Meet the New King, Same as the Old King

Why the United States, Not China Will Lead the New World Order (No, this is not a Jingoistic Rant :)

“When China Rules the World” has dominated the global news and media and popular sentiment for a while.

Several articles to be found of similar vein across books and major publications illustrate this.

How America will collapse (by 2025)

The Decline of the West: Why America Must Prepare for the End of Dominance

The coronavirus could mark the end of America’s global leadership.

Odds were very good that China would eventually overtake the United States as the most powerful country based on the established global economy that began after World War 2.

The global economy which the United States helped build, revolved around efficiency and favored country specialization. For example, France & Italy specialized around agriculture & luxury products, Bangladesh around textiles, Taiwan around microelectronics, Brazil, Russia, Saudi Arabia, Australia, Canada around energy and natural resources. China became the manufacturing center for the world. The United States served as one of the major consumer markets and the final destination of finished goods. Think of the iPhone which openly states, “Designed in California, assembled in China.”

The interdependence that existed between the USA and China is now over. This breakdown of relations is punctuated by a Big Trade War. The Covid-19 pandemic has accelerated this as we enter a world where there will be two big trading blocs split between the United States and China.

The Economy: The USA is still the biggest economy in the world when comparing Nominal GDP, China’s economy at present is at 65% of the USA’s GDP although it is growing.

We see that the United States is a big Import economy with diversified trading partners and not as reliant on China as China is on the USA.

Export Partners to USA

Import Partners to USA

Source: These are America’s top trading partners — CNNMoney

With the Pandemic, many western countries have come to the realization that they have outsourced too many things to China (PPE and Vaccines come to mind). We have seen many multinationals in critical industries beginning to reshore supply chains back home or to more friendly countries. 64% of manufacturers in the USA have reported they will be reshoring back to the USA or within NAFTA (North American Free Trade Agreement). We have seen the same with Korean companies like Samsung reshoring mobile phone manufacturing from China. The Japanese government has put in legislation pushing their corporations to do the same.(

This trend of Country resilience over efficiency will escalate over the next few years and bodes ill for China.

Source: 64% of manufacturers say reshoring is likely following pandemic: survey

China has a powerful manufacturing base of 2.8 million factories (vs. 250,000 factories in the USA). It is a double-edged sword for mass employment and competing in a global export economy. As supply chains get redeployed to other countries like Canada, Mexico, Vietnam, or are reshored back home, China will be left with a big manufacturing base making things that their internal economy cannot consume. This will lead to more unemployment and more economic issues, a death spiral. China’s impressive Belt & Road Initiative was designed for this eventuality to lock in future labor pools, export markets and trading partners. But the work is incomplete right now. (Source: Belt and Road Initiative).

The Chinese banking system is also very fragile due to a high percentage of Non Performing Loans despite China’s immense savings rate. Fitchratings estimated that it could actually be as high as 20% of total loans. This is compared to 5% in US Banks in 2009 during the peak of the Housing crisis which was already catastrophic. (Source: Bank Non-Performing Loans to Gross Loans for United States). China’s number is 4 times larger and their banking system will implode with a commensurate amount of pain.

The Greek poet Archilochus wrote, “the fox knows many things, but the hedgehog knows one big thing.” In this case, China is the hedgehog, while the USA is the fox. In a fast changing, brand new environment, the fox aka the United States is better adapted to the new world. China is way more fragile and more brittle during these changes compared to the United States.

Demographics: There is a saying that “demographics is destiny” which is also closely tied to economic growth. You want many young productive and tax generating people. America wins hands down due to immigration despite being undercut by anti-immigration sentiment in the present White House). The United States is the only developed country that will not shrink in population over the next 20 years. The upcoming Gen Z cohort is almost as large as the Baby Boomers who powered the American and global economy the last 50 years.

China has a bigger population but it’s expected to peak in 2029 at 1.44 billion before slowly declining (China Academy of Social Sciences CASS). It will also be much older and in economist terms “Unproductive”. Another clear issue is the lop-sided male to female ratio in China, with 114 males to every 100 females due to infanticide and the one child policy. I see this as another source of potential civil stress.

With all the challenges and disadvantages that China has right now, Xi Jinping’s regime has become more autocratic. He has centralized even more power and taken out a wide swath of his political competition via “Anti-corruption campaigns”. There will be much more civic unrest beyond Tibet and Xinjiang as their economy implodes. Additionally if you look at the level of protests and civil disturbances happening, this only points to much tumult under the surface in China even right now.

70,000 incidents in 2018 as recorded by an activist before he was arrested. Obviously it is very hard to get real numbers due to this data being considered a state secret.

(Sources: Masses of incidents — Why protests are so common in China | China)

(Source 2: Protest and dissent in China)

Throughout all of its history, China has been through waves of being a unified centralized Han focused nation state to become splintered and distinct independent regional powers. These were times of chaos, civil disturbances & tragedy that we saw even as recently as 1911 to 1949. Nothing points to this not happening again.

My prediction is that the USA will muddle along for the next 4–5 years regardless of whether Trump wins or not. Possibly for even the next 10 years as our present “Pale, Male and Stale” leaders die off from old age over the decade. But it is inevitable that the USA will have new, younger and more worldly leadership that will be able to cross the Political divide we have at the moment. As the famous Newsroom scene states: “The first step in solving any problem is recognizing there is one.” (Why America is NOT the greatest country in the world, anymore).

The bigger point is dominance is relative. You can decline and win as long as your opponents are declining faster. China has done an amazing job marshaling their lesser resources as America was distracted in the Middle East the last 2 decades. But the timer on China’s opportunityto grow their internal domestic consumption market and lock in markets via their Belt & Road Initiative has ended. China may even fracture as a single country as civil disturbances rise and decentralized tendencies take hold.

America has a massive edge in assets and is better positioned demographically than China to adapt to the new emerging world order. The common trope of China taking over the world is glaring and wrong. When the United States fixes their glaring problems, it will still be the “Shining City on the Hill” and the dominant power in the world.

Ever curious: Tsundoku, Reader, Aspiring Shokunin, World traveller, Investor & Tech/Media exec interested in almost everything!

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