Why America’s Economy Will Recover Before China’sThe U.S. is slowly opening back up for business. But we’re far from coming out of this tunnel. About 20 million Americans remain unemployed compared to just six months ago.
Despite this sobering number, we can take heart in a silver lining: The U.S. will recover, and it’ll recover before China, the place of origin for the new coronavirus that causes COVID-19.
Recovery can mean a lot of things. Generally speaking, let’s assume it’s a return to pre-COVID-19 levels of gross domestic product and regaining at least 80% of economic activity lost during the first half of 2020.
One of the reasons why the U.S. will recover before China is simply because of our consumer culture.
It’s something that’s often disregarded by critics of capitalism. But it’s now a culture that Chinese officials wish their citizens could emulate.
Chinese Premier Li Keqiang says to increase consumption, albeit with an emphasis on domestically produced goods.
Last year, Americans spent $14.5 trillion in personal consumption or roughly 70% of all economic activity (as measured by GDP). That’s money spent on retail, dining out, and services.
Consumption in China has increased steadily over the past 20 years but still falls short of matching the U.S. Last year, roughly 58% of all Chinese economic activity, or GDP, was consumption.
Simply put, Americans tend to have more disposable income, and it shows in our trade deficit too.
Because stores have been closed, retail sales in both countries have waned since the beginning of the year. The sale of goods in China is down 16% so far this year (through April), while the U.S. experienced a dip in the sale of goods only in April (18%).
Chinese officials tried issuing retail vouchers to offset the double-digit decline, but that money mostly is being spent on food, which has become increasingly expensive in China.
Food prices in China have jumped because of higher demand and the lagging effect of last year’s Africa swine flu, which killed a quarter of China’s pig population. The price of pork has almost doubled, increasing the price of substitutes such as beef and lamb as well.
That’s not the case in America, where the cost of food hardly has risen because of excess supply.
A big miss for China was the canceling of its Lunar New Year celebrations. The weeklong holiday historically makes up roughly 3% of annual consumption. Last year, the holiday generated over 1.5 trillion yuan (roughly $217 billion) in retail and foodservice sales, movie tickets, and tourism.
The next big consumption holiday for China won’t be until Nov. 11, and by that time the U.S. will be gearing up for its own holiday spending.
Both economies have shown small signs of what recoveries could look like. But after experiencing historic drops in our respective GDPs this year (U.S. -5%, China -6.8%), we’re still worlds apart.
And although the U.S. unemployment rate is 13%, U.S. companies hired 2.5 million employees between April and May.
China has an urban unemployment rate of around 6%, but 75 million people who migrate between provinces for work are unaccounted for. One estimate suggests that China’s real unemployment rate is closer to 20%, or 70 million.
China’s economic outlook for 2020 looks bad enough that the National People’s Congress just dropped its annual target for gross domestic product. This may be a good thing, however, given that Chinese officials previously have lied about economic growth to meet this arbitrary target.
Americans’ propensity to spend is what will help bring us out of this recent slowdown, unlike in China. Of course, Americans should remain vigilant about their safety and the safety of others to avoid the second wave of infection and economic hardship.
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Senate’s National Defense Authorization Act Has Right Focus
The Senate Armed Services Committee last week passed its version of the National Defense Authorization Act for the fiscal year 2021. The bill passed by a wide bipartisan margin of 25-2.
From the summary we have, it appears the bill focuses, appropriately, on great power competition. The most recent National Defense Strategy outlines the need for the U.S. military to refocus on great power competition, and implementing its guidelines will do a great deal to strengthen U.S. security.
It will also continue the process of rebuilding our military as documented by the Index of U.S. Military Strength.
The National Defense Authorization Act adds up to $740.5 billion of discretionary dollars, aligned with the budget caps for the last year of the Budget Control Act.
This is short of the 3% to 5% increase above inflation that Secretary of Defense Mark Esper stated was necessary in order to implement the National Defense Strategy, but given it’s an election year, it was unlikely that Congress was going to renegotiate new levels of discretionary spending.
However, the Pentagon and Congress can and should make the best out of those resources, and move forward with the implementation of the National Defense Strategy.
In a very positive development, the Senate bill creates a Pacific Deterrence Initiative that is largely aligned with The Heritage Foundation’s recent recommendation to boost military deterrence in the Indo-Pacific region.
The initiative will achieve two different goals: emphasize the factors that will allow the U.S. military to better operate in the region, and create a better way to assess the Department of Defense’s resources in the region.
The initiative is intended to focus on increasing the force posture in the Indo-Pacific in order to improve training facilities, radars, and long-range precision firing abilities.
It will also expand understanding of how much funding is dedicated to the Indo-Pacific—which currently is sorely lacking among the U.S. defense community. Right now, if you ask three defense analysts how much is being spent in the region, you will probably get five different answers.
The Senate’s proposal will establish a common baseline to start understanding and evaluating our effort in the region.
Along these lines, the bill also asks the Pentagon to widen the use of data visualization tools, so that Congress can start to have mission-specific budgetary data for the entire Department of Defense.
The Senate’s National Defense Authorization Act fully funds the European Deterrence Initiative, which partially served as a model for the Pacific Deterrence Initiative.
The European Deterrence Initiative signals the importance Congress places on working together with allies. This is particularly important as discussions emerge about removing American troops from Europe.
Maintaining troops in Europe isn’t solely about protecting NATO countries, their presence serves American national interests and transatlantic relations.
The bill increases the number of F-35s fighter jets to be procured by the military from 79 to 95. The F-35 is the most dominant fighter in the world, and increasing the procurement amount is the right move that will help get the Air Force closer to the number of aircraft it needs to be ready for great power competition.
The bill also requires the Air Force to have 386 operational squadrons, which war games have suggested is the right number.
The defense bill also expresses the importance of growing the Navy to 355 ships and increases the resources dedicated to building ships. This reflects the Senate’s commitment to the important goal of increasing naval capacity.
Unfortunately, the legislation prohibits an additional round of base closures in 2021, which is a missed opportunity to save resources and improve the defense infrastructure in the country.
One of the elements that the Senate Armed Services Committee gets right is the time horizon.
Preparing the country for great power competition is not a one-year endeavor.
“Achieving the aims of the National Defense Strategy is a long game, and the committee takes a long view,” states the committee. “The National Defense Authorization Act [for the fiscal year 2021] sets us up for success in the long term, putting our nation on an irreversible, confident, and steady course to achieve a peaceful, free, and prosperous world—not only for us, but for our children and grandchildren.”
Even amidst protest and a pandemic, the Senate Armed Services Committee was able to deliver a National Defense Authorization Act that helps improve the nation’s national defense and focus our military in great power competition.
There is still a long road before the National Defense Authorization Act becomes law, but so far the bill looks promising.
The committee was able to come together in a bipartisan fashion to provide the resources needed to defend the nation in a hyper-partisan environment amid a pandemic and protests across the nation. It is a testament to how Congress can and should work.
Source:
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