Two megatrends have shaped American life since the 1980s: the rise of China and the weakening of American industry.
China’s economic boom sparked thousands of predictions—that the country will soon overtake us as an economic powerhouse, that the 21st century will be a Chinese century, that America is an aging, decadent nation slipping into second place.
The hollowing out of American industry fueled a sense that capitalism was betraying the middle class. America has a parasitic financial sector, but we’re not producing anymore. Manufacturing jobs were outsourced to China and Mexico and wages stagnated.
Both of these trends contributed to the sense that America was in decline — the angry, somber shadow that has cast over political life.
But it looks like these two megatrends are about to reverse.
China does not appear to be a growing, dynamic power, but a troubled, stagnant one. Growth rates are falling. The unemployment rate for 16-24 year olds in urban areas is a demoralizing 21 percent. Private investments are sluggish. A forecast by Bloomberg Economics now assumes that the size of the Chinese economy will not successfully surpass the size of the American economy – despite its significantly larger population.
The causes of the stagnation in China are diverse and profound: overinvestment in real estate, the decline in foreign investment due to the increasing threat of the state, the decline in exports, the demographic spiral of doom. Since 2016, the actual number of births in China has fallen by almost 50 percent.
But the core problems are inherent to the regime: centralized authoritarian control is incompatible with an open, innovative, and free-flowing modern economy. Industrial policy may look good for a short time, but it’s hardening. In China, there are now a large number of zombie corporations that suck up subsidies without successfully competing in the market. An open flow of information is vital for any nation; When the state suppresses information unfavorable to the regime, everything must sink into mediocrity.
As the Chinese economy slows, American industry is looking less doomed. America has seen a net addition of 530,000 manufacturing jobs since January 2017. The boom in manufacturing has been huge lately. Investments in the construction of production facilities have more than doubled since the end of 2021.
Much of this boom is taking place in the Mountain West, Upper Midwest, and parts of the Southeast. Chips, electric vehicles, renewable energy sources and batteries are manufactured in Michigan, Kentucky, Minnesota and Arizona, among others.
For example, in recent years, numerous technology companies have decided to invest in manufacturing facilities in the former Rust Belt Ohio: Intel ($20 billion), Amazon ($7.8 billion), Google ($3.7 billion) . Ohio attracted almost 14 times more new capital projects per capita than California in 2020, according to a study by the Hoover Institution.
In short, capital, construction and manufacturing flow back to many places that have suffered their effects. According to the Federal Reserve Bank of San Francisco, since 2011, wage growth “has accelerated more for high school graduates than for college graduates.”
What lessons can we learn from these two ongoing reversals? The first is that America’s brand of largely free-market capitalism shows great resilience and momentum. As I mentioned earlier, in 1990, European and American gross domestic products per capita were almost equal. Since then, America has advanced rapidly. American labor productivity increased 67 percent between 1990 and 2022, compared to 55 percent in Europe and 51 percent in Japan.
In 2012, I heard an opening address from Dr. Atul Gawande, who introduced me to the expression “rescue failure”. He reported on a study that found that the best hospitals don’t necessarily prevent bad things, but are really good at rescuing people when they have a complication to prevent failures from becoming disasters.
The American economy, particularly in the Midwest, is something like this. Many of these places have experienced economic decline, but governments and people have changed and adapted, and they are recovering.
The second lesson I take from this is that bidenomics works – and by and large it does. President Biden pledged to help America defeat authoritarian China and heal some of the economic divisions at home. Both goals are achieved.
According to the Treasury Department, more than 80 percent of investments made under the Inflation Reduction Act go to counties with college graduation rates below the national average. Almost 90 percent of the investments are made in districts with below-average weekly wages.
I know many of you think Biden is too old, but I would vote for a 100-year-old who could continue to deliver results like this.
The third lesson I take from this is that right-wing populists are hopelessly outdated. Take, for example, the writer Sohrab Ahmari, who argues that “the state must also take a far more active role in coordinating economic activity for the benefit of the community as a whole”. But China’s industrial policy highlights the classic downsides of excessive government intervention. Even the much-vaunted German model, one of the great success stories of the 20th century, is showing its age. German production output and gross domestic product have been stagnating since 2018.
American politics are dysfunctional, our social fabric is in tatters, but somehow our economy is among the strongest in the world. Our economic competitors stumble and fall; We stumble and somehow come back.
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