ahead of Equatorial Guinea.

Horn Tooting

A man I once knew was fond of saying: “He who tooteth not his own horn, his horn goeth untooteth.” Pardon me while I toot my own horn. That I was nearly alone in 2018 in my predictions about China was not a lucky guess. My posts have been prescient about many other things including, inter alia, climate change, the spending crisis, elections, school choice, progressivism, school shootings, transgender issues, organic food and GMOs, environmentalism and population collapse.

I attribute my record to being a trained financial analyst, following the facts, being logical and thinking outside the box. Please consider forwarding my posts, or better yet adding a free subscription, to family members and friends. In the meantime, I will continue to follow the facts and logic wherever they may lead.

Thank you again for reading my blog and for all your support over the years.

© 2023 George Noga
More Liberty – Less Government, Post Office Box 916381
Longwood, FL 32791-6381, Email: mllg@cfl.rr.com

China’s Currency Manipulation and Dumping

George Noga
Are Americans helped or harmed if China sells us stuff far below cost?
China’s Currency Manipulation and Dumping
By: George Noga – May 13, 2018

        This post about currency manipulation and dumping by China concludes our pivot to China. Whether or not and to what extent China manipulates (undervalues) the yuan is the subject of intense debate. The yuan renminbi (“CNY”) trades at 6.27 to the US dollar (“USD”). For this posting, I assume the value of CNY should be 7.50; this is at the high end of estimates and equates to an undervaluation versus the USD of 20%. The effect of China’s dumping of exports below cost also is open to much debate.

     Let’s assume, a arguendo, China subsidizes exports, uses artificially cheap labor and thereby dumps goods below cost and that these practices result in China gaining an additional 13% unfair trade advantage vis-a-vis the USA. When this 13% is added to the 20% from its undervalued currency, China’s total unfair advantage becomes 33%.

        Now, let’s say you shop online for a good pair of athletic shoes made in the USA and find ones you really like for $100. Miraculously, the very next day an overnight package arrives at your door with a pair of identical shoes made in China for $67 along with a note from Xi Jinping stating that the money you saved is a gift from the Chinese people. Do you accept the Chinese shoes and the $33 savings and consider yourself lucky; or do you question the donor’s motives and refuse the shoes and the money?

       Such acts of beneficence from the Chinese people to the American people occur not just for shoes but for apparel, appliances and consumer electronics. China exports $525 billion a year to the US; if China is exporting goods 33% below its cost, the benefit to American consumers is $260 billion per year. Note: If the nominal value of exports is $525 billion, the undiscounted value is $785 billion, or $525 billion divided by .67 (1-.33 ). When subtracting $785 from $525, we derive the $260 billion. 

       Pause to consider this for a moment. Under the assumptions used herein, China’s currency manipulation and dumping of goods result in a gift of $260,000,000,000 each and every year to ordinary Americans – this is equivalent to $2,200 for each of the 120 million households in America. Even if my assumptions are off somewhat, the benefit to American families still is stupendous. The Chinese people are sacrificing to shower us with goods at far below the cost of their components and labor.

       There is a temptation to overthink this; don’t do it! If anyone tries to complicate this or tells you not to accept gifts from China, don’t listen to them. If anyone domestic, foreign or extraterrestrial sells you something below cost, it is an unalloyed blessing. A gift is a gift is a gift and should be accepted everywhere and always without question. The recipient always is better off accepting a gift even if the motives of the donor might be nefarious. There is no need to beware of Chinese bearing gifts.

 

        China’s currency manipulation and dumping is a gift that just keeps on giving. After pocketing the $260 billion a year munificence from China, Americans now have that same amount of cash savings that they can spend (mostly in the USA) on other goods and services they would not have been able to afford absent China’s largess.

        Although economics can be complex, this is straightforward. There is absolutely no downside. It is a no-strings-attached gift from Chinese to Americans; think of it as foreign aid. If China manipulates its currency, uses cheap labor and subsidizes exports, it is an unleavened blessing for American families to the tune of $2,200 each and every year. Take the shoes and run and it isn’t even necessary for you to say thank you.

Next: Our plan to make every new baby born in America a millionaire.

Trump Tariffs and Trade War With China

George Noga
Imports are what make us well off; exports are merely the cost of obtaining imports.
Trump Tariffs and Trade War With China
By: George Noga – May 6, 2018

          US trade with China is patently unfair. They have higher tariffs, use cheap labor, subsidize exports and steal intellectual property. They also manipulate their currency, but that is our topic for next week. Our 2017 trade deficit with China was $340 billion. Americans’ fierce belief in fair play accounts for the popularity of Trump’s tariffs on the Middle Kingdom. Whether or not such tariffs are wise is the topic of this post.

       Economists are in lockstep that expanding markets to their maximum potential size (global) optimizes specialization, economies of scale and comparative advantage thereby generating more wealth for everyone than tariffs or trade barriers. Imports are the things we want to eat, wear or use like bananas, athletic shoes and iPhones; they make us better off. Exports are merely the price we pay to obtain imports; they do not make us better off because they are eaten, worn or consumed in other nations.

        As first conceived by Adam Smith and later espoused by Milton Friedman, the objective for any nation is to get the most possible imports with the least possible exports. Trade occurs between people, not countries; it is voluntary and non-coercive. Living Americans eat the bananas, wear the shoes and use the phones, not government. Our households, just as our nation, are better off getting more in and sending less out. Grasping that imports are desirable is the key to understanding international trade.

       Trump’s rationale for tariffs is that because America imports $525 billion from China while they import only $185 billion from us, they have more to lose in a trade war. Once it is understood that imports are what is truly desirable, living, breathing Americans would lose $525 billion in imports versus only $185 billion for the Chinese. Humans in both countries lose, but American humans lose more. Moreover, the Trump tariffs ultimately are paid by Americans as higher prices for imported goods.

        Looking beyond China, 138 countries run trade deficits with the US; in half those countries the deficit is 500%. Don’t each of those nations have the same brief against us as we have against China? What if all those countries imposed tariffs on American goods? It is normal for a country to have both trade surpluses and deficits. Similarly, your family runs trade deficits with your grocer and power company but enjoys countervailing surpluses with your employer and your investment company.

        When China sells us goods, we pay with dollars. They use $185 billion to buy things from us. They also buy goods from other countries – in many cases from the 138 countries that run trade deficits with us. Many of the dollars we send to China thus find their way back to the US. Finally, China uses some of its trade surplus to purchase US assets and to buy Treasury securities ($1.2 trillion) to finance our national debt.

       What if we imposed huge tariffs on bananas such that it would be profitable to build massive hothouses to grow them in Minnesota? It certainly would create jobs and capital investment. The price of bananas would skyrocket and American consumers would suffer immensely. Would anyone argue that banana tariffs are a wise move?

        The rise of humanity began and blossomed due to trade and it remains so today. Milton Friedman believed Americans would be better off if we unilaterally abolished all tariffs and trade barriers – even if no other country reciprocated. The United States has run 42 consecutive years with a trade deficit. Where is the harm?

        In times of war, countries blockade their enemies to prevent them from trading. Tariffs restrict a nation’s own citizens from trading; hence, countries imposing tariffs harm their own people in the same way they punish enemies in time of war.

Next: The final part of our pivot to China – currency manipulation (horrors)

China: Economics, Demographics and Politics

George Noga
Is China an economic tiger or a pussycat doomed by its demographics and politics? Given enough cavemen, it is possible caveman GDP could surpass that of the USA.
China: Economics, Demographics and Politics
By: George Noga – April 29, 2018

      To hijack popular parlance, we are pivoting to China. This post presents MLLG’s inimitable perspective about China’s economy, demography and politics and it isn’t what you read in the popular media. Upcoming posts will address the Trump tariffs, China’s balance of trade with the US and whether or not the yuan is undervalued.

       Americans have been swamped with hype about China’s economy overtaking ours. Let’s look at the numbers. US GDP is $19.8 trillion or $61,700 per capita, 5.5 times the world average, 8th best in the world and highest of any major nation. China’s GDP is $12 trillion or $9,400 per capita, 17% below the world average and 74th in the world behind Mexico and Equatorial Guinea and similar to Botswana and Gabon. Also remember that China’s reported economic data are widely regarded with skepticism.

       China’s economy is 61% of ours but, as the hype goes, they soon will blow by us. Let’s test this assertion. Assume the US economy grows at 2.3%, a full percentage point below its historic average. Further assume China’s GDP grows at 4% until 2030 and then 3% thereafter. Under that scenario, China would require 55 years to pass the US in nominal GDP. Even then, its GDP per capita would be only 25%-30% that of America’s. If there were a trillion cavemen, each producing $20 a year, caveman GDP of $20 trillion would surpass America’s; however, they still would be living in caves!

       Another reason China won’t overtake the USA is demographics. Gender selection due to China’s one-child policy resulted in 140 million more men than women. Their 1.16 fertility rate is lowest in the world and will decimate the population in the next generation. The shortage of women creates social and political unrest. China’s ageing demographic already has resulted in a shortage of workers and an army of the elderly.

      Politics is another source of China’s woes. All empires throughout human history have broken up. China is an empire; therefore, it too will break apart. China doesn’t even have a common language; Cantonese and Mandarin are as different as Portuguese and German; people from different parts of China use broken English to communicate. Over 150 million people in China are not Chinese; there is Tibet, Manchuria, Inner Mongolia and the Uighurs. There is a significant and growing Muslim population in China’s outer western provinces, which is ruthlessly suppressed. Communists still govern with an iron fist; the internet is censored; and there is no political freedom.

     China is not nearly as formidable economically as the chattering classes and the mainstream media would have you believe. Its GDP will never catch the US and some time, in the not too distant future, it will begin to lose ground. Its demographic imbalance is a ticking time bomb and inevitably will result in chaos and social unrest. China will be the only country in history to grow old before it grows rich. Communism won’t survive as economic freedom inevitably leads to political freedom.

     China will experience increasing entropy economically, demographically, politically and socially. Its decline is ineluctable. America is a great nation because its people chose to be part of it. China is an empire of unwilling people of different ethnicities and languages held together by brute force. As a consequence, the Chinese empire, like all others throughout the history of mankind, will shatter amidst ethnic strife.

Our next post continues our pivot to China as we address the Trump tariffs.