On Dec. 24, the U.S. Department of Commerce announced that the American economy grew at a 5 percent annual rate in the third quarter of 2014, the highest quarterly growth since 2002. For a long time, especially since the American and European financial crises of 2008, we have become accustomed to weak economic growth in the U.S. and the eurozone, and strong growth in the Chinese economy. However, the strong growth in the second half of 2014 in the U.S. has led to some change in this mindset — and there are a few things which deserve our attention.
First, the flexibility of the American system and the ability of the American economy to repair itself have helped America lead the way in restructuring and reforming institutions, helping lead the way out of the shadows of the economic crisis with growth for the foreseeable future. In the six years since the financial crises, reform of American domestic institutions has basically become complete. The International Monetary Fund released a report in October explaining that emerging economies were entering a period of slower growth, due in part to lagging American imports now and in the future. This problem implies that the U.S. is unable to pull the world economy along on its own. Many people take this inability to mean that America is in decline, but actually, if America was pulling these economies along, it would hasten their decline. Next year, institutional reform in China will become more acute and the deceleration of economic growth could continue. On the other hand, American growth is expected to accelerate. There could be a change in mindsets regarding the scale, and comparison, of American and Chinese gross domestic product.
Secondly, American mature market mechanisms for technological innovation have helped add vitality and growth and ensure that America will continue to be a strong competitor in critical industries. One particular industry of strength is the shale oil and gas industry. Due to technological innovations, America hopes to become the world’s largest natural gas and crude oil producing country. This will not only change America’s status in natural resource markets, but could also usher in a global revolution in natural resources; global deficiencies in natural resources could turn into a global oversupply. While it seems that the shale gas revolution is not lacking any luck, American market mechanisms and market maturity have contributed greatly to its success. There are many countries, China included, who have comparable reserves of shale gas — China even has greater reserves than America. But it is only in America that market mechanisms have provided adequate stimulus and encouragement. They have made developing and producing shale gas a worthwhile business endeavor and ensured sustainability and further development in the future.
The shale gas revolution has pushed down the cost of production in America, helping spur American industrialization strategy. American manufacturing costs follow Chinese manufacturing. Chinese manufacturing needs to prepare to follow American manufacturing on quality and innovation. The rejuvenation of the manufacturing industry has helped employment growth and spurred consumption. Employment and consumption in turn boost tax receipts, helping to deal with America’s public debt. Oil production has helped reduce imports and improve America’s balance of payments. This has all helped benefit the recovery and growth of the American economy.
Economic growth is the source of true power. Since the end of the World War II, America has continuously been challenged by new competitors. On military affairs, the Soviet Union once appeared to have the power to counterbalance the U.S.; on the economic front West Germany and Japan also seemed poised to surpass the U.S. When American economic influence experiences a relative decline, “American decline” theory bubbles to the surface. In the 1970s, with the collapse of the American-led Bretton Woods system, Paul Kennedy raised the warning of an American decline. But with the swift recovery of the American economy and the subsequent collapse of the USSR, America became the world’s lone superpower and its influence pushed to new heights. The 2008 financial crisis hastened the shift of power from the West to the East, China’s fast rise and its closing the gaps between it and the U.S. have continued until today. This has caused people to discuss America’s decline and whether the American-led world order will collapse. However, with the resurgence of the American economy, America can seek new sources of support and work to consolidate both its position as the world’s only superpower and the confidence that comes from that position. Thus, the real question that deserves our attention is whether America, in facing new trends and challenges, will experience a change or shift in its foreign policy strategy.
A thoughtful article. I would add that the true source of America’s strength – economic, political, military and cultural, lies in the vast freedom of its people, its democratic governance and the rule of law. The world hopes and prays that China can find its way toward these values.
China finally deciding that allowing its buttons to be pushed by Washington is counterproductive isn’t necessarily a cue to rethink American decline. All it means is that the Chinese — at last — realize that they were being manipulated into being Evil Empire II. The Chinese are regularly accused of paranoia by the most powerfully paranoid state on the planet, a state with a lot of practice in how to whip up paranoia in its competitors in order to get the nation onside. We should be relieved that China has figured out a way of avoiding this American trap.