The Middle Kingdom has gone from being heavily dependent on the United States to being the master of the game.
Technology transfers from the US have long fueled Chinese factories. Now, Chinese products set the standards, and China is the assembly site for many manufactured goods. Depending on the definition, China now produces 30 to 35 percent of global manufacturing output, compared to less than 15 percent for the US or the European Union.
Four asymmetries
1️⃣ The United States has become dependent on China‘s manufacturing and assembly capacity. The White House’s rollback of tariffs to 145% stems from this. Computers, cell phones, batteries, and other technology products were becoming too expensive for US companies.
2️⃣ The structure of manufacturing production.
In all industrialized countries, from the United States to Japan, including France and Germany, the automobile sector has been the structuring element of the industry.
But today, China has a production capacity of 60 million vehicles (40 thermal, 20 electric) for a global market of 90 million. At the same time, American manufacturers pay 50% customs duties on steel and aluminum. This is the second asymmetry. The structural dynamics of the industry with innovative tools is in China, not in the US.
3️⃣Technology
David Autor of MIT and his co-authors noted in a NY Times article on July 14 that research and innovation capacity for critical technologies had shifted from the United States, just a decade ago, to China. The resources implemented by Beijing are now being relayed to the capacity of companies to innovate and produce. This is the third asymmetry that facilitates the response to the demands of companies, consumers and investors.
4️⃣ Southern states are now tending to align with China rather than the United States. Africa is a good example. Funding is Chinese, as is investment in infrastructure. Furthermore, African countries pay 0% tariffs to China, but sometimes up to 30% to the United States.
Furthermore, the United States’ general attitude reduces its soft power, its ability to seduce through its way of life. This asset had long been a major factor in conquering the world. It is less so. China’s success over the past 20 years has made southern countries dream more.
The dynamics of the global economic cycle will change. The United States will remain powerful, but the momentum that was already eluding it will strengthen in China and become even more elusive.
The role of international currency will then inevitably arise, this public good embodied by the dollar since 1944. The question of the role of the Federal Reserve will also be raised.
Continued tomorrow, September 4th