In his new book, “Eclipse: Living in the Shadow of China’s Economic Dominance,” scheduled to be published in September, Peterson Institute for International Economics scholar Arvind Subramanian starts with a nightmare scenario: It’s 2021 and the U.S. president heads across town to the International Monetary Fund to sign a rescue loan package negotiated by the IMF’s Chinese managing director. “The handover of world dominance is complete,” Mr. Subramanian, a former IMF researcher, writes. China is now the world’s leading economic power.
Parts of “Eclipse” read like a wonky version of “Rising Sun,” Michael Crichton’s 1992 novel of Japanese dominance over the U.S. when Tokyo was seen as speeding toward number one. But Mr. Subramanian is a first-class economist who uses his book to discuss provocatively U.S.-Chinese relations and the nature of economic power. He was interviewed in Washington DC by the Wall Street Journal’s Bob Davis. Below is an edited transcript
Do you really think the U.S. eventually will have to turn, hat-in-hand to the IMF for aid?
I wrote it that way partly to shock and make people pay attention. But there is a real possibility of the U.S. being in such a dire economic situation that it might have to turn to the IMF.
How could it happen? The combination of a credible rising power in China, with which we have to cooperate and also be wary of. And broad economic weakness in the U.S., including slow growth, fiscal weakness, political paralysis and a middle class with diminishing prospects.
The probability of U.S. needing an IMF loan isn’t 80% but it’s not 2% or 5% either. It’s a 10% or 20% possibility.
By some of the measures you use, China already is a larger economy than the U.S. But haven’t you picked economic statistics that play to China’s advantage? For example relying on purchasing power parity to measure GDP. (Purchasing power parity, or PPP, is a statistical device that tries to take account of the different prices of goods and services in different countries.)
PPP is an important concept, but it has a small weight in my overall formula of economic power.
I believe that the resources a country brings to the power table includes resources that are internationally traded and resources that involve people. If the U.S. were to fight against China and 100 Chinese soldiers faced 100 US soldiers, would you say that because the 100 Chinese soldiers earn/20th of what an American soldier earns that the value of a Chinese soldier is 1/20th the value of American? I don’t think so. (PPP tries to account for such anomalies.)
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