It’s Hard To Be Optimistic about the American Economy

The American GDP growth rate for the third quarter was 3.2 percent, the fastest it has been since the third quarter of 2014. Most observers believe this is a sign the American economy is improving. Some Western economists have said that the American economy has been on a growth trajectory since before the election, and if Donald Trump’s fiscal policies were enacted, American economic growth would accelerate.

I’m far less optimistic about the American economy, and the global economy at large, for next year and the year after. The American economic revival is currently at its best. However, this economy’s deeper problems — such as “the real vs. the virtual economy,” the financial industry’s “self-circulation,” etc. — are not easily resolved, causing a lack of revival in productivity for the manufacturing industry. Meanwhile, the service industry is overinflated but has no reinvested profit. The financial industry’s frequent crises have forced the American government to over-tolerate its actions, thereby hijacking American macroeconomic policies.　

In the short term, President-elect Donald Trump has straightforward ideas for reviving the American economy: cutting taxes, building infrastructure, encouraging American businesses to return to America, etc. These measures are easy to visualize but hard to put into place. The dollar index has already surpassed 100. If the interest rate were raised within the year, the dollar would continue to be strong, and it is possible there would be a rapid increase in the American trade deficit. If tax cuts were enacted, mid to long-term economic development would benefit; however, the financial deficit in the short term would increase, and it would not be impossible for America to enter into a defensive phase of twin deficits. If an investment were made in infrastructure, then the source of funding would be another difficulty. The problem is, whenever America encounters problems in its internal development, it would look for enemies internationally to divert the conflict.

It is possible that China-U.S. relations would face intense pressure in the future and that Chinese investment in America would encounter new obstacles, especially closer security inspections of investment by Chinese state-owned enterprises. In theory, Chinese investment in the American economy supports American growth, so even if the federal government lacked enthusiasm, state governments would be motivated. Nevertheless, America could become picky about problems with the Chinese regime, including subsidies, fair competition, policies for businesses, bank lending and neutral competition policies for state-owned enterprises. For the ongoing BIT* discussions between China and the U.S., the Obama administration would have no signing power. Furthermore, if Trump were to take over, they would require new price quotes, and China could even be forced to expand its opening up, especially in the service industry.

In the current state, the global economy faces new risks, and the China-U.S. relationship is filled with uncertainty. As a result, our choice of attitude and response is key.

Author is a senior researcher at the Center For China And Globalization and the former dean of the International Trade Economy Cooperation Academe at the Ministry of Commerce.

*Editor’s Note: BIT usually refers to a Bilateral Investment Treaty.