The most pressing question from my trip to China was what strategy should the U.S. (government) pursue. China was the largest economy in the world until the late 18th century and will regain that position some time in the early 21th century. They will achieve this position without an aggressive military behavior, which appears to not only be their stated policy but a fact at this point in time. How the U.S. adjusts to this new scenario will be a key question not only for the U.S. but for the entire world. A few thoughts on this dilemma follow:
- Today the U.S. is the world's policeman and until the Bush Administration a certain morality guided foreign policy. 911 lead to an increase in foreign policing through wars in Iraq and Afghanistan and ongoing efforts to eradicate terrorism. While we need to continue to actively protect the U.S. homeland and its citizens, I think we need to withdraw from policing the world and let other countries such as China, Japan and the EU assume a greater initiative and responsibility. We need to reduce the unproductive spending on defense and channel this capital into more productive investments such as green technology.
- We need to become self-sufficient in energy. China's demand for commodities and particularly oil will strain existing supplies beyond the breaking point and force prices to unheard of new levels. To withstand the increase in commodity prices we need to develop substitute materials and alternative energy technologies as soon as possible. If Exxon does not like it they can reincorporate in Bejing.
- The U.S. needs to build up trading relationships in Latin America. These countries need to be encouraged to become the principal suppliers of consumer goods and certain foods for the U.S. This type of relationship would also slow down the increasing influence of China in Latin America. To support this program we need to aggressively offer scholarships for university education in the U.S. to thousands of students in LATAM.
- The U.S. university education system is still the best in the world. We need to exploit this comparative advantage as a business and as a matter of foreign policy. We need to return to the simpler visa system for foreign students from certain countries, such as China and Latin America, in order to build better relationships with these areas.
- We need to relax immigration policies with the idea of increasing the U.S. population by 100 million on top of organic growth. The U.S. just needs to be bigger to compete with China. We are a land of immigrants and we should not forget it.
- We need to reduce the budget deficits and Federal debt. The creditworthiness of the U.S. will decline as China continues to grow as an economic entity, as commodity prices rise and as China's influence in foreign affairs grows. Regrettably we probably need to invest less money in social services or rely more on the private sector and non-profits to solve these social problems. The government needs to invest monies in more productive investments that contribute to U.S. technology development and growth. Otherwise we will become like lethargic Europeans with a great social support system but no real economic strategy.
An interesting story on the trip illustrates another point. Samsung, the giant Korean consumer goods company, was planning to open their first plants in China as a means to lower their labor costs. The Korean government vetoed the plans and Samsung did not open plants in China. Perhaps it is time for the U.S. government to start exerting more control over U.S. businesses instead of the other way around. Minimal government was an underlying pillar of the phenomenal U.S. business success, but it may be time for a better alignment between government and private sector strategies.
Recent thoughts on China from George Soros, legendary hedge fund operator, are here.
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