In the midst of China’s economic weakness, an American economist suggests that the US should capitalize on the opportunity to attract capital and production capacity from the country. Adam Posen, President of the Peterson Institute of International Economics, argues that instead of maintaining tariffs and other hardline measures, the US should reorient its policies to attract companies, intellectual property, and individuals seeking more opportunity.
Posen points to various negative economic indicators in China, such as a weaker yuan, falling property prices, and rising youth unemployment, as signs that American policymakers can leverage. He believes that by offering a more attractive environment for investment and wealth creation, the US can put pressure on Beijing to either accept capital outflows or risk falling into economic decline like their forebears, the autocrats in the Soviet Union, Latin America, and elsewhere.
The key is for the US to adopt a strategy of “suction” rather than “sanctions.” By creating favorable conditions for investment and innovation, the US can entice companies and individuals to relocate or invest in the US rather than China. Posen argues that this approach would not only benefit the US but also the world at large.
The current economic malaise in China, caused in part by over-leveraging in the domestic property market and the lingering effects of the COVID-19 pandemic, has raised questions about the country’s economic future. Estimates for China’s GDP growth this year vary widely, with some experts predicting growth as low as 2-2.5%.
While there have been some positive indicators of economic recovery, such as stronger industrial production, Bert Hofman of the Asia Society Policy Institute cautions that these signs do not guarantee a return to pre-pandemic levels of growth. The Chinese government’s emphasis on “high-quality growth” suggests a cautious approach to stimulus measures.
In the US, there is growing support for policies aimed at bringing back American businesses from China. However, Chinese companies looking to establish operations in the US have faced resistance. For example, a proposed $2.3 billion plant in Michigan by a Chinese electric vehicle battery component maker has encountered public and political opposition. This reluctance to embrace Chinese investment poses a barrier to potentially beneficial collaborations and technology transfers.
Mary Lovely of the Peterson Institute argues for a more welcoming attitude towards collaboration with China’s most innovative companies. She believes that US companies should not be too proud to learn from their Chinese counterparts and suggests that there is a larger world beyond the US and China that should not be overlooked.
In conclusion, the current economic weakness in China presents an opportunity for the US to attract capital, production capacity, and innovation from the country. By adopting a strategy of attraction rather than sanctions, the US can leverage China’s economic vulnerabilities to its advantage. This approach not only benefits the US but also contributes to global economic growth and cooperation.