China's President Xi Jinping is shown around the offices of Huawei Technologies by Huawei's Ren ... [+] Zhengfei in London on October 21, 2015.
What if the U.S. had the economic equivalent of a Sputnik moment and the White House failed to notice?
This, unfortunately, is now more a rhetorical question than an active one.
Admittedly, its become a clich to compare this or that shock to how the Soviet Unions 1957 satellite launch rocked America. But economist Richard Duncan has a point that Beijings aggressive investments in 5G and other technologies, with President Donald Trump focused on bringing back coal, is its own national emergency.
There is no mystery as to why China will soon overtake the U.S. as the worlds leading technological, economic and military superpower if current trends continue, says Duncan, author of The New Depression: The Breakdown Of The Paper Money Economy. Ultimately, he says, theres only one way for the U.S. to retain its global preeminence: it must invest more than China.
How much? Duncan reckons about $8 trillion over 10 years. Top investment targets are artificial intelligence, biotech, genetic engineering, green energy, nanotechnology, neural sciences, quantum computing and robotics.
This, of course, is an unthinkable amount of money. But since January 2017, President Trump has made it easy for China to Sputnik the globes biggest economy.
The popular narrative is that Trump, by taking on Beijing like no other U.S. leader before, is leveling the playing field and scoring wins for American workers. That mightve been true in 1985, when blunt instruments like tariffs turned economic tides. In 2020, an old-school trade war only works if youre simultaneously building economic muscle. For all his wannabe strongman theatrics, Trumps complacency is weakening Americas endurance while China raises its game.
China has daunting challenges. Not least of them is slowing growth, runaway debt and a geopolitical confrontation of choice over Hong Kong. Yet Beijing is multitasking in ways Washington isnt. Xi is propping up this years growth, while also investing in this decades strategy to become No. 1.
Trumps 1985 mindset seems to be missing this phenomenon. Nowadays, President Xi Jinpings government barely mentions the Made in China 2025 that irked Trumpworld so much.
Xi is clearly happy to let Trump surrogates Peter Navarro and Larry Kudlow think tariffs scared Beijing into shelving plans to dominate tech over the next five to 10 years. Hardly. The endeavor is now referred to as new infrastructure.
Yet theres zero new or innovative about how Trumps team is approaching economic retooling. And in that sense, Xis team may actually welcome another Trump term. It wouldnt be fun in the short run, but it would enable Xi to position China as a stabler, more cooperative power than Trumps America.
In the 80s, tax cuts may have catalyzed investments in research and development and audacious risk-taking. In the Trump era, theyre little more than fuel for dividends and share buybacks that do little to hone American ingenuity and competitiveness.
U.S. President Donald Trump is flanked by administration officials while speaking about U.S. ... [+] relations with China in the Rose Garden at the White House May 29, 2020 in Washington, D.C.
To be sure, coronavirus fallout takes precedence over building a more dynamic and productive economy. Yet the biggest plan to do that isnt coming from Trumps Republicans but the Democrats. Case in point: Senate Minority Leader Charles Schumers plan, unveiled in November, to fund $100 billion of investment in AI and other cutting-edge sectors.
At the moment, the U.S. has been earmarking such non-defense-related financing at about $1 billion annually. If you want to know why Xis government is so confident about Chinas trajectory, this lack of scale is as good a place as any to start. Even if Trumps Republicans were getting behind Schumers proposal (theyre not), its not enough.
If the U.S. invested an additional $100 billion in R&D over five years$20 billion a year starting in 2021China would still retain its lead in R&D investment, Duncan says. The U.S. will have to invest much more than $100 billion in R&D if it is going to maintain its lead over China.Fortunately, it can easily afford to do so.
This, too, might seem a stretch given the trillions of dollars Washington is already spending on Covid-19 rescue packages. But U.S. borrowing costs may never be this low again, as Nobel laureate Paul Krugman has been arguing.
The Trump-era Republican Party, though, is keener on wrestling jobs and wealth from China than generating new innovative energy. This strategy explains why Trumps presidency is actually making China great again.
No, Xis government isnt enjoying taxes on $500 billion-plus of goods China sends to the U.S. Trump targeting the Huaweis of the world, blacklisting dozens of other mainland companies and making it harder to list on New York exchanges. Beijing isnt happy to be among Trumps favorite Twitter bugbears or to be blamed for his dreadful handling of the coronavirus.
But Trumps approach to Covid-19 mirrors his policies toward China. In both cases, Trump has treated the symptoms, not the underlying problems. In both, hes favored spin, deception and projection over genuine solutions. In both, things are sure to end badly for Americas economic standing five years from now.
The U.S., notes Dan Wang of Gavekal Research, is broadening efforts to constrain Chinese tech firms, using sanctions that impact suppliers to Chinas government, the military and other sectors. What, however, is Trumps White House doing to rekindle American innovation? Its akin to trying to win a race by flattening your opponents tires. You may triumph today, but the other car will still be faster tomorrow.
Given the stakes, Duncans $800 billion per year until 2031 is less a choice than a necessary expenditure to keep up with China. Dont think of this $8 trillion as a bill to pay. Think of it as the only thing standing between the U.S. and No. 2 status.
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China Is $8 Trillion Away From Eclipsing Trumps Economy - Forbes