5 questions every presidential candidate should answer: US and Chinese economy edition

Some people get this wrong – the US is by far the world’s largest economy. So what we do here affects our prosperity much more than what happens outside our borders. The first step for the US should always be to see to our own house.

After that, the most important country for our economy is China. China matters in trade, bond purchases and other investment in the US, and global competition. Since China is far from an ideal partner, this makes for some tough calls.

1. Has China caught up to us economically? No, and it’s not close. The average American had over $41,000 in disposable income last year while the average Chinese had less than $3,500. Prices are cheaper in most of China than most of the US but the gap has shrunk a lot. And the prices don’t make up for earning 12 times as much. At the national level, net private American wealth exceeds $80 trillion. The figure for China is unclear but it’s probably less than $25 trillion. Not only is the US much richer, it’s still much bigger.
2. Is China a good partner? China is like a talented but selfish basketball player. When they want to work together, they’re the best teammate to have. But when they don’t, they ruin the game. Most trade and investment with China benefits the US, which is why Americans choose to participate. But Americans don’t choose to participate when China steals our technology or when China favors its state-owned enterprises and blocks American products and services.
3. Doesn’t Chinese currency manipulation cost millions of American jobs? No. When China intentionally weakened its currency in 1994 – currency manipulation – the US job market improved for five straight years. When China strengthened its currency starting in 2005 – what the critics want – our job market first didn’t change, then got much worse. The reason is obvious: China doesn’t matter to our job market. It’s so unimportant that the last two times China changed currency policy, the jobs result was the opposite of what currency critics expected. The only country that can destroy or create millions of American jobs is America.
4. Should we worry about Chinese investment in the US? Yes, but not in the way most people think. China owns close to $2 trillion in US securities, which many fear gives them leverage. The solution has nothing to do with China, it’s that the US stops borrowing so much. China can’t buy our bonds if we don’t sell them.Chinese investment goes beyond bonds, to American companies and property. This investment is almost always good for American workers and property owners. One catch: we must make sure Chinese companies obey our laws, fully.
5. So is cooperation or confrontation the best way to deal with China economically? Trick question – the answer is neither. A way to see this is through the Trans-Pacific Partnership (TPP), a trade agreement the US is negotiating with 11 countries, not including China. The TPP must ban most government interference in trade and investment. If it does, China should then be invited to join, but only if it meets those standards. The US should neither ignore China’s behavior nor seek a trade conflict; we should challenge China to be a better economic partner.

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