• The Heritage Network
    • Resize:
    • A
    • A
    • A
  • Donate
  • Why China is Not an Economic Threat to the United States

    Recent reports of China’s economic growth contrasted with the U.S. economic downturn have left Americans increasingly concerned that China is becoming a new superpower, controls American finances and will surpass the United States as the world’s leading power. The reality is that the fundamentals of the American economy are stronger than China’s, and U.S. prospects are better.

    Let’s take exhibit A. It may appear that China contributes the most to world GDP and leads global growth given its 10.7 percent growth last quarter, as well as its 8.7 percent average growth last year. However, that’s not an indicative measure of a strong economy.

    Aside from the fact that China’s GDP numbers are illusory (largely because of how the country calculates its GDP), a significant portion of the growth China is experiencing is not creating wealth, it is merely taking it from other countries. In other words, Chinese growth is partly the result of detraction from, not addition to, world GDP, which means much of its success is dependent upon others.

    This is because of the way China’s economy is set up. China  relies on its trade surplus with the rest of the world as the lifeblood of its economy. It exports vastly more than it imports. Seen in this light, China sucks GDP from other countries in addition to creating its own. Therefore, while it may be leading the world in GDP growth, to a notable extent these GDP gains are the result of China using the world to boost itself higher.

    That does not mean, however, that China does not produce anything. To the contrary, over the last couple of decades, China has contributed to the world economy. While China’s production has historically met consumer demand to keep prices low around the globe, the world-wide recession is now causing China to oversupply due to weak global demand, which could lead to deflation. This is hardly an indication of a sound, robustly-growing economy. If China does not start developing more of its own domestic economy for its people, trouble looms.

    Further, China is not America’s banker, as many people believe. President Obama’s  stimulus package was bad policy, but the notion that China is now funding our economy as a result is a fallacy.

    America could get by without China funding its debt. What’s largely unknown is that China officially holds less than 7 percent of U.S.  treasuries, and that Chinese bond purchases declined in 2009, to under $100 billion, while our deficit soared to an all-time high of $1.4 trillion.

    Moreover, China does not buy our debt for our sake; it does so it because it depends on an economy as large and sound as ours for its own growth propelled through trade:  The same set of rules that keep its currency undervalued means, by law, it can’t spend at home the huge pile of cash that it sits on.

    In that respect, China is more directly tied to us than we are to them. If the United States were to discontinue trade with China, it would hurt them more than us.

    Finally, China is not going to surpass the United States as the world economic leader any time soon. We control about a fourth of the wealth in the world – more than China, India, Japan and the rest of Asia combined. Other indicators are just as definitive. The average American earns close to fifteen times more than the average person in China. If the  United States keeps tax rates low, shows spending discipline, and brings the deficit down to promote solid economic growth, there is strong reason to believe that China will never surpass the United States as the world’s largest economy.

    Posted in Ongoing Priorities [slideshow_deploy]

    20 Responses to Why China is Not an Economic Threat to the United States

    1. Stephen G, Chicago says:

      The Left knows that the way to change a society from within is to focus on economics (and fundamentally alter the way the nation thinks about and handles economics).

      Conservatives MUST wake up and begin again to make the case for free enterprise and its intrinsic link to political and religious freedom.

      THIS is the column that explains how conservatives can do just that: http://rjmoeller.com/2010/02/the-economics-of-mer

    2. AZ_VET says:

      I don't agree. China is financing the US government. In short it holds our debt. Which debt gives them both political and financial clout in our country. Think of it as China owning us lock, stock, and barrel. Any leftovers will go to Saudi Arabia and Europe.

      Better hope they don't call for payment.

    3. Barbara Frances Delo says:

      Still, America would be wise to recognize the emerging power of China. .

      In addition to its rapidly growing economy, which now makes it the # 1 exporter in the world, it is reaching out politically to become the dominant nation in the region and to extend its influence beyond. It has significant involvement in the oil rich regions of Africa, has shared military and nuclear technology with Pakistan and the Middle East, is forming new energy alliances with Russia and Europe, and regularily sends high ranking officials to locations as far away as South America.

      It has also revamped and upgraded its military, investing heavily in a cyber warfare program that could interfere with American guided missle systems and defense shields, a mobile ballistic missle system that could carry weapons around the globe, and the new DF 21 Balistic Missile that is believed capable of evading US defense systems.

      In 1958 Mao Zedong set the goal of developing an economy that rivaled the United States. Deng Xiaoping broadened this goal to include a military and political rise as well. China has been quietly taking the patient and deliberate steps towards these goals. America would be wise to respectfully watch this vast and proud nation.

    4. Lloyd Scallan - New says:

      Regardless of what or how China calculates its GDP, or from whom or how they got their wealth, they still have it, and are using it to buy more and more of this country (beginning with Clinton).

      "Rules and Laws"? You must be joking! Do you think China follows rules or laws that is not in the best interest of their government?

      Do you think that regardless of how much or what China payes its workers, can in any way effect or compair to our workers. Ridiculous! Their workers are by and large "slaves". They work when, where and for whatever the Chinese government decides give them, weather its money or survival.

      "We don't need China"? Just name any other country that will lend us the amount of money we need to keep our economy going and is continuing to spiral upward into space because of Obama and his policies.

      And now Obama has just ordered that survellance of China's activities be reduced. You say China is "not a, economic threat"! THEY NOW OWN US.

    5. Robert Magill says:

      I don't get it. Weinberger spends ten paragraphs telling us China isn't in a growing position of power with us and that we don't have anything to fear. Then, in the last sentence he says, "If the United States keep tax rates low, shows spending discipline, and brings the deficit down to promote solid economic growth, there is strong reason to believe that China will never surpass the United States as the world's largest economy."

      Are any of those three things Weinberger says we should be doing, being done?

    6. Ervin Kistler, Palme says:

      You can talk all you want about Chinas growth compared to ours all you want, but the bottom line is the number of jobs that have been and are being lost due to things that were once made in this country and are now being made in China and other countries with extremely cheap labor and the country pocketing the profits. The US it seems takes pride in sending our jobs off shore due to their taxes and regulations. Some regulations are good especially when you see the problems with some of the items imported from China, which if they were made here would not be allowed to be made due to product content.

    7. Derek Scissors, Ph.D. Derek Scissors, Wash says:

      Barbara:

      I pretty much agree with your comment. We should be watching. The question is the level of the current economic threat, which is much lower than many people believe, including people genuinely worried about the problems America faces.

      AZ_Vet, you wrote,

      "Think of it as China owning us lock, stock, and barrel. Any leftovers will go to Saudi Arabia and Europe.

      Better hope they don’t call for payment."

      When you break down the numbers, it's Americans who are financing the huge expansion of the debt, both through our own savings directly and through the Fed indirectly. We sold about $1.4 *trillion* in Treasuries in 2009 and China only bought about 5% of that.

      The problem is not foreign political influence, it's that the government is grabbing a larger and larger share of national wealth. Instead of taxing us directly, it's diverting our money through bond sales and warping policy so that policy is primarily about helping the government spend more rather than government even trying to do anything for the people.

    8. philip greubel says:

      David, with all due respect, I think you're looking in the rear view mirror. China is not only going to be a superpower, it may well be the superpower. With the persistent push from so-called environmentalists, we have been systematically exporting our manufacturing base for over 30 years, and a nation of consumers, not producers is neither nor sustainable. The debt is another issue, and they are our bankers. Given their relative weakness in natural resources, I believe that when they eventually call the debt, we will have to pay in something other than cash… mineral rights or land is my guess. There goes our sovereignty.

    9. Duane Phinney Pensac says:

      China holds $1 out of every $10 in U.S. public debt if they were to stop buying, or worse yet, start dumping dollars we would have a real problem. They will keep buying to prop up the dollar so they can keep the value of the yuan down.

    10. Ben C. Ann Arbor, MI says:

      In simple terms national wealth is created two ways: 1) conquest, 2) trade surplus. Conquest is not such a good idea – ask Saddam (opps, he's dead). Trade surplus is the next option. China IS creating national wealth in a very skillful manner – sell goods cheaper by manipulating its currency. We are now a consuming nation – not a producing nation. We buy more than we sell. With all due respect to the above author, we are soon going to implode under the weight of our debt and we will all suffer the consequences.

    11. Jim, Connecticut says:

      I didn't realize Heritage employed Keynesians. This is the single worst piece of economic analysis I have ever read on this site.

    12. Bob Kimmons, Warrens says:

      Seems to me like your entire hypothisis is based on 3 important 'Ifs" in your last paragraph which are very 'iffy'. Our taxes will likely go up if the former tax cut is not renewed so taxes will be going up not down.

      We are spending more…not less and will likely to continue to do so since there is virtually no accountability in congress.

      It is unlikely the deficit will come down during this administration because of the two things above. They won't curtail spending and new jobs won't come along because Administration is doing everything opposite of what is needed to creat producing jobs, not simply expanding thgouth govt. hiring. Bob Kimmons

    13. Spiritof76, NH says:

      This article is built on fantasy.

      There is no doubt that China has expanded its industrial base. In real terms, its unit cost of manufacturing is one of the lowest. That is why it can utilize the limited capital more efficiently than most of the countries around the world, including the US.

      It is a myth to think that the standard of living in the US will continue to go up; not with the growth of government and abosrption of capital. The debt matters. Net worth of Americans have been declining. Wealth creation has slowed down compared to borrowing and unfunded liabilities.

      In countries like China, the net worth of their citizens are increasing. Japan is in worse shape than the US in terms of debt/GDP. Most of its debt, however, is absorbed internally through a much higher savings rate.

      There is no question that China is already dictating the US foreign policy. Clinton and Obama have dropped bringing the human rights issue forward to the leaders of the Communist China. They had told us that we should not talk to Dalai Lama. Obama complied. They are now telling us that we shouldn't go through the already scheduled arms sale to Taiwan. Obama has removed China as the top CIA interest in spying against the US.

      Get this straight. US is broke. It is facing credit rating downgrade. It will end up losing its reserve currency status. China will force higher interest rates to lend more. They are already buying short term notes and avoiding long term notes.

      Please wke up and smell the coffee.

    14. Lynn Bryant DeSpain says:

      Their whole financial Empire is solely based on whether America suceeds, or fails.

    15. Hc, Kansas says:

      You have to appreciate the fact that China has over 4 times the people as United States has. If you think that United States with 25% as many people will remain the top within the next century, you are mistaken. Lets put it this way; what you are basically saying is that 1 American beats 4 Chinese.

    16. Ric Davidge Former D says:

      David,

      Please continue these essays on China and maybe one soon on India.

      My company will soon do signfinicant business in these countries, and I am an regular reader of the Morning Bell.

      Your perspective is sound and competent. Comming out of DC at this time, this is rare.

      Ric Davidge, Chairman AQUEOUS International

    17. snappysandy says:

      The Heritage article is way off base.

      The problem with the premise that “China is not, nor will not be a Super Economic Power is based on the “IF” facts in the last paragraph. Bottom line, China is a Super Economic Power already. China is the bank for the USA.

      The article says, China won’t become a Super Economic Power “IF” the USA:

      1) Keeps tax rates low: Obama wants to raise them

      2) Shows spending discipline: Right! We’re spending $1.6 Trillion and counting

      3) If the US brings down the deficit and promotes solid Economic growth: You mean like our Stimulus Jobs, where the US government promotes temporary Short term jobs, “Cash for Clunkers” or how about the Census jobs that they Say will put a million temporary workers to work, until July of this year. Wow!

      Whats funny about this one is that I have not seen one AD asking for volunteers to take the Census, could it be because ACORN is already lined up to do it??????

      Then it says, there is a strong possibility that China will not pass the USA as the World’s largest Economy. That’s a whole hell of a lot of “Ifs”.

      Please let’s stop writing articles based on wishful thinking, it’s a disservice to the American people.

    18. Jeshu, PA says:

      I am amazed at the fear in this comments section. Stop fearing China! Our GDP per capita is close to $50,000. There's is between $4,000 and $8,000, depending which source you use! Chinese citizens make less than half of what the average Mexican makes! They are debasing their currency thru inflation, and the people can't even afford to buy rice anymore! Their house of cards is going to crash eventually. And every dollar we spend in China eventually comes back to America. Because it has to. Economic ignorance knows no bottom….

    19. bongstar420 says:

      Wow…You guys are a bunch.

      Here is what I think: Taxes will go up for very rich people (aww, there goes that extra yacht), spending will decrease in inflation adjusted numbers largely from the international military sector, the USD will strengthen largely due to the FED's secret dynamic (the FED may be responsible for low times but they are engineered to counter complacency at the bottom) with populism, the USA will increase exports, average commodities price will stagnate against demand in the US, stock dividends will increase accordingly in the US. This is all good and a rally against it is a rally against the US since they will be positive for our position as well as most others in the world. Physical commodity monetary standards like Gold will limit world growth and total available wealth though they make good side markets to increase up front growth at our currently underdeveloped conditions- so don't give me it's the fault of fiat currency per se. I think people's psychology on all sides are responsible for these sorts of things. It's all about a power differential that is either preferred or not.

      Anyways, this is what I think the next 5-10 years will be as a positioning for the next cycles

    Comments are subject to approval and moderation. We remind everyone that The Heritage Foundation promotes a civil society where ideas and debate flourish. Please be respectful of each other and the subjects of any criticism. While we may not always agree on policy, we should all agree that being appropriately informed is everyone's intention visiting this site. Profanity, lewdness, personal attacks, and other forms of incivility will not be tolerated. Please keep your thoughts brief and avoid ALL CAPS. While we respect your first amendment rights, we are obligated to our readers to maintain these standards. Thanks for joining the conversation.

    Big Government Is NOT the Answer

    Your tax dollars are being spent on programs that we really don't need.

    I Agree I Disagree ×

    Get Heritage In Your Inbox — FREE!

    Heritage Foundation e-mails keep you updated on the ongoing policy battles in Washington and around the country.

    ×