The trade war with China began with the President trying to reduce the US trade deficit with them, in order for the US to be less of a “loser”. The trade battle has now morphed into a fight for future global dominance it seems. Well, by the deficit metric, the war has only now had some success, but at the risk of pushing the US and the world into a recession. The deficit with China in 2017 was $375.58 billion. In 2018, it increased to $419.53 billion. So far the first half of 2019 we are up to $167.04 billion.
If one measures the two countries in terms of purchasing power, China has already passed the United States. If we look at just pure GDP then by the end of 2020 China will be at $15.46 trillion while the US will be $22.289 trillion. So if we look at GDP per capita, then China in 2018 was only 15% of US levels. Their GDP per capita is ranked 72nd in the world, similar to Turkey. The US is ranked # 8. If China were to obtain the same ranking of Spain for example, they then would be twice as large as the US in overall GDP. (Three times the size in purchasing power) Given their population compared to ours is the same as ours is compared to Germany, eventually they will pass us if they keep growing at a faster rate.
But what does the US have in favor over China? 1) A law-governed democracy, 2) A free-market economy, 3) economically powerful allies. While China since the advent of President XI has now veered to increased party discipline, and increased the role of the state in economic life. This could be compared to Russia during Leonid Brezhnev’s rule in Russia from 1964-1982, which basically turned to strict communism and held the country back economically for that time period. But then again, what have we been doing with the three advantages we have over a state controlled economy? Kind of makes it harder to compete. Instead we spend several years trying to rewrite the rules of the relationship, while at the same time undercutting the only trade referee (WTO) that attempts to resolve disputes. (Just in the last month they have come down with 3 resolutions valued at $18 billion)