Will China Displace the US As the Worlds Economic and Political Superpower

Over the past 15 years I have had the privilege of travelling to China on a regular basis and have witnessed the fantastic economic miracle that has seen the transformation of China into a modern economy.

Cities such as Shanghai and Beijing have been literally transformed in less than a generation into gleaming cities that inspire awe in those that have seen this transformation. In almost all areas of the economy China has transformed itself into an industrial powerhouse and for all intensive purposes has caught up with the west in many critical areas.

In contrast to this continued and seemingly unending economic miracle the last decade has seen the United States first battered by September 11th then a series of costly wars. On the domestic economic front a series of unending economic problems.

A decade ago the bursting of the first internet stock bubble gave us a first taste of things to come. The last near global meltdown brought about by the US housing bubble and leading to the worst recession since the great depression has shaken confidence and led to considerable speculation as to the structural decline of the US.

As this article is going to press it is august 2011 and the latest US crisis the artificial and political crisis brought about by the debate about the government debt ceiling has heightened the sense of malaise and the feeling that America is now becoming more dysfunctional both politically and economically. While a political deal has been struck there is a growing sense that things cannot continue and will likely get worse before they get better.

There is no drought that the United States is facing some troubling problems with respect to the economy. In both the short term and the long term America has many challenges that it will have to face. So far it must be said that it is not doing a particularly good job of facing these challenges and the politics of the US currently does not inspire any degree of confidence.

With respect to China similarly there have been many years of uninterrupted growth and truly outstanding successes. In this article I neither wish to dwell on the success of China nor the problems facing the United states.

If we look at the world there are of course many factors that must be considered when analysing whether the US will continue in its privileged position as both the global superpower and preeminent economy.

If we analyse the world and the strength of all countries both economically, politically and militarily there are many factors to consider.

First geographically and demographically the United states cannot be displaced from the preeminent position on the American continents. With a population of over 300 million and its large diverse economy no country in either north America, south America or central America will ever be in a position to challenge the US. Most are too small and only perhaps Brazil with roughly half the size population of the US can over the long term perhaps get close to its size economically.

So if America can never be challenged in its own backyard how about the rest of the world. Well Africa is a non issue. there is no indication that in the middle east whose countries outside of oil markets will ever challenge the US as a preeminent power in the world.Yes middle east countries can cause problems for the US however none will ever occupy superpower status and most have much smaller population bases.those with richer economies are largely based on a single commodity Oil.

With respect to Europe, almost all problems that America faces the Europeans have.Most European countries are also aging rapidly and likely to be in worse shape than the US with respect to entitlement programs. There is no reason to believe that either Britain, France or Germany the largest economies could ever challenge the US for economic or military preeminence.

Russia and the former Soviet republics are also not a challenge to the United States.Russia has based its economy largely on energy. Russia is forecast to shrink by almost a third in population over the next generation. It is highly unlikely to ever challenge the US again as a preeminent economic or military superpower.

The Japanese also are highly unlikely to ever challenge the Us again for economic preeminence considering their rapidly aging population and the host of other problems that they are currently facing.

And here there is an important lesson. In my lifetime 30 years ago the future was supposed to belong to Japan. the Us was written off as a second rate power in decline. That was just before the Japanese stock market imploded and the property market crashed. Their economy has never recovered.

Which essentially leaves China and India. both with populations of over a billion people and both growing.

India however has a long road to go before it could ever hope to catch up to the US. India is also highly diverse with hundreds of different ethnic groups. it is very unlikely that in the next century it would challenge the US as a superpower economically or militarily.

So really the future will continue to hold the US as one of the most important nations globally. Whatever short term problems the US faces it will be one of the 2 most important countries on earth.

The question will only be whether it will remain the most important country or whether it will lose that position to China.

Here again let us put this in perspective. Yes China is growing rapidly and yes it will surpass the Us in total economic output shortly. this does not mean it will become a country that is more important to the World than the United States.

The following are some advantages that the US has that China does not.

The use of english around the world as the dominant language of business and because of history will realistically never be displaced by Chinese. And make no mistake this is a very critical advantage. The cultural and historic ties that the US has with Europe means that it is unlikely to be surpassed by China in its influence in this area.

The United States has also demonstrated a large advantage in having societies around the world adopt its culture and some aspect of its values, including paradoxically in China. The same cannot be said for the Chinese.

American brands are still global and dominant in many areas. How many Chinese brands can you name… American multinational companies still dominate globally. How many global Chinese companies can you name…

At this point it is also important to ask a very fundamental question. What actual structural advantage do the Chinese have..

They are not rich in resources. So the Chinese must scramble to try to go into areas that have proven very difficult in the past. Areas like Africa… Many areas in which they are trying to establish themselves have proven very volatile in the past.

While arguably the American political system has problems the Us has been fundamentally stable for well over 100 years. It is not at all clear that China will continue to enjoy a stable political climate in the coming generations.

Here again i am not going to enter a debate on the Chinese political system or structure.I will only say that it will only likely to face challenges when domestic growth slows or for that matter ends..

One of the main undisputed advantages that China has enjoyed has been a cheap labour force that is highly disciplined and hard working. The costs of labour in China however have risen and will continue to rise. Just as japan lost this advantage so will China. at that time it will have to rely on innovation to fuel economic growth.

Certainly as long as China is playing catchup in areas like construction and infrastructure there is room for more domestic growth. there are clear indications however of a developing bubble in housing in China as well as a dramatic decrease in the effective return on capital.

None of this takes away from the tremendous accomplishments of the Chinese or the fact that in my opinion China will continue to become a more and more important player on the world stage. I also wish the Chinese well in terms of navigating the road ahead.

The truth through is that America whatever its current problems will continue to play a crucial role in the world economy and on the world stage for the balance of the 21st century.