"They have about 4 times our population. That means that the odds are that they are going to have 4 times our number of geniuses, top scientists, skilled athletes and talented artists. It is tough to fight the numbers over the long term if you want to stay on top", he explained.
That was over 50 years ago. Mr. Russell might have been on to something long before anyone else was thinking about it. He was also making that point when the Chinese had just 500 million more people than the United States. Today that number is 1 billion.
Of course, this was also before I came across this famous quote that Napoleon Bonaparte had said about China two centuries before Mr. Russell raised the issue in my formative mind.
"China is a sleeping lion. Let her sleep, for when she wakes she will shake the world."
As a military strategist and avid reader of history, Napoleon also knew that it was hard to fight numbers and, as I have pointed out before in these pages, most people in the United States have no appreciation of how large the populations are in Asia.
This is a graph of the population of the world by longitude and latitude. You don't realize the difference in population between Asia and the Western Hemisphere until you see it visually.
The Western Hemisphere looks like a couple of blips on a radar screen compared to the massive number of human beings in Asia.
Those numbers are starting to make a big difference in the world economy.
For example, look at these 2018-19 world economy growth contribution estimates by Bloomberg.
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| Source: Bloomberg |
When you consider China and India together, they now account for 40% of global economic growth. That is more than three times the contribution of the United States.
Half of all economic growth today is coming from this region when you add in other Asian countries like Indonesia, Japan, South Korea, the Phillipines and Thailand. The United States, Canada and Mexico only represent 15% of the total. Germany, U.K. France, Spain and Italy are 7% combined.
It is truly a new world.
All of this has not been not lost on U.S. companies as they have long looked at the large population base of potential customers in China as a pathway to future growth prospects.To do business in China, the Chinese government forced many U.S. companies to commit to manufacturing sites there in addition to requiring them to provide their most valuable intellectual properties in order to have an entry into the Chinese market.
Those manufacturing facilities provided jobs for the Chinese and a good portion of the products manufactured in China came streaming back into the United States. Manufacturing job losses in the United States followed. In effect, the United States gave free entry to the Chinese to tap into what was then the most attractive consumer market in the world without getting anything in return. At the same time, the Chinese supplemented the American intellectual property they got legally with much more gained illegally. The Chinese made sure they got plenty in return for the little access they provided to their market. We have now reached the point where it will not be long before China is the leading consumer market in the world.
If you doubt that compare the sales on Cyber Monday in the United States with the equivalent cyber sale day in China which is referred to as Singles' Day (November 11---11.11--get it?)
Singles' Day is considered to be a type of anti-Valentines Day in China. It first become popular due to the tremendous imbalance between men and women in the country due to its one child policy. There are an estimated 35 million more men than women in China today under the age of 30. The idea is to "gift to yourself" on Singles' Day. It is hard for almost anybody to not "buy"into that idea.
Cyber Monday in the United States produced an estimated $7.9 billion in online sales. That is an increase of 19% from last year. Black Friday sales (store and online) were an estimated $23 billion, which is up 9% from last year. These are both incredible sales gains owing to our strong economy.
However, Singles' Day in China produced $31 billion in online sales on that one day. That was a 27% increase from a year ago and equalled the combined sales in the United States of Black Friday and Cyber Monday.
As China's economic power has grown over the years with its one-sided trade views. Republicans and Democrats alike did nothing about the inequity. Our elected representatives literally gave away substantial portions of our domestic economy by thinking short-term rather than long-term. They had the leverage of having the most attractive market in the world and yet they gave it away and did not get anything in return.
When Mr. Russell was talking about China and its numbers, the U.S. economy was 13 times larger than China. In 1998, when China really began committing to a market economy, the United States was 9 times larger. Today that margin has narrowed such that U.S. GDP is only about a third larger than China---$19T vs. $12T.
Only one man really stood up and questioned the wisdom and fairness of it all. That man was Donald J. Trump.
Like my 8th grade Science teacher and Napoleon, Donald Trump understands the numbers.
He understands where those numbers take us if the United States does not stand up and insist on a fair and level playing field in trade going forward.
The numbers advantage will eventually overwhelm us such that there will never be the hope of a competitive playing field. We will have lost the war without firing a shot.
This week's G-20 summit in Argentina and the expected meetings on trade between President Trump and Chinese President Xi will be interesting to watch.
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| Trump and XI Credit: CNBC |
A large number of new tariffs on Chinese goods into the United States are scheduled to take effect on January 1. This is probably the best time to strike a trade deal with the Chinese if a deal can be had. However, as I have written before, the Chinese have had it so good for so long on trade it is not easy for them to give back what they took so easily from us in the first place.
Interestingly, a recent report from Bloomberg cites a economic policy research brief from a group of European economists that shows, contrary to what has been generally been reported in the media, that most of Trump's 25% tariffs on Chinese goods will be borne by Chinese producers not by American consumers.
U.S. companies and consumers will only pay 4.5 percent more after the nation imposed 25 percent tariffs on $250 billion of Chinese goods, and the other 20.5 percent toll will fall on Chinese producers, according to authors Benedikt Zoller-Rydzek and Gabriel Felbermayr.
The report goes on to state that after considering the revenue benefits of the tariffs to the U.S. Treasury and other impacts the tariffs on China will actually result in a net welfare gain to the United States of $18.4 billion in total.
China may have a lot of numbers in its favor.
However, Trump's tough talk on trade seems to have put a few numbers in play that favor us for a change.
Let's hope he can use these to our advantage and to the long-term benefit of both countries with a trade deal that is fair to everyone concerned.
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