Date
22 September 2017
The GDPs of the United States and China appear to be on a collision course for convergence in the next few years. Chart: Word Development Indicators
The GDPs of the United States and China appear to be on a collision course for convergence in the next few years. Chart: Word Development Indicators

Trade dynamics at G20 summit offer glimpse into future

The subject of trade tariffs on products such as steel has come up frequently since the G20 Summit in Hamburg, Germany, in July.

Trade restrictions do not benefit any nation. Quite the contrary, they often harm the very workers they are supposed to protect.

And the ones who suffer the most are the lowest income earners, underlining a divergent metric of exploitation that has been apparent throughout the history of industrialized nations. On the other hand, CEOs and policymakers profit from the hardships of working people.

This isolationist narrative has been underscoring trade discussions for some time and picked up steam shortly before the G20 Summit when US President Donald Trump, Vice President Mike Pence and Commerce Secretary Wilbur Ross eschewed the view of the majority (22-3) who opposed the trade restriction proposal.

Notwithstanding the Trump administration’s abysmal approval ratings, the global economy, spe-cifically China, continues to grow at a moderate pace with some tightening in most aspects of monetary policy.

What many fail to see is the correlation between the foundational elements of the United States and China’s economic rise and by comparative analysis the deduction of continued growth, or pullback.

The fact is that these economies began much like one another. The question is, will China super-sede America sooner than projected?

To answer that question in the most basic of terms, we need some historical references, and with the history, we hope to yield context.

The comparative analysis begins over 150 years ago. For nearly 40 years, from 1865 through to 1905, American business owners, such as Cornelius Vanderbilt, Andrew Carnegie, and John D. Rockefeller, laid the foundation for what would translate into modern-day economic and operational processes throughout the country.

These cornerstone enterprises gained substantial market share in prime areas of infrastructure like transportation, energy, and construction, even though the factories of these business magnates were characterized by dire working conditions and low pay.

Since 1978, China has also laid the foundation for economic expansion and investment. And much like America’s foundation of 40 years before it became a hegemonic power following the First World War, next year will mark the Asian powerhouse’s 40th year of economic improvement and market gains.

But what could possibly be next?

As the GDPs of the US and China appear to be on a collision course for convergence (see chart) within the next few years, any restrictions imposed by the US could expedite the precipitous nature of the intersection.

Incidentally, if we’re to discuss any major movements within the scope of international trade, it would be prudent to identify China’s share of the international steel market, where it has been no stranger to controversy in recent years.

The extra steel flooding the market has prompted an all too familiar rhetoric from those simply unwilling or, worse, incompetent to understand matters of international trade, most notably the Trump administration.

Is it possible that Jack Ma of Alibaba could step into this type of infrastructure and trade much like the titans of US capitalism during the late 19th century?

The G20 Summit provided some idea of what the future holds, as its members account for 80 percent of the global GDP. Will the Chinese steel, coal, and transportation sectors form an alliance with Germany and enter into a trade war with the US?

Will Chinese corporations begin to face scrutiny for continuing to pay skilled laborers 30 percent less than what their American counterparts were receiving even in the most abysmal conditions in 1896? Or will pragmatism surface and quell the uncertainty?

We hope for the latter, as it is to the advantage of all nations to keep international markets free from restrictions and open for business.

However, only time will tell if the robust global equities market, increasing price-to-earnings ratios, and healthy domestic and international sales can continue on their parabolic trajectory in a global trade relationship that seems to change daily.

– Contact us at [email protected]

RT/CG

Bruno S. Sergi, Ph.D., is a professor of economics at Harvard University and the University of Messina. Adam Christopher Wood is from Harvard University.

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