In the early 2000s, British historian Niall Ferguson celebrated the emergence of “China America”, a new coherent economic entity resulting from the symbiotic economic relationship between the United States and China. Each of the parties benefits from this merger characterized by deep economic interdependence: China exports low-cost manufactured products to the United States, while the United States imports these products and finances its domestic consumption and public spending in borrowing abroad – and particularly in China.
This relationship is perhaps the best illustration of one of the lessons of classical international trade theory. Foreign trade is beneficial for growth by allowing economic actors to benefit from the comparative advantages of all regions of the world. In the context of China America, Beijing is effectively taking advantage of its advantage in cheap labor and competitive production costs to become “the factory of the world”, exporting manufactured products on a large scale, particularly to the United States. United.
Chinaamerica, a relationship that has disintegrated
The symbiotic relationship between the United States and China has nevertheless highlighted the limits and risks of deep interdependence and the risk of fragmentation of the international economy. Yesterday globalization rhymed with interdependence and integration of markets, whereas today the logic that is required is that of autonomy and sovereignty. From this point of view, the United States’ dependence on Chinese imports and China’s dependence on the American market have fueled current economic and geopolitical tensions.
Chinaamerica is therefore no more. It was replaced by a new form of institutionalized rivalry both in Beijing and in Washington. Moreover, in the space of a decade, the rate of openness of the American economy, which measures the share of international trade (exports and imports) in relation to GDP, has fallen by six percentage points.
We could then have expected that this drop in the rate of openness of the American economy would be accompanied by an economic slowdown, in accordance with the expectations of the classic theory of international trade. The fact is that the US economy has not only not experienced a slowdown, but has also fared much better, in particular, than the European economy. The paradox is complete given yesterday’s strong dependence of the US economy on the rest of the world and on China.
Less trade and good growth: a paradox?
But this paradox is in reality only apparent. It should first be noted that the strength of internal consumption in the United States played a considerable role in American growth over the period, in a context of accommodating interest rates and a very low savings rate ( with the exception of the pandemic period). The American savings rate is below the 5% mark, three times lower than the European average. Likewise, the resilience of US growth is partly explained by the fact that household spending has remained significant for more than a decade.
US expansionary fiscal policy, marked in particular by the now famous Inflation Reduction Act (IRA) and investment plans in infrastructure and semiconductors, has also helped to stimulate economic growth. The IRA plans massive public investments amounting to $891 billion, including $783 billion for energy and climate change.
The CHIPS Act (for Creating Helpful Incentives to Produce Semiconductors and Science), a 2022 US federal law, aims to strengthen the position of the United States in the research, development and manufacturing of semiconductors. This law notably provides for new funding of $280 billion to support research and manufacturing of semiconductors in the United States, of which $52.7 billion is specifically allocated for their manufacturing.
This is not only about supporting the US economy in the short term, but also supporting it in its structural transformation and its reduction in dependence on the rest of the world. Added to this is the fact that businesses can rely on electricity that is half as expensive in June 2023 as that in Germany – thus allowing the US economy to challenge German industry for the title of manufacturing power.
Change in US trade
In addition, the reduction in the opening rate was accompanied by a diversification of US trade, while Mexico became the leading trading partner and Vietnam experienced the greatest increase in its market share in the United States. United, to the detriment of China and Germany. This movement is also the result of companies trying to circumvent US sanctions targeting China and, in the case of Mexico, to get closer to the US market. But it testifies in a more profound way to a map of American international trade whose borders have profoundly evolved.
We have therefore witnessed a structural transformation of the American economy. This very important change allows the government, whether Republican or Democratic, to redefine the country’s narrative about itself – and has thus enabled a structural political transformation.
Indeed, since 2006 and the last two years of George W. Bush’s mandate, US foreign policies seem to share a common thread: what is good for the rest of the world is no longer necessarily good for America. The country has drawn all the dividends it could from the globalization it helped build since 1945. Globalization has now become a zero-sum game in which what the United States wins, the rest of the world loses. and vice versa – thus making any compromise difficult. As different as George W. Bush, Barack Obama, Donald Trump and Joe Biden may be, they all expressed the same skepticism towards a globalization that would no longer serve US interests.
If the decline in US international trade had been accompanied by an economic slowdown, such a world view would have had difficulty gaining traction in Washington. Instead, Joe Biden was able to synthesize this consensus by proposing a foreign policy serving the middle classes that we are trying to immunize against the turbulence of globalization and therefore foreign competition. Regardless of the outcome of the November 5 vote, it is a safe bet that this synthesis, the result of a structural economic and political transformation, will be lasting.
