The 8 November Election for the US Congress and President came at an interesting point in history. The economy of western countries, led by the US in the 20th century, was overtaken by that of eastern countries in early 2016. The US is in no hurry to hand over the leader’s baton of the west to China as leader of the east, and indeed is reluctant to ever hand it over. England didn’t want to a century ago either, or Rome over a millennium and a half before that.
But China is now the world’s biggest economy and the most populous nation, by the proverbial country mile. The pecking order of the G10 and other nations is shown below.
In 2016, the US’s GDP is expected to be around US$18.9 trillion, and its net worth around $132.0 trillion. China’s GDP is expected to be around US$21.0 trillion in PPP terms, and its net worth around $150.0 trillion, again in PPP terms. That said, China’s population of 1.36 billion is more than four times larger than US’s population of 325.1 million, so the per capita situation is poles apart.
By the end of 2016, the US standard of living is expected to be US$58,000 per capita, versus China’s US$15,300 per capita. Wealth per capita in the US is likely to be US$406,000 versus US$107,000 for China.
China’s infrastructure is newer of course, and better in most cases; although the military might of the US is enormous and dwarfs China’s. But not forever.
Both nations have been living beyond their means of late and building up debt: corporate debt in the case of China, and national debt in the case of the US. That said, the government of China is almost bound to stand behind much of the corporate debt. The two charts below show comparative debt and budget deficit levels, respectively.
However, the US has been living way beyond its means for a very long time, and spending a very low percentage of its Gross National Expenditure on investment. This has resulted in tired infrastructure. Their world-leading ICT sector isn’t enough in this regard.
So, a new Republican President has been elected to take charge in January 2017 with a mostly supportive Congress, which is dominated by Republicans in both houses.
The following three charts trace the election history of the Congress and presidency since the beginning of the 20th century up to the most recent election. These charts reveal that the Democrats have dominated the houses of Congress (> 55% of the time), while the Republicans have won the presidency more often (60% of the time).
The incoming President, Donald Trump, will be able to look back on almost half a century to see the nation has balanced its books for only four years (under Clinton’s second term), as seen below. Just one-eighth of the past 50 years has balanced or been in surplus. This is serious.
If making America great again involves going further and faster into more debt, and making the rich richer via tax cuts that favour them, it doesn’t augur well for the US. The rich cannot spend their money to grow the economy anyway – due to the small numbers of households and consumer saturation. But with more discretionary income for the vast middleclass, the US would see the GDP grow faster than the lowly few percent per annum of the past decade.
A great deal of sympathy can be given the US for its costly world-policeman role over the past 75 years; and a pull-back in some areas is to be expected, if not a greater contribution to defence costs by other nations. However, there would be less sympathy in a retreat from freer world trade, with such action leading to regrettable consequences to all parties in the past.
The real challenge for the US is to avoid what the EU is going through as a big part of the West: a second decline of the Roman Empire, so to speak. The EU has enormous problems including: a divorce (Brexit); high taxes; excessive and restrictive legislation; less than visionary and competent leadership; ageing populations; competition from emerging economies in the industrial era industries; and the need to understand what the new and so-prospective Infotronics Age is all about, let alone another new age due in just several decades.
A lot of the above applies to the US.
Fortunately for Australia, we are now part of the evolving domination by the East, having enjoyed the last several centuries as part of the West, with over three-quarters of our trade, immigration and tourism now in the Asian mega-region (Asia Pacific and the Indian subcontinent).
A lucky country indeed. But we have reform, vision and leadership issues too. Yes, we have a healthier fiscal base than the US from which to fix these, but we are in a fast growing, competitive and sometimes impatient region. We should be trying harder.
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