I would venture to say that the answer of "China" would be few and far between had you asked people forty years ago, "What country will be the economic world leader in 2020?" However, over the past 35 years, China has achieved anomalistic economic growth, catapulting the country from an agrarian-based society to one that just recently surpassed the U.S. as the world's biggest trading nation. However, as we explored in the first article of this series, with all due respect to China's achievements, forty years of rapid economic growth does not deem them worthy of the economic throne, despite what GDP numbers suggest. Below are two of the many reasons (with more to come in the next installment) as to why the United States is still worthy of it's seat at the head of the economic dinner table.
1. Technology and Innovation:
Since the end of World War II, the United States has been the undeniable leader in technological innovation. While our edge is perhaps shrinking, as countries like Israel, Finland and Japan (as well as a few others) devote higher percentages of their economic output to math and science R&D investment, the United States still stakes claim to half of the ten largest (by revenue) tech companies in the world. By comparison, only one of the companies is Taiwanese. And while the U.S. does not hold the advantage in all technology verticals, such as green tech, it is the unquestioned leader when it comes to military technology.
Considering that the United States allocates more money to defense spending than Asia and Europe combined and six times more than China, it is no wonder that the U.S. is the leading the way in military technology. However, that lead over the rest of the world, particularly China, has been quickly diminishing due to blatant theft and hacking on the part of the Chinese. Some estimates suggest that these practices of stealing and hacking have saved China 25 years of R&D and countless billions of reminbi. Nonetheless, the fact that China finds itself in the position where it must steal the U.S. military secrets to simply keep up highlights the strengths of each nation. The United States has come to be known as a nation of innovation and technological advancement and China (and this is with no disrespect) has been extremely successful at taking a preexisting idea or design and improving upon it.
2. Energy Production:
As President Obama stated in his most recent State of the Union address, there is "more oil produced at home than we buy from the rest of the world -- the first time that's happened in nearly 20 years." Regardless of the fact that Obama's proclamation is true, due in part to lower domestic demand, there is little doubt that the United States is making great strides towards achieving energy independence. BP estimates that the U.S. will achieve such independence by 2035, thanks to increasing natural gas production (for which the U.S. is already the world leader) and continued exploration and production of oil through both traditional and new methods.
The prominent new method of hydraulic fracturing, known as "fracking", has made headlines recently for reasons both positive and negative. While environmentally conscious individuals have been up in arms about fracking, as the chemicals required continue to contaminate underground aquifers (not to mention it requires a lot of water), fracking does have its benefits, notably unlocking tremendous amounts of oil and clean-burning natural gas from areas where extraction was previously impossible. This practice is one of the reasons why the United States' energy outlook is so bright.
China, fully aware of the substantial growth being experienced in the North American energy market, has invested billions to get in on the action. China's state-owned CNOOC acquired Canadian oil and gas company Nexen, which gives China access to various drilling operations worldwide as well as Alberta's oil sands. Additionally, China invested $500 million in Cheniere Energy Partners' liquefied natural gas (LNG) exporting plant. While some pundits feel that China comes out as the big winner in the near term by securing access to cheap (non-coal) energy, there is no denying that the U.S. finds itself in an enviable position, one in which it is able to satisfy its energy demand domestically.
In the next installment of our "U.S. vs. China" series, we will detail additional reasons why China will not overtake the U.S. as the world's dominant economic power anytime soon, including China's serious credit problems, its environment, as well as its aging population. Stay tuned.
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