The United States and China are Married and the Relationship is ‘Complicated.’

​If the United States and China were married one would say the relationship is ‘complicated.’ China is the largest United States trading partner, the biggest source of imports, and the third-largest export market. China is also the largest foreign holder of U.S. Treasury securities, which help fund the federal debt and keep United States interest rates low.  A ‘divorce’ from this problematic relationship is impossible.

In 1978 China initiated major economic reforms allowing the formation of rural private businesses, opening its economy to foreign trade and investment, relaxing state control over pricing, and incredible government spending to increase industrial production and improve the education of its workforce.   

​China’s GDP growth averaged 9.5% through 2018 making it the fastest sustained expansion by a major economy in history.  Such growth has doubled its GDP every eight years and raised 800 million people out of poverty. Most economic models conclude China will overtake the United States in GDP by 2030.

China’s success was based on a mixed economy that incorporates limited capitalism within a command economy. In a command economy production, investment, prices, and incomes are determined centrally by a government.

​United States corporate interests and corporate media like to sneer at centrally planned economies but such planning and direction have been highly successful in certain times in United States history; the incredible industrial production to support the allied war effort during World War II, the Marshall Plan to rebuild Europe after the war, military production during World War I, and the sustained military-industrial weapons development, production, and implementation during the American Empire being specific examples.

​A comparison of the growth rates between China and the United States leads to intriguing conclusions.   

• Between 1980 and 2019 the rate of growth in China exceeded the rate of growth of the United States every year. 
• The military interventions required to maintain the American Empire plus unrestrained capitalism combined to produce cyclical downturns:
  • The contraction of the United States economy in the early 1980s was caused by the Reagan Administration’s intention to shake out inflation by setting historically high-interest rates.
  • The 1992 recession was the result of the George H. W. Bush Administration's invasion of Kuwait in the first Gulf War.
  • The 2002 retraction was precipitated by the George W. Bush Administration’s invasions in the Middle East in response to 9/11.
  • The 2008 Great Recession was precipitated by the housing market credit speculation collapse caused by financial deregulation initiated by the Clinton Administration and administered by the George W. Bush Administration.
  • Although the data is not complete, the United States will certainly incur a huge historic reversal due to its government’s bungled management of the COVID pandemic.
• While China had some dips in rates of growth there never was negative GDP during this time.
• The United States economy appears to be unable to exceed a 3% rate of growth during the past 10-year period.

The People's Bank of China, the nation's central bank, manages the yuan to dollar value in part to ensure exports to the United States will be a little cheaper than those produced in the United States, providing a base of export revenue.  This has substantial benefits for United States consumers; for instance, the cost of clothing in the United States, even without an inflation adjustment, is less than it was 20 years ago.  This also has destroyed the United States manufacturing base causing economic upheaval and associated civil unrest.

​The Chinese government's spending has been a significant driver of its growth. The strategy has worked, but China’s present debt-to-GDP ratio is one of the highest in the world and its domestic consumer demand is low.  These factors are now considerably slowing growth, but China realizes it must reform its economy.  President Xi Jinping authorized the “Made in China 2025” plan to continue economic growth. The plan emphasizes growth in technology, aircraft engines, and electric automobiles. China has become a world leader in solar technology and is cutting back on the export of steel and coal.

​The more problematic issue for the United States is the stagnant economy despite historically low-interest rates and incredible deficit spending over the past four years.  The solutions are murky and a topic for another investigation, but the questions remain:

• Would strategic government direction of the United States economy jumpstart the economy from its current malaise?
• The current tax structure encourages harvesting and hoarding of wealth suppressing investment and growth.  Reform of the tax code is necessary to improve economic conditions.
• Economic retractions in the United States are related to a lack of regulation of financial markets combined with foreign intervention.  It’s time to reconsider the cost/benefit and the associated moral and ethical issues of military actions.  Rational regulation of financial markets should also be in the national discussion.
• The current United States defense expenditures are a drag on growth and should be reconsidered.
• The current corporate ‘shareholder value’ philosophy suppresses investment and long-term growth in favor of short-term gains may need serious consideration.
• The economic reversals due to unrestrained capitalism destroy middle-class wealth in the United States.  This invites populist demand for change and civil unrest and this condition will not change until the fundamental economic welfare of the population improves.  This warrants serious discussion and strategic preparation as they appear predictable or at least inevitable.

​The Congressional Research Service provided an excellent summary of the history of the Chinese economy at https://fas.org/sgp/crs/row/RL33534.pdf.  Raw data on GDP was provided by https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG.  An interesting treatise on the Chinese economy was presented at https://www.scmp.com/economy/china-economy/article/3099951/china-overtake-us-worlds-top-economy-2032-despite-washington.