The singling out of China and Russia as “revisionist powers” in the document reflects the Trump administration’s wariness of them despite Trump’s own attempts to build strong relations with Chinese President Xi Jinping and Russian President Vladimir Putin.
A senior administration official who briefed reporters said Russia and China were attempting to revise the global status quo – Russia in Europe with its military incursions into Ukraine and Georgia, and China in Asia by its aggression in the South China Sea.
The document indicates that competition with China and Russia requires Washington to rethink policies based on the assumption that engagement with rivals and including them in international institutions “would turn them into benign actors and trustworthy partners.”
The emergence of the USA as an economic Superpower in WW1 and WW2
WW1 turned the U.S. into a creditor, instead of a debtor, for the first time in its history.
By the end of 1916, America had provided two billion dollars in loans to Britain and France. Those were dollar denominated loans. The US had a GDP of $50 billion in 1916. The $2 billion to the US economy of 1916 would be like $800 billion to our economy today.
By the time of the Washington Naval Conference in November of 1921, the governments of Britain, France, and Italy owed the American taxpayer a combined $9.8 billion.
Northeastern France, the country’s most industrialized region in 1914, had been ravaged by war and German occupation. Millions of men in their prime were dead or crippled. On top of everything, the country was deeply in debt, owing billions to the United States and billions more to Britain. France had been a lender during the conflict too, but most of its credits had been extended to Russia, which repudiated all its foreign debts after the Revolution of 1917. The French solution was to exact reparations from Germany.
Britain was willing to relax its demands on France. But it owed the United States even more than France did. Unless it collected from France—and from Italy and all the other smaller combatants as well—it could not hope to pay its American debts.
Americans, meanwhile, were preoccupied with the problem of German recovery. How could Germany achieve political stability if it had to pay so much to France and Belgium? The Americans pressed the French to relent when it came to Germany, but insisted that their own claims be paid in full by both France and Britain.
Every other World War I belligerent had quit the gold standard at the beginning of the war. As part of their war finance, they accepted that their currency would depreciate against gold. The currencies of the losers depreciated much more than the winners; among the winners, the currency of Italy depreciated more than that of France, and France more than that of Britain. Yet even the mighty pound lost almost one-fourth of its value against gold. At the end of the conflict, every national government had to decide whether to return to the gold standard and, if so, at what rate.
When the U.S. opted for massive deflation, it thrust upon every country that wished to return to the gold standard (and what respectable country would not?) an agonizing dilemma. Return to gold at 1913 values, and you would have to match U.S. deflation with an even steeper deflation of your own, accepting increased unemployment along the way. Alternatively, you could re-peg your currency to gold at a diminished rate. But that amounted to an admission that your money had permanently lost value—and that your own people, who had trusted their government with loans in local money, would receive a weaker return on their bonds than American creditors who had lent in dollars.
America’s determination to restore a dollar “as good as gold” not only imposed terrible hardship on war-ravaged Europe, it also threatened to flood American markets with low-cost European imports. German steelmakers and shipyards underpriced their American competitors with weak marks.
Such a situation also prevailed after World War II, when the U.S. acquiesced in the undervaluation of the Deutsche mark and yen to aid German and Japanese recovery. But American leaders of the 1920s weren’t willing to accept this outcome. In 1921 and 1923, they raised tariffs, terminating a brief experiment with freer trade undertaken after the election of 1912. The world owed the United States billions of dollars, but the world was going to have to find another way of earning that money than selling goods to the United States.
Tooze’s story ends where our modern era starts: with the advent of a new European order—liberal, democratic, and under American protection. Yet nothing lasts forever. The foundation of this order was America’s rise to unique economic predominance a century ago. That predominance is now coming to an end as China does what the Soviet Union and Imperial Germany never could: rise toward economic parity with the United States.
World Debt Today
The U.S. debt to China is $1.2 trillion as of August 2017. That’s 30 percent of the $3.05 trillion in Treasury bills, notes, and bonds held by foreign countries. The rest of the $20 trillion national debt is owned by either the American people or by the U.S. government itself.
China holds more than the $1.1 trillion held by Japan. Both countries have reduced their holdings in the past year, but China has reduced it faster.
China held $1.3 trillion in U.S. debt in November 2013. The reason China is reducing its holdings is to allow its currency, the yuan, to rise. To do that, China has to loosen its peg to the dollar. That makes the yuan more attractive to forex traders in global markets.
Long-term, China wants the yuan to replace the U.S. dollar as the world’s global currency.
Owning U.S. Treasury notes helps China’s economy grow by keeping its currency weaker than the dollar. It keeps Chinese exports cheaper than U.S. products. China’s highest priority is creating enough jobs for its 1.4 billion people.
The United States allowed China to become one of its biggest bankers because the American people enjoy low consumer prices.
China’s position as America’s largest banker gives it some political leverage. Now and then, China threatens to sell part of its debt holdings. It knows that if it did so, U.S. interest rates would rise. That would slow U.S economic growth. China often calls for a new global currency to replace the dollar, which is used in most international transactions.
The U.S. contributed 21.2% of total global economic output in 1970. This remained consistent until the year 2000. In every year since, with one exception, America’s percentage of the world’s economic output has declined. In 2015, the U.S. contributed 16.7% of the world’s economy. By 2025, this is expected to fall to 14.9%. Equally noteworthy is the exceptional rise in China’s economy. In 1970, China was responsible for a mere 4.1% of the total. This rose to 15.6% in 2015. In 2025, China’s contribution to the global economy will be about 17.2%.
2017 YTD (Jan-Nov) China has 25.8 million car sales
2017 YTD (Jan-Nov) USA has 15.8 million car sales
China should end 2017 with over 29 million car sales and the US will be at about 17 million car sales.
The projection for 2018 US [Seasonally Adjusted Annual Rate] forecast was cut to 16.4 from 18.9mm, implying a further 7% decline from 2017 to 2018. The 2019 and 2020 forecasts are cut to 15.0mm units both years units from 19.2mm and 18.7mm respectively.