Is China’s Economic Growth Hurting Other Countries?

When it comes to matters of economics, the ChinaFund.com team firmly believes it is crucial to take a certain topic that perhaps asks a surface-level question and gradually dig deeper, until the root issue is finally addressed.

By now, it should be obvious to anyone who hasn’t been living under a proverbial rock that tensions are becoming clearer between China and various countries with which it has experienced a large trade surplus for many years, most notably… yes, the United States.

The surface-level question anyone from the average investor to renowned experts are asking is whether or not countries such as the United States have a point. Is the current trade deficit (from their perspective) status quo hurting their economic growth potential? Or, to put it differently, is China receiving what might be best described as a free ride from the West?

Again, this is the surface-level question.

Upon digging deeper, we have to ask yourself how China was able to experience a trade surplus with many countries for such an extended period of time. For the most part, answers revolve around the fact that globalization enabled China to do just that and yes, the elephant in the room when it comes to this topic is indeed globalization.

It represents the elephant in the room to such a degree that the “Is China’s economic growth hurting other countries?” question can be rephrased to “Is globalization hurting other (note: richer) countries?” because it is hard to deny that this unaddressed question leads to a buildup of frustration among those on the let’s say losing end (Western nations).

But are Western nations actually on the losing end of this deal?

There are many sides in this particular debate, but two broad ones can for the most part be identified:

1. Those who view international trade as a zero-sum game, with Country A having to lose so that Country B can gain. Those who share this perspective believe that Country A citizens (US citizens for example) have been betrayed by politicians who allowed Country B (China, for example) to be on the receiving end of globalization
2. Those who believe a rising tide lifts all boats and that by enabling under-developed countries to grow (China during the Deng Xiaoping days, for example), everyone will ultimately be better off in the long run. That by enabling Deng Xiaoping’s China to start attaching itself to the worldwide economic engine and unleashing the productive capacity of 1.4 billion individuals (today’s approximate value), then doing the same with other nations that express interest in this direction, the world will eventually be better off, even if there is occasional short to mid-term pain involved. The ChinaFund.com team positions itself ideologically closer to this viewpoint, in the spirit of full disclosure
3. Those who approach the problem from a humanitarian perspective and don’t care whether or not globalization is a zero-sum game. In their view, even if it is, situations such as a US citizen experiencing a non-debilitating (!) lifestyle reduction so that one Chinese citizen can escape poverty/hunger is a more than reasonable trade-off

As mentioned previously, the ChinaFund.com team firmly believes that while not perfect, a system such as globalization which encourages “trade on steroids” is the best option we have right now. We also offer support to the humanitarian dimension, but again, in light of the fact that we believe a rising tide lifts all boats, even demographic segments such as the US citizens that have currently drawn the proverbial short stick will ultimately be better off than in a non-globalized framework.

Is China’s economic growth hurting other countries?

Is globalization hurting Western nations?

Both are overly simplistic questions which fail to factor in the reality that we are dealing with an equation too complex and with too many not exactly easily quantifiable unknowns for an economic arithmetic-oriented framework to make sense.

For example, let us assume the West would have decided to simply let under-developed nations figure it all out themselves and take things even further by assuming that this decision would have led to higher GDP growth rates in the West over a period of many years. Even in this optimistic scenario for those on side #1 of 3, there are many potentially framework-breaking unknowns involved.

What if more and more ruthless regimes end up taking over in the under-developed world, regimes which revolve around power-hungry leaders being more than ready to cause problems regionally and beyond? Nothing too scary for the average Westerner, who knows how well-funded the military of his/her country is. But these poor nations have resources and by having resources, they will have allies that will step in. Would it really be that significant of a stretch to imagine scenarios in which regional conflicts between under-developed nations morph into something with global implications?

The same way, we can discuss scenarios that revolve around how difficult it might prove to be to eradicate diseases, how deadly viruses (an obvious example in light of recent events) can end up spreading dangerously (not even the wealthier West can wrap itself in an impenetrable bubble… on the contrary) and the list could go on and on.

Three words: pick your poison.

The ChinaFund.com team would never adopt the cheerleader-like approach of stating that globalization is perfect. We know all too well that there are in some cases major drawbacks involved, many of which have actually been covered extensively on our website. However, we firmly believe that it represents the lesser of all known evils, a system which even with the collateral damage that is undeniably involved (should a blue collar US worker who just lost his job and is barely keeping up with his debt be reading this, it would be difficult to demand empathy on his part and, again, we understand this) is better than the alternatives.

Is China’s economic growth hurting other countries?

Perhaps temporarily but in the long run, we are of the opinion that a rising tide lifts all boats and that society as a whole will ultimately be rewarded for the short-term pain it takes on so as to enable less developed nations to at least attempt to catch up.