A Significant Decline Is Coming For The U.S.

by Passer by

In response to several comments in the last open thread (slightly edited).

Actually there is even some real, and not only relative, decline for the US, for example US life expectancy is dropping. This is a pretty bad sign for a developed country. Same for the UK by the way.

On the issue of China gaining during the Covid crisis, they gained in raw power, for example gained in GDP relatively to the US. And they gained in debt levels too, relatively, as US debt levels exploded due to the crisis. Now you have V-shaped recovery in China and poor, W-shaped double dip recovery in the US. With far more debt added.

Of course there is the issue of public relations and soft power. On the one hand the US blamed China for the pandemic, but on the other hand it embarrassed itself due to its poor performance in containing the pandemic, compared to other countries. And the US lost points around the world due to rejecting WHO right in the middle of the pandemic. Europe and developing countries did not like that at all. Don't forget that Covid also weakened the US military, they have problems with it, including on ships and overseas bases, and even broke the biggest US exercise planned in Europe for the last 30 years. And the pandemic in the US is still raging, its not fixed at all and death rates are increasing again.

Here for example, the futurologists from Pardee Canter that that China gained during the crisis, in raw capabilities. Future research and relative power between countries is their specialty:

Research Associate Collin Meisel and Pardee Center Director Jonathan Moyer use IFs (International Futures) to explore the long-term impact of COVID-19 in China in this Duck Of Minerva blog post" "Where broad measures of material capabilities are concerned, the picture is clear: COVID-19 is closing the gap in relative capabilities for the U.S. and China and accelerating the U.S.-China transition. Through multiple long-term forecast scenarios using the International Futures tool, Research Associate Collin Meisel and Pardee Center Director Jonathan Moyer explain on the Duck of Minerva blog that China is likely to gain approximately one percent of global power relative to the U.S. by 2030 due to the economic and mortality impacts of COVID-19. This share of global power is similar to the relative capabilities of Turkey today.

On the issue of the USD, Stephen Roach also says that there will be a significant decline in the medium term. And the argument is pretty logical - if the US share in the global economy is declining (and it will be declining at least up to year 2060), and if the level of US debts is reaching all time high levels, then the USD will decline. I agree with that argument. It is fully logical.

On the chip/semiconductor issue. David Goldman is skeptical that the US will be able to stop China on this:

The chip ban gives the world an enormous incentive to circumvent the US

Basically Huawei still has advanced suppliers, from South Korea and Japan. And some of them are refusing to yield. The problem for the US is that China is the world's biggest semiconductor market and biggest chip importer on the world, which gives enormous initiative for private businesses to circumvent US made equipment in order to export to China. Then also China is stashing large quantities of chips. By 2025, it should be able to replace foreign production with homegrown. So these bans are lose lose situation for both the US and China - yes, this will cause come costs to China up to 2025. But it will also lead to US companies, such as Qualcomm, to lose the Chinese chip market, which is the largest in the world, and there is nothing to replace it.

These are hundreds of billions of losses for the US due to gradually losing the most lucrative market. Thus, in relative terms, China does not lose from these games, as the US will pay a large price just as China. It is lose-lose situation, but in relative terms the same. US loses just as China loses. And do not forget that China warned that a full US attack on Huawei will lead to Boeing being kicked from the country, which is becoming the biggest aviation market in the world, and will lead to hundreds of billions of losses for that company too, and will probably burry it under Airbus. China needs lots of planes up to 2028, when they will replace them with their own, worth hundreds of billions of dollars. Elevating Airbus over Boeing, which already has big troubles, will be a significant hit for the US aerospace industry.

So China has cards to play too. On the issue of the US getting some countries to ban Huawei, it is again lose - lose situation - that is both the US and some of its allies will lose due to using more expensive 5G equipment and will lose more time to build their networks. So China loses, and US and some allies lose, but in relative terms things remain the same between them power-wise, as they both lose. Do not forget that Germany said that it will continue to use Huawei equipment, and this is the biggest economy in Europe:

Germany's three major telecommunications operators Deutsche Telekom, Vodafone and Telefonica have been actively promoting 5G in recent years. They implement the "supplier diversification" strategy and use Huawei equipment in their networks among other vendors. Peter Altmaier, German minister of economy, told the Frankfurter Allgemeine Zeitung on July 11 that Germany would not exclude Huawei from the country's 5G network rollout. "There can only be an exclusion if national security is demonstrably at risk. However, we will strengthen our security measures, regardless of which country the products come from," said Altmaier. "There is no change in Germany's position," a spokesperson of the country's Interior Ministry told local broadcaster ARD on July 16.

So we can say that probably half of Europe will be using Huawei. Still, as you said, a large part of the world will exclude it. Maybe half of world's GDP. Unfortunately things are not perfect. One bright spot in that is that Huawei is betting on emerging markets, and emerging markets have higher growth rates than western markets - that is, they will matter more in the future.

I would agree that the US is harming China, but the damage is not large IMO, as these are mostly lose lose situations where relative power stays the same. And with time, there will be significant damages for the US too, such as losing the biggest chip and aviation markets and the empowerment of Boeing competitors such as Airbus.

So its not too bad in China. Thus, after mentioning all of this, I do not think that Pompeo is smelling blood and moving for the jugular, its not such a situation as China is not that vulnerable, it is more likely to be US elite anger due to the US weakening and China gains during the Covid-19 crisis.

On Hong Kong China had no options. It was a lose-lose situation. If they allowed everything to stay as it is there would be constant color revolution there and they will be constantly in the media. Maybe it is better to stop this once and for all. They hoped that the Covid crisis will give them cover to do this. It did not work very well.

Unfortunately it is right that the Trump strategy of bullying works many times. Supposedly there should be costs for the US in soft power and world opinion, but we are not seeing them. I guess most of the world is too cowardly and prefers to go with the flow. They will abandon the US only after the US lost anyway. Well, it is not an easy situation. Still, the US reactions are very strong and hateful precisely because things are still not good for it and its decline is continuing, regardless of some tactical victories, where in some cases it is a lose lose situation anyway.

The data shows a significant decline incoming for the US.

• 2019 China 1,27 times bigger in GDP/PPP
• 2030 China 1,8 times bigger in GDP/PPP

• US debt to GDP 2019 80%
• US debt to GDP 2030 125%
• US debt to GDP 2050 230 %

The Highway Trust Fund (HTF) will be depleted by 2021, the Medicare Hospital Insurance (HI) trust fund by the beginning of 2024, the Social Security Disability Insurance (SSDI) trust fund in the 2020s, the Pension Benefit Guarantee Corporation (PBGC) Multi-Employer fund at some point in the mid-2020s, and the Social Security Old-Age and Survivors Insurance (OASI) trust fund by 2031. We estimate the theoretically combined Social Security OASDI Trust fund will run out of reserves by 2031.

• Military budget (before Covid estimates, Trump budget) 2019 3,2 % of GDP - 2030 2,5 % of GDP (Could drop to 2,3 % of GDP due to Covid)
• Civilian discretionary spending (before Covid estimates) 2019 3,2 % of GDP - 2030 1.8 % of GDP (drop to all time low) (Could drop further due to Covid)

That is not to mention the big divide in US society, and the ongoing Covid crisis, which is still not fixed in the US. But is largely fixed in China. Do you see the decline now? They have a big, big reason to be worried. A significant decline is coming for the US.