Xi Jinping could possibly agree to new measures next weekend to reduce China’s trade imbalance with the United States, giving Donald Trump a way to save face in his trade war.
But Xi will not agree to change the Chinese economic system. Why should he?
The American economic system is focused on maximizing returns for shareholders. And it achieves this goal: Friday, the S&P 500 hit a new all-time high.
But average Americans have seen no significant increase in their income for four decades, adjusted for inflation.
China’s economic system, on the other hand, is all about maximizing China. And he achieves this goal. Forty years ago, China was still backward and agrarian. Today, it is the world’s second-largest economy, home to the world’s largest auto industry and some of the most powerful tech companies in the world. Over the past four decades, hundreds of millions of Chinese have been lifted out of poverty.
The two systems are fundamentally different.
At the heart of the American system are 500 giant companies headquartered in the United States that manufacture, buy, and sell things all over the world. Half of their employees are non-Americans, located outside of the United States. One third of their shareholders are non-Americans.
These giant corporations have no particular allegiance to America. Their only allegiance and responsibility is to their shareholders.
They will do whatever it takes to keep their stock price as high as possible – including keeping wages low, fighting unions, reclassifying employees as independent contractors, outsourcing anywhere in the world where parts are the cheapest, shifting their profits anywhere in the world where taxes are lowest. , and paying ridiculous amounts of money to their CEOs.
At the heart of China’s economy, by contrast, are state-owned enterprises that borrow from state-owned banks at artificially low rates. These state-owned enterprises balance the ups and downs of the economy, spending more when private companies are reluctant to do so.
They are also engines of economic growth that make the capital-intensive investments that China needs to thrive, including investments in advanced technologies.
China’s leading planners and state-owned enterprises will do whatever is necessary to both improve the well-being of the Chinese people and become the world’s largest and most powerful economy.
Since 1978, the Chinese economy has grown at an average rate of over 9% per year. Growth has slowed recently, and US tariffs could drop it down to 6% or 7%, but it’s still faster than almost any other economy in the world, including the United States.
The American system relies on taxes, subsidies, and regulations to persuade corporations to act in the interest of the American public. But these levers have proven to be weak compared to the company’s overarching goal of maximizing returns for shareholders.
Last week, for example, Walmart, the largest employer in the United States, announced that it would lay off 570 employees despite making more than $ 2 billion from Trump and tax cuts on republican companies. Last year, the company closed dozens of Sam’s Club stores, leaving thousands of Americans out of work.
At the same time, Walmart has invested more than $ 20 billion in repurchasing shares of its own stock, which raises the salaries of Walmart executives and makes wealthy investors richer but does nothing for the economy.
It should be noted that Walmart is a global corporation, which is not averse to bribing foreign officials to get what it wants. On Thursday, he agreed to pay $ 282 million to settle federal allegations of corruption abroad, including funneling more than $ 500,000 to a middleman in Brazil known as the “witch” for his ability to extinguish building permit issues.
Across the U.S. economy, Trump’s tax cut squatted for jobs and wages, but worked well for business executives and big investors. Instead of reinvesting the savings in their companies, the International Monetary Fund reports that companies have used it to buy back stocks.
But wait. America is a democracy and China is a dictatorship, isn’t it?
It’s true, but most Americans have little or no influence over public policy – which is why Trump’s tax cut has done them so little.
This is the conclusion of Professors Martin Gilens of Princeton and Benjamin Page of Northwestern, who analyzed 1,799 political issues before Congress and found that “the preferences of the average American appear to have only a tiny, close impact. zero, statistically insignificant on the public. Politics”.
Instead, U.S. lawmakers are responding to demands from wealthy individuals (typically corporate executives and Wall Street tycoons) and big business, those with the most lobbying prowess and the wealthiest pockets to fund. countrisides.
Don’t blame American companies. They are in business to make a profit and maximize their share price, not to serve America.
But because of their dominance in American politics and their commitment to share prices instead of the welfare of Americans, it is folly to rely on them to create good American jobs or improve American competitiveness.
I am not suggesting that we imitate the Chinese economic system. I suggest that we are not sufficient for the American economic system.
Instead of trying to change China, we should reduce the dominance of big American corporations over American politics.
China isn’t the reason half of America hasn’t seen an increase in four decades. The simple fact is, Americans cannot thrive in a system run largely by large American corporations, organized to raise their stock prices but not to stimulate Americans.