Will the corona crisis mean that the USA will soon lose out to China in the fight for number one in the world? As already discussed last week on FMW, the duel between the USA and China is going into another round. The outcome of the US elections could change a lot in terms of diplomacy, but the fundamental dilemma will remain. After a century, US hegemony could be lost in many areas, which the United States will resist with all its might.
The outcome of the US elections and the situation before the corona crisis
First of all, I would like to issue a small warning about the sense and nonsense of prognoses about an election outcome and the resulting politics: The result of election polls is subject to incredibly rapid changes in sentiment, especially in today’s world with social media – previous securities quickly become wasted – keywords Brexit, US election 2016. But the realization of election promises is just as uncertain, in the USA especially through majorities in Congress or in the House of Representatives, which can lead to a downright blockade of previous projects. That is also why Obama failed (and not because of his unwillingness). But the old Adenauer slogan applies even more after an election: “What do I care about my chatter from yesterday?” The corona crisis created so many facts that no US president can easily change.
The rise of China has created economic facts
Without the rise of China there would have been little growth in some industrialized countries in the past decade. Example from Germany: Volkswagen sold four million of almost 11 million cars in 2019 in China alone. China’s share of the world’s economic growth was 46 percent last year, and according to the IMF in 2012 it was 76 percent. The huge empire has built huge supply chains and made so many countries into great dependencies. The corona crisis has shown in some areas (even with cheap breathing masks) how frivolous it is not to be able to manufacture certain products yourself in times of crisis.
The rise of China in terms of its share of the world economy is best seen when it is adjusted for purchasing power. While the value was still two percent in 1980, you could knock on the 20 percent mark in 2020 (source: statista). In nominal terms, the US still has a lead over China with roughly $ 21 to 14 trillion in economic output. But here, too, the changing of the guard can be seen due to the differences in growth. In addition, there is a current significant fact:
China will likely be the only major economic nation in 2020 that will close the year of the corona crisis with a positive growth rate. The gap between the USA and China could shrink again.
The attempt to isolate itself from China
In the current trend towards protectionism or reduced globalization, some states want to make themselves more independent from China, especially the USA despite its trade war that has been put on hold. Whether it is about the technological battle over the new cellular technology (5G – Huawei, or the Internet in general), the hiccups over Tiktok, the subject of the protection of personal data (where Facebook and others are also criticized) – the appeal to the USA the western states to decouple from the Middle Kingdom will probably fail because of the economic facts described above that China has created.
The People’s Republic has put out feelers to many countries, whether to Africa and its raw materials or in the course of the Silk Road project as an investor for numerous poorer countries. Not to forget the people of over 1.4 billion consumer hungry citizens, a giant state that is still classified as a developing country with a gross domestic product of less than $ 11,000 per inhabitant. To bring this even close to western industrialized countries, large growth rates and a gigantic demand for resources are necessary.
China’s dominant role in the commodity markets
China’s hunger for raw materials has always moved the markets. This is also the case this year, because after it became clear that the corona crisis was being brought under control, the Middle Kingdom ordered massive amounts of raw materials.
The industrial metal is trading at a high level, also a sign of an increasing correction. One of the main reasons for this is the revitalized Asian economies. The ASEAN countries import 70 percent of the global copper supply, most of it from China. The Chinese took advantage of the “bargain prices” in the corona crisis in spring and ordered large quantities. Since it can take up to three months between ordering and importing, this only recently became noticeable in imports. The stocks of 180,000 tons on the raw materials exchange are 20,000 tons higher than a year ago.
Example crude oil
When the black gold was really cheap at the height of the corona crisis, China ordered large quantities of oil, over 12 million barrels a day, and filled the stocks to the brim, so that the supplies would have lasted for a long time. After the price of crude oil had risen, the company entered the market as a seller at dumping prices and torpedoed the efforts of OPEC and especially those of the American fracking industry. An example of the capitalist methods that communist China sometimes uses. Not easy for the US President to wage a trade war here.
Regardless of the outcome of the US election, the struggle of the economic blocs will continue. The EU is likely to get into a dilemma in the duel between the Asians and the USA, in times of irreversible globalization, one is economically dependent on both regions. But Asia is still on the advance with its huge mass of consumers, there are already over 2.8 billion people in China and India alone. The corona crisis is currently masking many developments, but China has created many facts with its rise: through the Silk Road project, through access to many raw materials in Africa, through many loans to poor countries in the world and, last but not least, through its economic boom, which can be seen in the Development of the gross domestic product from $ 2.77 trillion in the year before the start of the financial crisis (2007) to $ 14.14 trillion in 2019.
The 2020s are likely to be an exciting period for the West, for the USA, but also for Europe. In China there is an outwardly calm, but very unyielding ruler who is elected for life – a fact that the US president should dream of. In reality, Xi Jinping rules with an iron fist, without any tolerance for dissenters to the great aim of his communist leadership.