Derek Scissors
National Review, Feb. 16, 2023
“The common idea that the yuan is challenging the dollar is silly.”
It’s widely accepted that the U.S. should compete economically with China, even though it sometimes still feels as if only one side is competing. What’s not settled is how to win or who is likely to do so. As the impact of China’s “zero Covid” mistake fades, that nation’s economy will recover in 2023 and 2024, to cheers from Wall Street and American technology firms. When that happens, it may seem that America is failing to keep pace.
But the longer term looks much better for the United States. Economic fundamentals and, to a lesser extent, the policies tied to them show America outperforming China on a durable basis. The main question is not who will win the competition but whether the U.S. will take advantage of a clearly superior situation and put the People’s Republic of China (PRC) well into the rearview mirror.
Economic comparisons typically start with the national economy’s size and individual citizens’ prosperity, as seen in part in gross domestic product (GDP). But size and prosperity are outcomes, flowing from development policies and four fundamental features of the economy: labor, capital, land, and innovation. Those are the sources of growth no matter how it is measured.
The U.S. and the PRC are by far the world’s largest economies. Yet both have serious defects in a vital area: the need for a skilled, productive workforce. A young and growing labor force can be frightening in a society without enough jobs for the prospective workers. The PRC faced that challenge in the 1990s and 2000s and largely met it, but now it has an older and shrinking labor force. Indeed, China’s labor force has been shrinking for a decade. Not coincidentally, its GDP growth has slowed considerably. And the problem will get much worse.
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