The Pacific Trade Future: China and South America
In the wake of Brexit, ascendant European nationalism, and the US elections, much has been written about populism’s threat to global trade growth and the international economic institutions established after the Second World War. There are a number of explanations for the turn inward. Many have blamed growing economic inequality within developed economies—some blame outsourcing or technological transition.
The post then notes falling income inequality may be a challenge for the U.S. and Europe:
Others posit that a decline in inequality may be a motivating factor. Danny Quah, Professor of Economics at Singapore’s Lee Kuan Yew School of Public Policy, and Kishore Mahbubani, the school’s Dean, blame populism’s rise on improved income equality across all nations. During the 1990s, a 70% income gap stood between emerging economies and the G7. That gap shrunk to under 14% in 2016 and will disappear by 2020.
For those born in the 1940s, experiences in the U.S. labor force in the 1960s and 1970s framed their worldview. The United States was the world’s powerhouse economy after World War II, especially as the world’s number 2 and 3 economies Germany and Japan had been bombed flat, as had France, England, and Italy. In 1950 the U.S. produced 80% of all automobiles in the world, by 1960s US auto manufacturing was about half world production, and by 2000 the US produced 4 million more cars a year than in 1980, but that was one-fifth of world production. By 2015 twice as many cars were manufactured in China than in the U.S. and some 90 million were produced worldwide (according to Wikipedia page).
If you look at 1950 in the Infogr.am chart at right from you can see how dominate the US (green line) economy was from the 1950s to 1980s.
It should be no surprise that everyday Americans along with politicians and military leaders growing up and living through those decades believed the U.S. to be the world’s major economy and society. Though the US economy continued to expand, faster economic growth in China led many to believe something had gone wrong with the U.S> economy, and many blamed “unfair” trade deals.
The chart seems to show the US economy declining after the 1950s, but that is an illusion. Instead, the US economy has expanded since the 1950s and 60s, with occasional recessions and slowdowns. From the 1960s on, Germany, Italy, and Japan grew rapidly, then later Taiwan, Hong Kong, South Korea, and the UK expanded (and Italy slowed down). The economies of China since 1980s reforms and India since 1990s reforms took off as well. International investment and trade were major drivers of rapid economic expansion.
In a presentation some years ago Michael Cox of Southern Methodist University asked teachers to imagine five people dropped in a jungle, and just one had a machete. The machete, a tool analogous to industrial revolution in the U.K. and U.S.–enables the lucky owner to cut a path through the jungle. But when the others pick up that trail, they can run f
aster and catch up. The complex technologies and factories developed in the UK, Western Europe, and the U.S. can and were duplicated for production in Mexico, South Korea, and China.
The blue line of China in the chart above soars from hundreds of millions of Chinese working long hours in “duplicate” Chinese factories, but also from new firms and factories developed by Asian entrepreneurs with new technologies and innovations (which then benefit consumers in China and around the world).