China is wrong to think that the United States faces inevitable decline

The Chinese elite are convinced that the United States is in irreversible decline. That’s according to Jude Blanchette of the Center for Strategic and International Studies, a respected Washington-based think tank. What has happened in the United States in recent years, particularly in politics, supports this perspective. A stable liberal democracy would not elect Donald Trump – a man devoid of all the necessary qualities and abilities – to national leadership. Nonetheless, the notion of decline in the United States is overstated. The United States retains great strengths, especially in the economy.

For a century and a half, the United States has been the most innovative economy in the world. This was the basis of its global power and influence. So what does its power of innovation look like today? The answer is: pretty good, despite competition from China.

The stock markets are imperfect. But the value investors place on companies is at least a relatively unbiased assessment of their prospects. As of the end of last week, 7 of the 10 most valuable companies in the world and 14 of the top 20 were headquartered in the United States.

Without Saudi oil, the five most valuable companies in the world would be America’s tech giants: Apple, Microsoft, Amazon, Alphabet and Facebook. China has two valuable tech companies: Tencent (seventh) and Alibaba (ninth). But these are the only Chinese companies among the top 20. The most valuable European company is LVMH, 17th. Yet LVMH is just a collection of established luxury brands. This should worry Europeans.

When you look only at technology companies, the United States has 12 of the top 20; China (with Hong Kong but excluding Taiwan) has three; and there are two Dutch companies, one of which, ASML, is the largest manufacturer of machines that make integrated circuits. Taiwan has the Taiwan Semiconductor Manufacturing Company, the world’s largest contract manufacturer of computer chips, and South Korea has Samsung Electronics.

Lollipop chart showing the market value of the 20 most valuable technology companies in the world as of April 23, 2021

The life sciences are another crucial sector for future prosperity. Here there are seven European companies (with Switzerland and UK included) in the top 20. But the US has 7 out of 10 and 11 out of 20. There is also an Australian company and a Japanese company. , but no Chinese companies. .

In summary, US companies are dominant globally, and almost all of the larger non-US companies are headquartered in allied countries.

This stock market-based approach obviously excludes state-owned Chinese companies, as well as unlisted Huawei, a world leader in telecommunications equipment. China claims leadership in other areas, including high-speed rail. But the origin of this technology was elsewhere. Rather, China’s success in rail and several other areas lies in building high-speed, large-scale infrastructure.

Lollipop chart showing the market value of the 20 most valuable pharmaceutical / life sciences companies in the world as of April 23, 2021

One could argue that dominant US companies are no longer young. In addition, the American tech giants have bought out many companies created elsewhere. Yet it is certainly one of their strengths.

In addition, the United States continues to lead in venture capital. According to Dealroom, venture capital investments totaled $ 487 billion between 2018 and the first quarter of 2021 in the United States, compared to $ 379 billion for all of China, United Kingdom, India, from Germany, France, Canada, Israel and Singapore. Even as a proportion of GDP, US investment has come only behind Israel and Singapore. In international patent filings, China was first in 2019, with 59,045 compared to 57,705 for the United States. But the rest of the top 10 countries were allies of the United States. Combined in the United States, their patent filings amounted to nearly 175,000.

bar chart showing US has largest venture capital industry showing total venture capital investment from 2018 to Q1 2021

Universities are also important. In a well-known ranking, 5 of the top 10 and 10 of the top 20 universities are American and only one is Chinese. Moreover, as Richard McGregor argues in his excellent book Xi Jinping: the backlash, centralized control in China is increasingly strict. Such control never promotes lasting originality.

Overall, the picture of the United States is hardly one of a collapse in economic irrelevance, especially when combined with its allies. Even though China will soon have the world’s largest economy by all measures, it still won’t be the most productive or innovative. Moreover, the United States and its allies should stay ahead for a long time, even if Xi’s reign does not in fact ossify the Chinese economy.

Bar chart showing the US venture capital industry is still large relative to GDP by showing venture capital investment as% of GDP from 2018 to Q1 2021

The greatest threat to the United States’ role in the world lies in itself, not in China. If he elects leaders who despise democracy, ethnic diversity, global alliances, science and reason, he will surely decline. The Republicans’ failure to repudiate the former president makes this more likely. Yet it would be the self-inflicted result of a failure to create a shared vision for a better future.

The Chinese elites would then be right to say that the United States is on the road to ruin. But they may still be wrong in assuming that their own direction is better. Putting 1.4 billion intelligent humans under the control of a single party, controlled by a single man, may not be the best way.

Bar chart showing many of the largest universities in the world are American by showing the QS World University Rankings - Top 20 Overall Ratings

A great asset of the United States has been its ability to attract the best and the brightest in the world. Two men born in India now run Microsoft and Alphabet. One of the two co-founders of Google was an immigrant from the Soviet Union. The nativism currently exposed goes against this. But diversity, within a framework of shared institutions and values, could still be a huge source of vitality for America’s strength in business, culture, and politics.

The United States is unlikely to remain the dominant power in the world, simply because the Chinese population is more than four times the size. Yet, provided the United States remains democratic, free and open, it has a good chance of remaining the most influential country in the world well into the future. If instead he decides to be what his reactionaries want, he will fail. But that would be his own choice, not his fate.

martin.wolf@ft.com

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