It’s now clear to the whole world that China is the main target of Trump’s trade wars. The U.S. has slapped massive tariffs—up to 245%—on Chinese goods. China hit back with 125% tariffs of its own and refuses even to negotiate until U.S. tariffs are lifted.

Ever since President Obama announced a U.S. “pivot to Asia” in 2011, both U.S. political parties have seen China as the main global competitor, or even as a target for U.S. military force. China is now encircled by a staggering 100,000 U.S. military personnel in Japan, South Korea and Guam (plus 73,000 in Hawaii and 415,000 on the U.S. West coast) and enough nuclear and conventional weapons to completely destroy China, and the rest of us along with it.

To put the trade war between the U.S. and China in context, we need to take a step back and look at their relative economic strength and international trading relations with other countries. There are two ways to measure a country’s economy: nominal GDP (based only on currency exchange rates) and “purchasing power parity” (PPP), which adjusts for the real cost of goods and services. PPP is now the preferred method for economists at the IMF and OECD.

Measured by PPP, China overtook the U.S. as the largest economy in the world in 2016. Today, its economy is 33% larger than America’s—$40.7 trillion compared to $30.5 trillion.

And China isn’t alone. The U.S. is just 14.7% of the world economy, while China is 19.7%. The EU makes up another 14.1%, while India, Russia, Brazil, Japan, and the rest of the world account for the other 51.5%. The world is now multipolar, whether Washington likes it or not.

So when Malaysia’s trade minister Tengku Zafrul Aziz was asked whether he’d side with China or the U.S., his answer was clear: “We can’t choose—and we won’t.” Trump would like to adopt President Bush’s “You’re either with us or with the terrorists” posture, but that makes no sense when China and the U.S. together account for only 34% of the global economy.

China saw this coming. As a result of Trump’s trade war with China during his first term in office, it turned to new markets across Asia, Africa, and Latin America through its Belt and Road Initiative. Southeast Asia is now China’s biggest export market. It no longer depends on American soybeans—it grows more of its own and buys most of the rest from Brazil, cutting the U.S. share of that market by half.

Meanwhile, many Americans cling to the idea that military power makes up for shrinking economic clout. Yes, the U.S. outspends the next ten militaries combined—but it hasn’t won a major war since 1945. From Vietnam to Iraq to Afghanistan, the U.S. has spent trillions, killed millions, and suffered humiliating defeats.

Today in Ukraine, Russia is grinding down U.S.-backed forces in a brutal war of attrition, producing more shells than the U.S. and its allies can at a fraction of our cost. The U.S.’s bloated, for-profit arms industry can’t keep up, and our trillion dollar military budget is crowding out new investments in education, healthcare and civilian infrastructure on which our economic future depends.

None of this should be a surprise. Historian Paul Kennedy saw it coming in his 1987 classic The Rise and Fall of the Great Powers. Every dominant empire, from Spain to Britain to Russia, eventually confronted relative decline as the tides of economic history moved on and it had to find a new place in a world it no longer dominated. Military overextension and overspending always accelerated the fall.

“It has been a common dilemma facing previous ‘number one’ countries that even as their relative economic strength is ebbing, the growing foreign challenges to their position have compelled them to allocate more and more of their resources into the military sector, which in turn squeezes out productive investment…,” Kennedy wrote.

He found that no society remains permanently ahead of all others, but that the loss of empire is not the end of the road for former great powers, who can often find new, prosperous positions in a world they no longer dominate. Even the total destruction suffered by Germany and Japan in the Second World War, which ended their imperial ambitions, was also a new beginning, as they turned their considerable skills and resources from weapons development to peaceful civilian production, and soon produced the best cars and consumer electronics in the world.

Paul Kennedy reminded Americans that the decline in U.S. leadership “is relative not absolute, and is therefore perfectly natural; and that the only serious threat to the real interests of the United States can come from a failure to adjust sensibly to the newer world order…”

And that is exactly how our leaders have failed us. Instead of judiciously adapting to America’s relative decline and carving out a new place for the United States in the emerging multipolar world, they doubled down—on wars, on threats, on the fantasy of endless dominance. Under the influence of the neocons, Democrats and Republicans alike have marched America into one disaster after another, in a vain effort to defy the economic tides by which all great powers rise and fall.

Since 1987, against all the historical evidence, seven U.S. presidents, Democrats and Republicans, have blindly subscribed to the simplistic notion peddled by the neocons that the United States can halt or reverse the tides of economic history by the threat and use of military force.

Trump and his team are no exception. They know the old policies have failed. They know radically different policies are needed. Yet they keep playing from the same broken record—economic coercion, threats, wars, proxy wars, and now genocide—violating international law and exhausting the goodwill of our friends and neighbors around the world.

The stakes couldn’t be higher. It took the two most deadly and destructive wars in human history to put an end to the British Empire and the age of European colonialism.

In a nuclear-armed world, another great-power war wouldn’t just be catastrophic—it would very likely be final. If the U.S. keeps trying to bully its way back to the top, we could all lose everything.

The future instead demands a peaceful transition to international cooperation in a multipolar world. This is not a question of politics, right or left, or of being pro- or anti-American. It’s about whether humanity has any future at all.

This content originally appeared on Dissident Voice and was authored by Medea Benjamin and Nicolas J.S. Davies.

Public debt reached US$18.7 billion at the end of 2022 and could rise to 125 percent of GDP soon, the World Bank said in a Dec. 13 report.

Just over half of that is owed to China, which helped Laos build the US$6 billion Lao-China High Speed Railway as part of its Belt and Road Initiative. Other major Chinese investments in roads and hydropower dams have contributed to the debt.

The Lao government is negotiating to restructure its debt to China and recently postponed a debt payment of $1.2 billion, according to the ADB official.

“That’s a lot of money. The country couldn’t keep up with the payment of both capital and interest,” the official said. “Financial management is ineffective. The country is receiving big blows and suffering from it.”

Service payments on its debt – the regular payments required by loan issuers that include interest and principal – could rise to 39 percent of GDP, the World Bank said.

Besides attracting more investment, Laos needs to boost tourism numbers and find a way to raise the production of domestic goods for export, the World Bank report said. 

“The Lao economy is facing many challenges,” said a Vientiane-based World Bank official who requested anonymity for safety reasons. 

Negotiations with Thai banks and others 

Tourism isn’t recovering from the COVID-19 pandemic and small- and medium-sized businesses are suffering, he told Radio Free Asia on Wednesday.

The government has been trying to improve tax collection, has started to crack down on corruption and has reduced spending in some areas, according to the ADB official.

The Ministry of Finance has also begun renegotiations with the World Bank, ADB and some Thai financial institutions – all of whom could be inclined to give Laos new favorable terms because of their own interest in developing Laos’ economy, the ADB official said.

Prime Minister Sonexay Siphandone told lawmakers in June that the government “is determined to control and solve the debt problem,” partly through debt restructuring.

Debt payments started to become a worrisome issue for the government in 2019, a ministry official told RFA. 

“We have a lot of debt that has been accumulating for many years,” he said. “But our government has been taking action to control it.” 

Some 8 percent of Laos’ debt is owed to ADB, 7 percent to the World Bank and 6 percent to Thai institutions, according to the World Bank.

A Laotian who lives in Vientiane said the government has failed to monitor and inspect the roads and dams that were supposed to move the country’s economy forward.

“Many projects aren’t up to standards,” he said. “For example, many newly built roads are broken a year later.”

Translated by Max Avary. Edited by Matt Reed and Malcolm Foster.

This content originally appeared on Radio Free Asia and was authored by By RFA Lao.

GDP growth in the United States is always reported as an annual rate. This means that if the economy grew 0.5 percent from the first quarter to the second quarter, it would be universally reported as 2.0 percent growth, with reporters always giving the annual rate. This is basically four times the quarterly rate. (It’s actually the first quarter’s growth rate taken to the fourth power, but this will be the same for small numbers.)

This is a simple and obvious point. It is not something that is debated among reporters or economists, it is just a standard that has become universally accepted.

Many other countries do not report their growth numbers as annual rates. They report a quarter’s growth number at a quarterly rate. That is fine, there is nothing that makes the use of an annual rate better, the point is that everyone should know that the number is being reported as a quarterly rate, if that is the case.

I have often railed at news stories that have reported another country’s growth number, without telling readers that it is a quarterly rate. That obviously gives a very distorted picture.

Fareed Zakaria committed this sin today in a Washington Post column that told people that China’s economy is stuck in a rut. Zakaria told readers:

“China’s economy is in bad shape. Economic growth last quarter came in at 0.8 percent, putting China at risk of missing the government’s target for the year.”

Since Zakaria did give a link for his growth figure it was easy to click through and see that the 0.8 percent figure was in fact a quarterly growth rate. This translates into a 3.2 percent annual rate. Zakaria is right that this growth rate is a disappointment for China, but a 3.2 percent rate is very different from a 0.8 percent rate.

I’m sure Zakaria is well aware of the distinction between a quarterly growth rate and an annual rate. I’m also sure he would not have made this sort of mistake on purpose. He could have made his point just fine using the actual number.

But it does reflect extraordinary sloppiness on Zakaria’s part, as well as the Post’s proofreading system, that this mistake was not caught before it found its way into print. I would hope that the Post would correct it, but I know that the Post’s opinion editors do not care about correcting mistakes.

This piece first appeared on Dean Baker’s Beat the Press blog.

This content originally appeared on CounterPunch.org and was authored by Dean Baker.

The post GDP and the Idolatry of Growth appeared first on CounterPunch.org.

This content originally appeared on CounterPunch.org and was authored by David S. D’Amato.

Photo by Adam Nir

The overall economy grew at just a 1.1 percent annual rate in the first quarter, as inventories were a major drag on growth. Weak inventory accumulation in the quarter (inventories actually fell slightly) subtracted 2.26 percentage points from growth in the quarter. Final demand, which excludes changes in inventories, increased at a 3.4 percent annual rate.

Consumption Grows at a 3.7 Percent Rate, Driven by Strong Car Sales

After slowing to just a 1.1 percent growth rate in the fourth quarter, consumption growth rebounded in the first quarter. The major factor was a 16.9 percent growth rate in durable goods consumption after three quarters of modest declines. This jump was in turn driven by vehicle sales, which rose at a 45.3 percent rate in the quarter.

This sort of jump will not be repeated in future quarters, and, in fact, car sales may be somewhat of a drag in the rest of the year. Non-durable goods grew at just a 0.9 percent rate, while services increased at a modest 2.3 percent rate after growing at a 1.6 percent rate in the fourth quarter. These are very normal pre-pandemic growth rates for services, suggesting we will not see a big post-pandemic surge.

Saving Rate Rises to 4.8 Percent in the First Quarter

The saving rate rose to 4.8 percent in the first quarter, up from 3.2 percent in the third quarter of 2022 and 4.0 percent in the fourth quarter. This increase is primarily because people are paying less in taxes, which raises disposable income. The 4.8 percent saving rate is lower than the pre-pandemic average, which was over 7.0 percent, but it is likely to rise in future quarters if vehicle sales fall back to more normal levels. There seems to be little basis for fears that people are consuming excessively and running down their pandemic savings.

Decline in Residential Investment Slows

Residential investment fell at double-digit rates in the last three quarters of 2022. This drop was partly driven by a collapse in mortgage refinancing, which had been booming with the low pandemic interest rates. Now that refinancing has virtually stopped, it has no further room to fall. While housing construction has fallen, the number of units under construction is still as high as when the Fed began raising rates last year. This number is due to the large backlog of unfinished houses, which in turn are due to supply chain problems. Construction will slow further as these get finished over the year, but the big declines are largely behind us.

Strong Structure Investment Keeps Non-Residential Investment Positive

Equipment investment fell at a 7.3 percent rate in the quarter. Most of the drop was due to a fall in spending on aircraft and farm equipment. Investment in farm equipment in the first quarter was down by 25.7 percent from the third quarter level.

Investment in intellectual products grew at a modest 3.8 percent, which is down from 9.7 percent and 8.8 percent rates in 2021 and 2022, respectively. This sector is seeing mixed pressures, as many traditional media and social media companies cut back after major expansions during the pandemic. On the other side, the race for AI will be forcing many companies to increase investment. If we see any declines in this component, they are unlikely to be large.

Trade is Small Positive, as Export Growth Outpaces Imports

Trade contributed 0.11 percentage points to the quarter’s growth, as a 4.8 percent rise in exports more than offset the impact of a 2.9 percent rise in imports. Goods exports actually rose at a more rapid 10.0 percent, as there was an unusual decline of 5.5 percent in service exports. After expanding rapidly during the pandemic, the trade deficit has fallen back to roughly its pre-pandemic share of GDP. It will not likely be a major factor in GDP growth going forward.

Government Spending Adds 0.81 Percentage Points to Growth in Quarter

Overall, government spending rose at a 4.7 percent annual rate, with federal spending rising at a 7.8 percent rate and state and local spending rising at a 2.9 percent rate. Non-defense federal spending grew at a 10.3 percent rate in the quarter. The strong growth in non-defense federal spending is likely somewhat of an anomaly, as this component is often erratic, especially since the pandemic. It fell by 9.2 percent in the second quarter, after dropping at a 1.1 percent rate in the first quarter.

PCE Deflator Rises at 4.2 Percent Annual Rate

The price indices came in largely as expected, with the overall personal consumption expenditure deflator rising at a 4.2 percent rate and the core index rising at 4.9 percent rate. One encouraging item is a 1.2 percent decline in import prices, the third consecutive quarter of decline. Import prices had risen 13.5 percent and 13.2 percent in the first and second quarters of last year. (These prices do not include shipping costs.) Since imports include both finished consumer goods, like clothes and cars, and also inputs to items produced here, the turnaround should be a good sign for future inflation.

Economy Still Looks Very Healthy

In the spite of the widespread concerns about a looming recession, it is difficult to see the basis for one in the first quarter GDP data.  Housing is likely to continue to edge lower over the course of 2023, but the big falls are likely behind us. There is a similar story with non-residential construction, with the surge in factory construction turning this category positive. Consumer spending is growing at a healthy pace, with little obvious reason to expect a reversal any time soon. The fallout from the banking crisis is a big uncertainty, but otherwise this is a very positive picture.

This first appeared on Dean Baker’s Beat the Press blog.  

This content originally appeared on CounterPunch.org and was authored by Dean Baker.

Consumption Grows at a 3.7 Percent Rate, Driven by Strong Car Sales

After slowing to just a 1.1 percent growth rate in the fourth quarter, consumption growth rebounded in the first quarter. The major factor was a 16.9 percent growth rate in durable goods consumption after three quarters of modest declines. This jump was in turn driven by vehicle sales, which rose at a 45.3 percent rate in the quarter.

This sort of jump will not be repeated in future quarters, and in fact, car sales may be somewhat of a drag in the rest of the year. Non-durable goods grew at just a 0.9 percent rate, while services increased at a modest 2.3 percent rate after growing at a 1.6 percent rate in the fourth quarter. These are very normal pre-pandemic growth rates for services, suggesting we will not see a big post-pandemic surge.

Saving Rate Rises to 4.8 Percent in the First Quarter

The saving rate rose to 4.8 percent in the first quarter, up from 3.2 percent in the third quarter of 2022 and 4.0 percent in the fourth quarter. This increase is primarily because people are paying less in taxes, which raises disposable income. The 4.8 percent saving rate is lower than the pre-pandemic average, which was over 7.0 percent, but it is likely to rise in future quarters if vehicle sales fall back to more normal levels. There seems to be little basis for fears that people are consuming excessively and running down their pandemic savings.

Decline in Residential Investment Slows

Residential investment fell at double-digit rates in the last three quarters of 2022. This drop was partly driven by a collapse in mortgage refinancing, which had been booming with the low pandemic interest rates. Now that refinancing has virtually stopped, it has no further room to fall. While housing construction has fallen, the number of units under construction is still as high as when the Fed began raising rates last year. This number is due to the large backlog of unfinished houses due to supply chain problems. Construction will slow further as these get finished over the year, but the big declines are largely behind us.

Strong Structure Investment Keeps Non-Residential Investment Positive

Non-residential investment grew at a 0.7 percent annual rate in the quarter. This growth was primarily due to an 11.2 percent rise in structure investment. This rise follows an increase of 15.8 percent in the fourth quarter of last year, after six consecutive quarters of decline. The main factor in the jump in structure investment is manufacturing structures. Investment in factories in the first quarter was 40.5 percent higher than in the third quarter of 2022.

Equipment investment fell at a 7.3 percent rate in the quarter. Most of the drop was due to a fall in spending on aircraft and farm equipment. Investment in farm equipment in the first quarter was down by 25.7 percent from the third quarter level.

Investment in intellectual products grew at a modest 3.8 percent, which is down from 9.7 percent and 8.8 percent rates in 2021 and 2022, respectively. This sector is seeing mixed pressures, as many traditional media and social media companies cut back after major expansions during the pandemic. On the other side, the race for AI will be forcing many companies to increase investment. If we see any declines in this component, they are unlikely to be large.

Trade is Small Positive, as Export Growth Outpaces Imports

Trade contributed 0.11 pp to the quarter’s growth, as a 4.8 percent rise in exports more than offset the impact of a 2.9 percent rise in imports. Goods exports actually rose at a more rapid 10.0 percent, as there was an unusual decline of 5.5 percent in service exports. After expanding rapidly during the pandemic, the trade deficit has fallen back to roughly its pre-pandemic share of GDP. It will not likely be a major factor in GDP growth going forward.

Government Spending Adds 0.81 Percentage Points to Growth in Quarter

Overall, government spending rose at a 4.7 percent annual rate, with federal spending rising at a 7.8 percent rate and state and local spending rising at a 2.9 percent rate. Non-defense federal spending grew at a 10.3 percent rate in the quarter. The strong growth in non-defense federal spending is likely somewhat of an anomaly, as this component is often erratic, especially since the pandemic. It fell by 9.2 percent in the second quarter, after dropping at a 1.1 percent rate in the first quarter.

PCE Deflator Rises at 4.2 Percent Annual Rate

The price indices came in largely as expected, with the overall personal consumption expenditure deflator rising at a 4.2 percent rate and the core index rising at 4.9 percent rate. One encouraging item is a 1.2 percent decline in import prices, the third consecutive quarter of decline. Import prices had risen 13.5 percent and 13.2 percent in the first and second quarters of last year. (These prices do not include shipping costs.) Since imports include both finished consumer goods, like clothes and cars, and also inputs to items produced here, the turnaround should be a good sign for future inflation.

Economy Still Looks Very Healthy

In the spite of the widespread concerns about a looming recession, it is difficult to see the basis for one in the first quarter GDP data. Housing is likely to continue to edge lower over the course of 2023, but the big falls are likely behind us. There is a similar story with non-residential construction, with the surge in factory construction turning this category positive. Consumer spending is growing at a healthy pace, with little obvious reason to expect a reversal any time soon. The fallout from the banking crisis is a big uncertainty, but otherwise this is a very positive picture.

This content originally appeared on Common Dreams and was authored by Newswire Editor.

The gamble that the previous FijiFirst government took in 2016 — in reducing the value added tax (VAT) rate from 15 percent to 9 percent — was basically done to please the people, says Fiscal Review Committee chair Richard Naidu.

He said this gamble failed miserably because government expenditure continued to increase while the income it received was reduced.

“I think that for a long time, the government has been underfunded,” Naidu said.

• READ MORE: Other Fiji economy reports

“We forget that VAT used to be at 15 percent and personal income tax used to kick in at $16,000 [NZ$12,000] and now kicked in at $30,000 [NZ$22,000].

“So, what happened was that for the last 10 or so years, we have reduced the amount of tax we take, basically to please people.

“We’ve cut the VAT and we’ve cut personal income tax, but we’ve kept spending.

“We took a gamble that somehow this would create economic growth and the gamble failed.”

Debt level a threat
He said the possibility of adopting some of the old tax rates was unavoidable as the level of debt the country had was a threat in itself.

“The advice that we are getting is that we have to get our debt to GDP (gross domestic product) ratio down and over a 10-year period.

“What we are saying is that debt does not drive what we do.

“We have to have a national vision; we have to execute that vision, but we have to keep in mind the debt, because the debt is one of the threats that we are facing.

“Now really all we are saying is that in respect of some taxes — not all — we might have to go back to the old rates.

“So, when people say this is terrible, this should never happen and we’re being cruel and imposing pain, people need to remember that this is actually what the tax rates used to be.”

Naidu stressed that the abnormal situation that people were referring to was what the economy endured in the last 10 years when it could not raise enough money to fund critical infrastructure investments.

Playing catchup
He said this was why the current government had to play catchup and raise funds to meet the needs of the people.

“That means we have delayed investments in critical infrastructure.

“Why is it that we have thousands of people in the Suva-Nausori corridor who do not have water for 10-12 hours a day.

“It is because we did not invest and now, we have to play catchup, we have to invest harder and faster, and we don’t have the money and somehow, we have to raise that money quickly.

“So, we do not have a lot of choices in terms of the investments that we have to make.”

Meri Radinibaravi is a Fiji Times reporter. Republished with permission.

This content originally appeared on Asia Pacific Report and was authored by APR editor.

The post What to Look for in the Fourth Quarter 2022 GDP Report appeared first on CounterPunch.org.

This content originally appeared on CounterPunch.org and was authored by Dean Baker.

This content originally appeared on openDemocracy RSS and was authored by Lisa Hough-Stewart, Nick Meynen.

Cargo freighter, Columbia River. Photo: Jeffrey St. Clair.

Many people were struck by the 1.4 percent drop in GDP in the first quarter, with some reports suggesting this was the beginning of a recession. This is not the real story of the first quarter GDP, instead it looks like growth is continuing at a healthy rate. To understand this point, it is important to recognize how imports are counted in GDP, since the increase in imports subtracted 2.53 percentage points from GDP growth in the quarter.[1]

Imagine that the sum of consumption spending, investment, and government spending increased at 2.7 percent annual rate in the quarter (which they did). Now suppose that we offloaded $60 billion of goods from boats sitting offshore, increasing our imports by this amount. On an annual basis, this additional $60 billion in imports would be $240 billion, or roughly 1.0 percent of GDP. This would reduce GDP by this amount, even though our purchases for consumption, investment, and the government had not changed.

Okay, that story is not exactly right. The goods that we offloaded from the ships are now sitting in warehouses at the ports or on their way to the retail outlets where they will eventually be sold. This increase in inventories would raise GDP by an amount equal to the growth in imports, offsetting the drag that imports otherwise would have been on growth. However, inventories were actually a drag on growth in the quarter, subtracting 0.84 percentage points from GDP.

These two facts can be reconciled by looking at the actual amount that inventories increased in the first quarter. The report showed that inventories increased at a $158.7 billion annual rate. (Non-farm inventories rose at an even more rapid $185.3 billion annual rate. Farm inventories shrank at a $35.8 billion rate, continuing a pattern that has been going on for sixteen years, but that is another story.)

This is an extremely fast pace of inventory accumulation. By comparison, in the years of 2016-2018, three normal years of economic growth, inventory accumulation averaged $45 billion. The reason inventories were a negative factor in growth in the first quarter, in spite of this extraordinary rate of accumulation, is that inventories grew at an even more rapid $193.2 billion annual rate in the fourth quarter of 2021. That rise added 5.32 percentage points to the fourth quarter’s growth.

So how do we think about first quarter growth? It probably makes the most sense to focus on the measure of final demand to domestic purchasers, which rose at a very healthy 2.6 percent annual rate. This is measuring the growth in consumption, fixed investment, and government expenditures. If we want the fullest picture, we can combine the fourth quarter’s 6.9 percent growth rate with the first quarter’s 1.4 percent decline to get a 2.8 percent average growth rate for the last two quarters.

In addition to recognizing that the economy is still growing at very healthy pace, inventories have been largely rebuilt, in spite of supply chain problems. Real non-farm inventories at the end of the first quarter were just 0.1 percent below their pre-pandemic levels. (Farm inventories are now at just 53.0 percent of their level of 16 years ago.) This is a very positive sign, in that it should be mean that the prices of many items that rose sharply in the last year will be leveling off, and quite likely coming down.

In short, rather than being a bad report with a drop in GDP, this report is overwhelming good news. It shows that the main components of final demand, consumption, investment, and government expenditures, are growing at a healthy pace. And, it shows that inventories have been largely rebuilt, meaning that supply chain problems are being alleviated. Inflation is of course a problem, but this rise in inventories is exactly what we want to see if inflation is to be slowed.

Notes.

[1] A drop in exports subtracted another 0.68 percentage points. This is likely also due to supply chain issues, as exporters can’t arrange for shipping containers.

This first appeared on Dean Baker’s Beat the Press blog.

This content originally appeared on CounterPunch.org and was authored by Dean Baker.