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What Can Replace China as a Global Economic Engine?

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China has apparently told its economists to stop talking — a P.R. tourniquet to keep the bad news from bleeding out. The country is facing deflation and possible recession, burdened by enormous debt, stalling productivity and youth unemployment above 20 percent. Outside of a small number of its wealthy cities, things look even worse. Foreign investment is collapsing, growth projections are being revised downward, and a much anticipated postpandemic recovery has failed to materialize.

The long-term forecasts are, if anything, even more grim. A few years ago, most economic commentators believed they were watching the rise of an imperial behemoth, perhaps even the arrival of a Chinese century. These days, it’s more common to hear about population decline, about how China’s per capita G.D.P. will never surpass that of the United States and indeed about the possibility that, for all China’s size and power, its economy may ultimately go the way of Japan, whose rapid growth terrified Americans before flatlining into several “lost” decades.

In the United States, where policymakers and a growing share of the public seem preoccupied with a “new Cold War,” China’s slump has been seen largely in terms of geopolitical rivalry. For some, the news has come as a relief, with lingering questions about what it means for American pocketbooks. Others are more on edge, wondering about the Chinese response and worrying about the security consequences — what it means for a restless power to wrestle with domestic discontent. “China was growing at 8 percent a year to maintain growth, now close to 2 percent a year,” President Biden said in early August, connecting the dots in his inimitable way. “That’s not good, because when bad folks have problems, they do bad things.”

But even without any intensifying conflict, the prospect of a zombie Chinese economy raises another question as well: What happens to the rest of the world if China sputters and more permanently stagnates?

This is not a trivial matter. To an extent that few Americans genuinely appreciate, global growth has been powered by the so-called Chinese miracle for almost half a century now. According to World Bank data, between 2008 and 2021 — as the world’s per capita G.D.P. grew by 30 percent and China’s by 263 percent — China accounted for more than 40 percent of all global growth. If you excluded China from the data, global G.D.P. over that period would have grown not by 51 percent but by 33 percent, and per capita growth would shrink to 12 percent from 30 percent. In other words, recovery from the Great Recession was so robust in China that alone it nearly tripled per capita growth worldwide in those years. And that wasn’t even the most impressive period. In 1992, China’s G.D.P. grew by 14.2 percent; in 2007, it reached the same peak; in the 15 years since, it has averaged barely half that.

Chinese statistics are notoriously unreliable, and averages can obscure and flatten quite a bit, but the effect of China’s rise is even more remarkable at the lower end of the income spectrum, where 800 million Chinese were lifted out of global poverty in recent decades. In fact, as David Oks and Henry Williams noted in a perceptive 2022 essay tracing a distressing slowdown in global development, the gains of the last four decades weren’t really global at all, but Chinese. By their calculations, China was responsible for roughly 45 percent of the total reduction in the global measure of “extreme poverty” since 1981, with an even greater impact in the less extreme cohorts: Nearly 60 percent of people worldwide who rose above the $5 a day mark and 70 percent who rose above the $10 a day mark were Chinese.

Of course, you can’t just cut China out of economic history and treat what remains as a natural counterfactual; this is what globalization means, that the economic arc of one country is inextricably tied up with the economic fate of many others. But globalization also means you can’t reduce China’s contribution to the global economy over those years to the matter of its own G.D.P. — because through its boom China reshaped the world’s markets, becoming a natural commercial and financial hub, infrastructure leader, universal trade partner and demand sponge, soaking up much of what Asia and the world as a whole had to offer up or make. And while some thriving countries have succeeded by replicating China’s pattern of development powered by manufacturing and urbanization, others have been growing as natural resource exporters serving the Chinese boom and surfing what is called the global commodity supercycle that it produced. In feeding that sponge, some nations have deindustrialized prematurely along the way, leaving them less well equipped to navigate the new landscape on their own. According to Ricardo Hausmann of the Harvard Kennedy School, since 1970, only 20 percent of countries have narrowed their income gap with the United States; the other 80 percent have not.

And while some forecasters have been eager to anoint India as the world’s next China, there are many problems with that simple analogy. As Tim Sahay recently detailed in Foreign Policy, India’s manufacturing sector has in fact shrunk in recent years, with agricultural labor actually growing, and private investment is a smaller share of G.D.P. than it was a decade ago; under Prime Minister Narendra Modi, the country is utterly failing to deliver basic “health before wealth” building blocks necessary for the country to move up the world’s economic ladder more rapidly.

So where does that leave the future? Quite likely not somewhere great, even if the world’s great powers manage to avoid direct conflict.

Ten years ago, when the economist Robert J. Gordon wondered about the end of growth and the former Treasury secretary Lawrence Summers invoked “secular stagnation,” they were mainly focused on the American trajectory — making sense of U.S. post-crash malaise. The country’s very strong Covid recovery has somewhat inverted those narratives, making the sluggish growth of the previous decade look less like a stubborn condition and more like a policy choice.

But at a global level, growth has been slowing now for decades. In the years from 1962 to 1973, according to the World Bank, global G.D.P. growth averaged 5.4 percent. From 1977 to 1988, it averaged 3.3 percent. From 1991 to 2000 — a decade Americans remember as boom years, though they were much boomier for the Chinese — it averaged 3 percent. In the aftermath of the Great Recession, it has grown even more slowly.

Which all suggests one possible near-term future: more of the same, since Chinese growth has been cooling for some time now. Another possibility is a sort of inverted “China shock,” in which, rather than a Chinese manufacturing boom devastating legacy industrial sectors in places like the American Midwest, a slowdown in one country simply dampens prospects everywhere — with the biggest impacts to economies in East Asia and Southeast Asia that are closely tied to China.

That future is not inevitable, in part because China is already scrambling to troubleshoot its woes; in part because China remains more of a manufacturing producer than a consumer, leaving the world as a whole a bit less vulnerable to fluctuations in Chinese demand; and in part because the United States and to a lesser degree Europe have moved past reflexive austerity policies toward something that might give them a bit more flexibility in navigating choppy waters.

But it’s also because much of the economic fate of the next few decades hangs on the speed and scale of the world’s green transition, whose shape is not yet known. That is how large the project is — potentially a new industrial revolution, rapid and global, remaking and reimagining not just energy but infrastructure and transportation and industry and agriculture.

The Chinese advantage in green technology is large, too. The country has installed nearly half of the world’s wind power capacity in recent years, and last year it installed nearly half of new solar capacity; it also is now the world’s largest exporter of electric vehicles. Even in the midst of a Chinese slowdown, the country’s green sectors could still find themselves thriving in a green new world — perhaps to the detriment of the German auto industry and America’s dreams of becoming a domestic renewable powerhouse. (This would be something more like the first China shock.)

But the big question remains an open one: If the energy transition now represents the world’s most obvious investment opportunity, can a shift away from austerity in the developed world actually take the place, and do the job, of a 40-year Chinese boom? Can those on the periphery keep up with that spending spree? Will a green transition — even a miraculous one — be enough?


 

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Canada’s unemployment rate holds steady at 6.5% in October, economy adds 15,000 jobs

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OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.

Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.

Business, building and support services saw the largest gain in employment.

Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.

Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.

Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.

Friday’s report also shed some light on the financial health of households.

According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.

That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.

People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.

That compares with just under a quarter of those living in an owned home by a household member.

Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.

That compares with about three in 10 more established immigrants and one in four of people born in Canada.

This report by The Canadian Press was first published Nov. 8, 2024.

The Canadian Press. All rights reserved.

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Health-care spending expected to outpace economy and reach $372 billion in 2024: CIHI

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The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.

The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.

CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.

This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.

While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.

Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.

The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.

This report by The Canadian Press was first published Nov. 7, 2024.

Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.

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Trump’s victory sparks concerns over ripple effect on Canadian economy

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As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.

Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.

A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.

More than 77 per cent of Canadian exports go to the U.S.

Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.

“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.

“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”

American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.

It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.

“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.

“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”

A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.

Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.

“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.

Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.

With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”

“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.

“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”

This report by The Canadian Press was first published Nov. 6, 2024.

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