Forecast: Is the fall of the US "empire" imminent?

The Water Cooler
#1

Hello Pynksters :wave: :mage:t3:

With my degree now done and dusted, I’ve had some time to reflect and research some of the many curious things in the world and settled on this topic for you, the inquisitive minds of Pynk.

In his study of the rises and declines of past leading world empires, Ray Dalio, the prominent macro investor, asserts that the fall of the US “empire” :muscle:t3: is imminent while China :mechanical_arm: shoots up through the ranks to become the new world leader as the eye-catchy graph below suggests.

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According to Dalio, the factors that decide the rise and fall of empires include education, trade, innovation and technology, competitiveness, military, output as well as whether the “empire” is a financial centre and whether it holds a dominant position on the global financial market.

Do you think that the rise of the Chinese “empire” is irreversible? What is (are) the key factor(s) that define(s) the rise of China? How can the Western World compete? :nerd_face:

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#2

Hi @RazvanPaun!! China is always been very strategic in its way of doing things.

They really are Masters of deception since ancient times. It is no suprising if “THE ART OF WAR” is a Chinese culture byproduct.

I was discussing this with some friend right before the COVID. Chinese without using a single bullet or very few in respect of the US ARMY could have potentially already covered the entire planet. In the past decades, chinese people massively went to live in every corner of the world (https://en.wikipedia.org/wiki/Overseas_Chinese?wprov=sfla1) opening their businesses, opening a bit their culture in those places but at the same time protecting their own businesses.

They are very smart people indeed plus they have another huuuuuge intel advantage. Many of them can read our written language but many non chinese people CAN NOT read theirs.

So yes…this are just few of the factors that to me can only indicate that their long term project to take over the Western Empire is becoming a reality. Just my opinion about the subject.

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#3

@RazvanPaun
China has the biggest empire for fastest growth in economy due to lower rates to pay to labours so that many products are manufactured with least amount of invest resulting the better competetor in production works.
Thats why china always growing towards peak point…

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#4

That’s an interesting perspective @Tradelta. I agree with you that foreign assets held by Chinese people abroad and remittances can prop up economic growth to some extent. An increase in the purchasing power of people, encourages spending, which leads to investments given an economically and politically stable economy.

How do you see the difference between migrating Chinese people vs migrating Italian people which results in a brain drain for the country? (some inquisitive thoughts for everyone) :mage:t3:

@dilmah21 indeed, the presence of cheap labour costs in China over the past decades and expansive trade policies gave China a competitive advantage as a global manufacturing powerhouse. Over the past decade, the costs of manufacturing in China have been increasing as a result of wealth generation and the abolition of poverty. Meanwhile, countries such as India, Vietnam, Thailand and Indonesia, among others, have emerged as cheap manufacturers.

Would you see a shift in paradigm over the coming years? What could the effect be for China and the global economy? (some inquisitive thoughts for everyone) :mage:t3:

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#5

I guess we have two complete different approaches. Italians have western culture. We adapt and merge very easily. Our identity almost get lost in the long period. Chinese people have eastern culture, they wont merge so easily. Their identity is much more resilient to the environment they migrate in.
We are innovators. They are very good at taking innovations and many times they are also very good in perfecting it.

Yes for sure!!

OOoooohh…i can’t really imagine. In many things, like in technology to begin with, we could go ahead light years. In many others , like personal rights by adopting that model, we could go back light years. I mean…it’s common knowledge that China is not the most democratic country in the world. :joy::joy:

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#6

Hey Razvan, great article. I’ve always thought that the USA was heading south in the standing of the world. When I was a child I loved pretty much everything American on TV. I realise now having Hollywood is an amazing cultural tool where everything is compared to the US. I even thought their cars were awesome (how naive I was). But when you are the chief storyteller in the world you get to set what’s normal/abnormal/aspirational/etc…
But if their financial & political model collapses, by collapsing I mean by people losing faith, then the pillars of US society will be wobbling.
Trump has divided what we call the Western World. The division in the western world is not going to help challenge China on the same terms. For me the west has to work smart and play to its strengths. It’s clear the West will never be as homogeneous as China so it should not try to fight on its terms. This is a huge generalisation of course but who knows some revolutionary tech could come from know where and change the ball game for everyone.
My ex-girlfriend is Chinese she always championed their political model at least championed it in a dispassionate way that it is a superior model and that is generally ruled by the smartest people. I baulked at this in 2007, maybe not so much now. I think they learned a lot from being screwed over by the Brits. They tend to take a far longer time view than most.
Whereas in democracy, as we see right now, it’s not smart that brings power. Certainly not in an intellectual and long range view.

There’s another point my ex brought up and that is dominant genes. Children of mixed race parents where one is Chinese tend to look Chinese. I don’t know if this is true scientifically, but it does ring true empirically.

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#7

@RazvanPaun I don’t know if imminent in the sense of it happening in a year or two, but I think the decline of US hegemony has been an ongoing trend since at least the Bush/Cheney years. In the same time frame, we have seen the rise of China as a very pragmatic and kind of cold-blooded and calculating global power. As @Tradelta mentioned already, they have been very methodic about their approach to economic develoment and in extending its reach in world affairs and soft-power influence in all continents. They seem to be just biding their time.

With Trump, the trend seems to have been accelerating, and with Covid-19 may be reaching a tipping point already. I suppose it depends on whether there will be another four years under Trump, which I think would result in the obliteration of the US as we have known it over the past century. The US has already been losing a lot of influence and economic power under him, and if the Republican party keeps a hold on power, with its current mindset and incredible hubris, China will emerge by the late '20s as the preeminent global power. I mean, right now you can compare and contrast the efficiency of the Chinese system vs. the US system in tackling the virus.

If a more realistic leadership can access power in the US, possibly a kind of Cold-war balance between the US and China might be in line for the next couple of decades. Hopefully, there is no war like in previous shifts of power from one hegemon to the next.

And in relation to Europe, neither the EU, nor Russia have sufficient economic or military power to meaningfully influence this dynamic.

Either way, I think there is no stopping China. :man_shrugging:

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#8

Here are some more thoughts building upon the subject:

The article argues along the lines of Dalio using the graph below as a suggestive piece of evidence. China gains a dominant share in terms of the market capitalisation of behemoth financial institutions - the banks. The resilience of the Chinese banking system is mesmerising, especially when stacked against the big boyz.

At the same time, the Chinese state is widely seen as paternalistic and opaque. Given that most activities of Chinese banks are focused on the home market, can there be certainty regarding the health of their balance sheets? Bank balance sheets get complicated quite fast and pointing out inconsistencies can be impossible where transparency lacks completely.

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Nonetheless, the Economist fall in line with your point @mosigman that the handling of COVID-19 takes the global hegemony of the US economy to a tipping point. Rising tariffs and supply chain disruption gives an incentive to regional powers to concentrate supply chains and assert power by shaping regional rules.

It also comes down to signs of leadership and stewardship in times of economic/public health upheaval. The US did a terrible job preparing for the crisis and its subsequent response, let alone contribute to the good-handling of the crisis by other nations. China proves to be agile in its response and serves as an example.

Long live America First? Think not.

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#9

Hi @RazvanPaun!

Why Nations Fail and more recently The Narrow Corridor are must reads for thinking about the future prosperity of the world and in particular such countries as the USA and China. Both are described there.

Basically, the presented theory in the books, to which I fully subscribe, is that the countries with best institutions and especially those that foster innovation and “creative destruction” win in the long term.

The USA with its democracy and all the protections for the various freedoms is set to outperform the communist and more importantly Confusian (need for obedience and conformity) China. Even though at present the seemingly more orderly and effective, including in some areas of technological progress China looks more attractive than the more chaotic Trump led America.

So, as Warren Buffet said: “Nobody won the bet against America”. Although, I’m not a great fan, personally, I’m not planning to bet China beating the US.

Skruszony Bankster

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#10

Welcome to Pynk @skruszonybankster!

You got that right! Trump is at odds with China and it could hurt all of us here in the US. Why can’t he just work with them? ( The best of both worlds)
Anyway, glad to have you here. Check out some of the many interesting topics and add your thoughts. Head over to the introduction page and tell us a bit about you too.

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#11

Hi @SkruszonyBankster and welcome to Pynk! :unicorn:

Thank you! Book recommendations make me happy. (adding them to my to-read list):man_cartwheeling:t3:

I find that your input is valuable. I side with you when asserting that hegemony status relies on well-functioning institutions that foster innovation and creative destruction. Focusing on the latter, I think that the embodiment of creative destruction is not solely dependent on the ability of a nation to create the appropriate environment (from regulatory or financial pov), but also to provide the means for it to scale.

Going down this rabbit hole, I think the issue of scalability comes down to three factors: access to education, economic stability and an investment perspective embracing long-term horizons and a healthy amount of risk appetite.

In economic theory, creative destruction is described as an evolutionary process that rewards innovation and punishes less efficient ways of allocating resources. Truth be told, this as such is great because it leads to an overall higher standard of living. The question is whether the (prospective) workforce has the necessary skill set to support innovation at the desired pace.

For example, if fields are disrupted, people are laid off. If this group of people is not retrained, their chance of working in the field they were trained in drops. Furthermore, if the pool of newly ‘minted’ graduates misses the skill set that emerging industries desire, the accelerated pace of growth would be proportionally lower.

To put it into perspective, the costs of higher education in America are prohibitive in most cases. Not enough efforts are being made to democratise access to high-quality education both in terms of affordability and the number of students universities can educate at any one time. I think that enabling creative destruction comes down to the availability of highly educated people. For instance, China sees about double the number of graduates that the US registers annually. Similarly, about half of Chinese graduates (4.7 million) are STEM graduates, whilst the US lags behind at about 570,000 each year.

Going a bit off-topic, I see many UK funds seizing opportunities in the Asia Pacific region. Be it as a result of the regional pace of growth, young population or lack of legacy infrastructure, I believe that global power in the region is set for exponential growth for decades to come. This ultimately leads to consistent value creation for China and the region in a world where complicated supply chains become undesirable.

(Pynk ought to seize investment opportunities in the region. :mage:t3:)

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#12

The fall of the GOP is imminent. Americas system of government has shown in weaknessness and now, once Trump and McConnell are out, we can reconstruct and fortify the institutions and norms that at one point made America a beacon of liberty and a better influence on world diplomacy. But, the GOP and the Trump administration have done a lot of damage that will take decades to repair… assuming we dont devolve into civil, racial or class warfare.

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#13

Yes @tgibbsz32, we are in very troubled times right now. Some things are changing despite Trump . Let’s all hope the damage can be reversed.

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#14

Sorry tgibbsz32, but I am not optimistic about turnaround in America’s system of government.
You may choose Democrats in the next voting round, but all you will get is more of the same. For as long as there is a system of lobbying and the PAC system that allows corporations to support politicians, there will be a lot of political theatre, but the system is in homeostasis - well of remain well off, and seriously rich will get richer. The only way to get richer (unicorn companies excepted) in America, is to prevent poorer citizens from participating in growth of GDP.

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#15

“For a few to be rich, many must be poor”,

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