America Prospers From A Prosperous China

In my August 6 blog post I made mention of the following recent commentary by the President:

Over the weekend he boasted that the U.S. market is “stronger than ever” and that Chinese stocks are “down 27%”. The U.S. is therefore “winning the trade war.”

After updating readers on the returns of U.S. stocks vs. Chinese stocks since the 2016 election (it’s a dead heat by the way), I stated the following:

To suggest that the U.S. is winning while the stock market of the second largest economy, which houses a huge number of buyers of U.S. (and the rest of the world’s) products and services (GM sells more cars in China than it does in the U.S., China is a huge market for U.S. technology, etc.) has recently careened into bear market territory loses sight of the global nature of today’s world, and of how closely correlated the world’s equity markets are. 

In his excellent article Let’s Transfer More Technology to China (HT Don Boudreaux), along with explaining why China’s capture of U.S. intellectual property can be a net positive for both countries, Scott Sumner makes the case that, indeed, a rich China is absolutely in America’s best interest

“If you look at where American companies earn their biggest profits, it’s highly skewed toward high-income economies.  Thus the Netherlands provides a bigger market for US products than the much more populous Tanzania.  Per capita income is a huge factor in determining the size of the market for the products of companies such as Apple, Disney, GM and Coke.
But that’s not all.  China is not just much bigger than the US, it’s also more culturally homogeneous (at 92% Han).  And that has resulted in a situation where, despite its size, China has a comparative advantage in a fairly small set of sectors—particularly mid-level manufacturing.  In contrast, the US has important advantages in a wide range of sectors, including food, energy, high tech equipment, software, entertainment, consulting, finance, military hardware, commercial airliners, capital goods, and many others.  A market with 1.4 billion affluent Chinese would be a mind-boggling fertile playground for American companies to sell into.  We should welcome a rich China, even if we are evil people who don’t care about the welfare of 1.4 billion fellow human beings.”

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