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> a rising world power (China) challenging the overextended existing world power (the US)

This is a pretty bold claim, at least for now. People have been claiming this is the case for decades, but I still don't see it.

Western (US / EU) demand is what drives China's growth.

Technology in China is still by and large imported / copied.

The West can move manufacturing back home (or anywhere else with cheap labor) and China's economic prowess will be severely undermined.

China doesn't have a whole lot of leverage – it's cheap and convenient, but its cheap labor is easily replaceable, while Western demand (mostly US, really) and its technology are not.

EDIT: Additionally, the balance of power used to change much more frequently back when we didn't have nuclear weapons. From the introduction, it seems this analysis is entirely economic when it ought to also factor in politics (domestic and international), strategy and military power.

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I think at the end of the day if a country's strongest asset is its "demand", that is, its ability to consume goods and services instead of produce them, then i think that country is in for a world of hurt.

Not only has no one said that, it doesn't even make sense in the first place.

US is the "buyer" who has the money. China is the biggest supplier of goods. A statement like the above is overly simplistic. The US will exert power and influence in a buyer's market, and will lose influence in a seller's market. Which market we're in is an be interesting discussion, and it predicates any prediction of the future.

A country's demand is linked to its supply. After all, it has to pay for the goods it demands with something.

That's a very loose link in a world where fiat currency and reserve currency exist for printing money.

But not negligible. The USD wouldn't be where it is without the US economy.

> Technology in China is still by and large imported / copied.

When I visited China, I felt like I was in the future. We have fallen behind, and we literarily have shipped the "Arsenal of Democracy" to China. Their airports are bigger and better, the high speed rail was amazing, and the subway system was simple to navigate.

China has innovated in important ways - they have beat us to 5G, and they have weapons systems that could take out our best aircraft carriers and satellites.

Who gives a damn if their infrastructure is new and modern? Was that technology developed in China? It's possible, but I doubt it.

And what kind of visit was this where you were inspecting their weapon systems, and ascertained that they could take out the best of what the American military has, based on some knowledge of military technology you magically have?

Technology still works even if it's copied. Don't confusing "copying" with "only copying". Modern US tech is in large part created by Chinese emigrants and their children. Do you think every technologist emigrated?

Infrastructure is a sign of a healthy economy and capability to build a war machine.

> and ascertained that they could take out the best of what the American military has, based on some knowledge of military technology you magically have?

Thats called reading. https://www.rand.org/blog/2019/10/how-the-united-states-coul...

https://www.amazon.com/Destined-War-America-Escape-Thucydide...

>Western (US / EU) demand is what drives China's growth.

China's exports are not as much of an influence on it's GDP as you would think. The difference between China and the US is less than 10% of GDP.

China's middle class has grown very wealthy which has undoubtedly reduced China's reliance on exports and stabilized its economy against outside interference.

China is doing most things right according to endogenous growth theory. Exports help it grow faster but are not the most essential part of the equation. China's export is only ~20% of its 2018 GDP. https://www.theglobaleconomy.com/china/exports/

"Endogenous growth theory holds that investment in human capital, innovation, and knowledge are significant contributors to economic growth."

https://en.wikipedia.org/wiki/Endogenous_growth_theory

> Technology in China is still by and large imported / copied.

For many important technologies, it is either on par, a bit behind, or sometimes a bit ahead (5G, quantum communications) of the west. A few key areas where China still lacks are semiconductors, aviation, and global reaches of internet platforms. These are important but account for far less than half of its GDP.

China's numbers of patents and scientific publications have reached world's no.1 in recent years:

https://en.wikipedia.org/wiki/World_Intellectual_Property_In...

https://en.wikipedia.org/wiki/List_of_countries_by_number_of...

One can argue about the quality of those, but one should not assume that China is substantially behind the west as was the case even a couple decades ago.

China's number of STEM graduates, many of whom are sources of the progress above, is the highest in the world: 4.7m in 2016. The only country that comes close is India.

https://www.statista.com/chart/7913/the-countries-with-the-m...

> ...while Western demand (mostly US, really) and its technology are not.

US population: ~330 million; EU, ~450 million => Total: 780 million. China's population: ~1400 million. Domestic demand is clearly not China's disadvantage.

> US population: ~330 million; EU, ~450 million => Total: 780 million. China's population: ~1400 million. Domestic demand is clearly not China's disadvantage.

Population size doesn't paint a full picture. China's GDP per capita is still less than a third of the US. A lot of those 1.4 billion have absolutely appalling living standards.

That is why I mentioned they still have a significant room for further development. (Many people's quality of life in major cities, from all reports I have seen, is no worse than that of the west's middle class, except for pollution.)

If a country is economically well-governed and still developing, the quality of life for most everyone will improve over time.

Most people who have studied or traveled to one of the Asian tigers before and after its rapid phase of development can see how different 2-3 decades can make.

A 5% annual compound growth results in 3.4 times the previous GDP within 25 years.

2020 projection of GDP per capita (PPP) of China is ~$21000 according to the IMF. It's a middle-income country. If they continue to adopt and invent technologies extensively, there is no reason they cannot grow further.

https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)...

Quality of life is not a zero-sum game. In fact, when a country is richer, their trading partners are often better off too.

Population can be a burden. As the US has learned, economic systems can't grow forever; maintaining the US standard of living is a significant strain both geopolitically and environmentally. It will be much harder to provide a similar standard of living for 1.4 billion people.

I suspect that China will hit similar limits soon, if they haven't already. We do see signs of environmental and geopolitical strain there.

It depends on the direction of growth.

Antibiotics by itself improves the quality of life a great deal and does not take much resources to produce.

If a country moves toward an innovation-driven economy, its growth can be less constrained by physical resources.

Appalling living standards sucks for those people, but that doesn't make China less of a world power.

Note, Japan's ascension to the largest economy in the world was also "guaranteed" near the end of the Cold War. We can all see plainly how such claims have played out.

You have to admit that the possibility of a global hegemony is more likely today than ever in modern history. An unlikely event, however, is still unlikely, no matter the rate at which it increases in likelihood. Our prerogative now is to carefully monitor this increasing rate, lest it somehow escape our attention while becoming unavoidable.

Interestingly, Japan ended up going down a low-growth path in part due to demographics--lots of old people, not many immigrants. China's former one child policy and a preference for boys set the stage for stagnation in 10-20 years. China just has 10x the population of Japan.

https://www.indexmundi.com/graphs/population-pyramids/china-...

Wasn't quite a lot of what you say about China true about the USA in the 19th century? Not saying the cases are the same and I am skeptical of grand historical theses, but I don't think you can glibly dismiss China either.

Personally I see China replacing a superpower, but the superpower being replaced is Russia. Russia is by nearly every metric declining and much faster than the USA.

The question is whether the USA will remain the dominant superpower or whether China will be a serious challenger by mid century. To really challenge the USA China would have to export more than just goods and services but also ideas and culture. I see a little bit of ideas being exported but very little cultural export happening.

Russia's debt is minuscule in comparison to the other two.

Yeah, but so is Russia’s GDP. For reference, Canada has a higher GDP.

It's roughly the same but per capita, definitely worse.

IMO, Russia will bide her time. They have a lot of intelligent, entrepreneurial people. Just need the government to loosen up a bit.

Or perhaps, most of the economy doesn't need GDP.

As a whole Russia’s entrepreneurs are leaving because they know if you get big enough, the corruption will come into play.

Their government needs to do more than just loosen up.

From all that I've read, corruption is why Africa has been so poor and missed out on much of the development of the 20th century. Why bother investing in anything when it will just be stolen by the local strong man?

But that doesn’t really matter. It’s like if you have a net worth of $50 and an income of $100, but your buddies have an income of $100,000 and a debt of $70,000

Kind of. But which one would you bet on in a startup position?

The latter. Wealth is a verb, not a noun. It's measured in flow, not money in the bank. Idle wealth is not wealth.

Russia is objectively no longer a superpower but a shell of its past self.

US after Cold War and before 2008 will be remembered as a very special country by history. China or the post great recession US can only imagine that power and influence, they can't match it.

That was kinda my point. We had a brief period of a unipolar world with the US as the sole superpower. I don't think that's stable or likely to persist, and it looks like China is already filling the empty niche.

I think the 21st century will have China and the US as the two superpowers and the rivalry will be mostly economic and technological rather than military (via build up and proxy wars) and propagandistic.

I don't think it was the Great Recession that cut America down to size. I think it was the Iraq war. We "won" but it was a classic Pyrrhic victory that cost us both a ton of capital (I wonder if it caused the Great Recession) and our reputation on the world stage. We basically burned our Cold War victory on that. Bush II was the worst president of the last 100 years, in my opinion worse than Nixon and worse than Trump has been so far in terms of actual damage done. I don't think there would be a President Trump either were it not for that damage.

Look at China's GDP over the last 2 decades. It has grown exponentially. At this rate they'll surpass the US this decade or next. You cant just move manufacturing elsewhere. China have perfected low cost mass manufacturing. It's not just beacuse labour is cheaper. That used to be the case but now they are innovating at a huge scale.

economics lectures i attended a decade ago indicated that china has already surpassed the US in gdp, but to give us face and to not decelerate their growth, china manipulates their numbers and monetary policy to keep up appearances that the US is still larger.

china has 4x our population and growing like a weed. it’s naive to think they haven’t/won’t/can’t eclipse the US economy. it’s another reason we should overhaul immigration policy to attract the world’s best minds while we still have the prestige to do so.

In publicly announced numbers, China has larger GDP by purchasing power parity. (I'm not sure if that's equivalent to your currency manipulation interpretation.)

yes, ppp gdp was largely on par a decade ago too. apparently that's not as worrying to american politicians and policymakers as nominal gdp, as it's nominal gdp being manipulated for appearances (besides monetary policy, the government apparently has enough tentacles into industry and regional accounting to do so).

>> You cant just move manufacturing elsewhere

That's exactly what China and the United States are trying to do: To Africa.

All you said might be true 5 years ago. But many no longer holds.

China is no longer an export dependent economy, and moving manufacturing away from it, is hard.

The belief that manufacturing is about labor is simply false.

Dalio is pretty smart to smell the trend, maybe just because he is less idealogical driven but data-driven.

Yeah, I think one of the biggest misconceptions people have about china's economy today is that they aren't nearly as dependent on exports as people think. On an absolute number net exports look big, but as % of GDP, countries like Germany or SK nearly log like more dependent.

The much more critical thing for China is domestic consumption, which is where they focus the most and struggle the most. And a big thing there that has made other developed countries mad is that China's net imports haven't nearly kept up with their consumption growth. China has been meeting consumption domestically, which changes their mix, and makes everyone else understandably frustrated.

> The West can move manufacturing back home (or anywhere else with cheap labor) and China's economic prowess will be severely undermined.

The US technically can, but then how many Americans would be able to buy the $2999 iPhone (for example) to keep Apple's current valuation?

Not to mention the lead times on factory construction being two orders of magnitude longer in the United States.

Steve Jobs told Obama manufacturing is never coming home, but it only partly had to do with cost. Impossibility of scaling like China was the major blocker.

I'm not sure that the West can move manufacturing back home, but I can see manufacturing moving to the next poorest country, in perpetuity. China's standard of living is increasing, and it will eventually be as economical to outsource work to China as it is to outsource labor to Japan or South Korea.

Instead, I can see the world gradually shifting manufacturing to the next cheapest labor pool until there is none left, and then the ensuing equilibrium would have diversified supply chains, with any concentration largely being a function of 1) access to natural resources, and 2) access to expertise.

It will move to places like India and Vietnam and other countries that are more open and transparent but also Cheap.

It was accelerating before the pandemic.

https://www.scmp.com/economy/china-economy/article/3045141/c...

> but its cheap labor is easily replaceable

If it's that easy, it should have happened by now.

> If it's that easy, it should have happened by now.

Why? It's not convenient. I'm just saying it could be done if necessary.

It isn't convenient because China also offers infrastructure, a rich supply-chain of similarly off-shored labor / parts and it's "the devil you know" vs. e.g. Vietnam

The West can move manufacturing back home (or anywhere else with cheap labor

No it can't. An empire is the complexity*robustness of its supply chains, and supply chains are much less modular on the ground than they appear to be from the air.

Nuclear weapons don't actually have that much of an impact. They don't do anything socially or economically. They don't prevent all conventional warfare either. If one country annexes territory from another and the target responds with a threat to nuke the aggressor, the aggressor can just call their bluff. Mutual destruction over a flesh wound isn't credible. The only things nukes do is ensure that actors can't be forced off the stage with military conquest. Barring that, the rest of the military-economic-social game plays on as it did before the nuclear age.

The question is how these trends will evolve in the future. The trends in education for example, China has a huge population, it’s hypothetical but do you think US engineering and innovation keep up if it’s then vastly outnumbered in 20 years?

>still by and large imported / copied.

The import of intellectual property could take decades or lifetimes to truly play out. If a country could take everything we know, without the debt, it would be a stellar starting point, but wouldnt instantly make them us.

> copied

https://www.youtube.com/watch?v=Km5XQxRrQvw&start=46&end=62

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