A World Turned Inside Out: America, China, and North Korea. Stephen Roach September 2017

Transcription

1 A World Turned Inside Out: America, China, and North Korea Stephen Roach September 2017

2 Global Rebalancing at Work % Shares of World GDP: 2016 vs 1990 (Based on purchasing power parity) Source: International Monetary Fund

3 Role Reversal Shares of World GDP % Source: International Monetary Fund

4 China-Centric Global Growth Pctg points Contributions to World GDP Growth: avg. China 1.3 Adv Econ 0.7 Source: International Monetary Fund

5 What About the United States? Make = Manufacturing America = America First Great = Global Leadership Again = Antecedents

6 Make: Manufacturing Renaissance? % NAFTA (1994) Share Headcount Peak (1953) 32.4% 16.3 mil Latest (2016) 8.5% 12.3 mil CHINA WTO (2001) Source: US Bureau of Labor Statistics

7 America First Americanism not globalism will be our credo. -- Republican Nomination Acceptance Speech, July 21, 2016 There is no global anthem. No global currency. No certificate of global citizenship. We pledge allegiance to one flag, and that flag is the American flag. From now on it is going to be: America First. -- Thank you rally, Cincinnati, December 1, 2016 We must protect our borders from the ravages of other countries making our products, stealing our companies and destroying our jobs. Protection will lead to great prosperity and strength. -- Inaugural Address, January 20, 2017

8 Great: Global Leadership and the Blame Game Bilateral Distortion of a Multilateral Problem: America s Trade Deficits with 101 Countries in 2016 Note: TOP 20 IN CAPS Albania Algeria Andorra Angola AUSTRIA (19) Bangladesh Bhutan Bolivia Bosnia-Herzegovina Botswana British Indian Ocean Terr. Bulgaria Burma Cambodia CANADA (16) Chad CHINA (1) Christmas Island Cocos Islands Columbia Comoros Congo (Brazzaville) Congo (Kinshasa) Cote d Ivoire Croatia Czech Republic Denmark Ecuador Estonia Falkland Islands Faroe Islands Fiji Finland FRANCE (12) Gabon GERMANY (3) Greece Greenland Hungary INDIA (10) INDONESIA (15) Iraq IRELAND (5) ISRAEL (17) ITALY (7) JAPAN (2) Jordan Kenya Kinbati KOREA, SOUTH (8) Source: US Department of Commerce Kuwait Laos Latvia Lesotho Libya Liechtenstein Lithuania Macedonia Madagascar Malawi MALAYSIA (9) Malta Mauritius MEXICO (4) Moldova Nauru Nepal New Zealand Nicaragua Nigeria Niue Norfolk Island Norway Pakistan Philippines Poland Portugal Romania RUSSIA (18) San Marino Serbia Slovakia Slovenia South Africa Spain Sri Lanka St. Helena St. Pierre and Miqueion SWEDEN (20) SWITZERLAND (13) Syria TAIWAN (14) THAILAND (11) Timor-Leste Tokelau Trinidad and Tobago Vatican City Venezuela VIETNAM (6) Wallis and Futuna West Bank

9 Some Macro Theory (gulp!) Theory The Achilles Heel of Trumponomics Practice: United States Saving is essential for investment and economic growth Saving-short nations import surplus saving from abroad Imported saving leads to (multilateral) trade deficits Net national saving rate: 1.8%% of national income in 2017-Q2 Current account deficit: -2.5% of GDP in 2017-Q1 America s 101 bilateral deficits in 2016 % of GDP America s Imbalances are Likely to Get Worse Net National Saving Rate Trump Lite Scenario Current Account Deficit Source: U.S. Department of Commerce (BEA); Trump Lite scenario based on federal budget projections from Moody s Analytics, The Economic Consequences of Mr. Trump s Economic Policies, June

10 Again: Antecedents of Globalism Integration Self-destruction Backlash Weakness in institutional regulations Endgame for Globalization? Globalization 1.0 (1880 to ) First unbundling: Cross-border trade Country-specific competition World War I Great Depression Trade protectionism Immigration control National institutions Capital market instability Globalization 2.0 (1990 to present) Second unbundling: Global supply chains Fragmented competition Great Crisis Populism Trade frictions Illegal immigration/ refugees Structural unemployment IMF and World Bank WTO, EU, UN, Central Banks with apologies to Harold James, The End of Globalization: Lessons from the Great Depression, Harvard University Press, 2001, and Richard Baldwin, The Great Convergence,

11 The North Korean Wildcard Population GDP (USD) Per capita GDP (USD) North Korea: 25.2 mil $28 bil $1,700 (#213/230) South Korea: 51.2 mi 1411 bil 37,900 (#46/230) DPRK total foreign trade is estimated at $9 billion (USD) in 2015, amounting to a little less than one third its GDP China accounted for between 65% and 75% of total DPRK trade in 2015; South Korea accounted for around 30% Kim Jong-un and the H-Bomb Sep 3, 2017 Post-USSR and post-sanctions, China s share of trade has increased Imports of $4.8 bil largest categories are petroleum, coal, machinery, textiles, and grain; 76% came from China Exports of $4.2 bil: largest are mineral products (50%), textiles (25%); ag (9%); metals (7%); 76% of DPRK exports went to China Source: CIA World Factbook and S. Haggard and M. Noland, Hard Target: Sanctions, Inducements and the Case of North Korea, Stanford University Press, 2017

12 China s Reluctant Leverage Fear of DPRK failure and regional instability Infusion of refugees into China Chinese Luxury Goods Exports to DPRK: Alternative measures: Lack of buffer to Western military presence on Korean peninsula Xi Jinping s political agenda Upcoming Party congress (Oct 18) OBOR and BRICs initiatives Efficacy of sanctions? Case in point: $ mil in luxury good imports from China (chart) Sanctions Source: Haggard and Noland, Hard Target, 2017 Should the US put pressure on China to solve the North Korea problem?

13 Consequences of a China Solution? % Economic Codependency Consumption Shares of GDP United States China China: The Ultimate Producer Depends on exports Depends on America s demand for those exports Dollar-linked RMB America: The Ultimate Consumer Depends on cheap goods from China Depends on surplus Chinese saving Depends on Chinese demand for $ An Unsustainable Codependency Destabilizing imbalances Rebalancing imperatives Geopolitical wildcards Source: National Bureau of Statistics (China) and U.S. Department of Commerce

14 Clear Sailing in a World Turned Inside Out? % Shares of World GDP Europe U.S. Japan China