EXECUTIVE SUMMARY

Economists commonly think about the benefits and costs of economic cooperation between two large countries, such as China and America, or the East and the West, in terms of the gains from trade: Each country steps up output of the good in which it has a “comparative advantage” and exports some of this output to the other country.

The gains from such trade are clear: China gains from the increased price it obtains for the product it exports to America and America gains from an increased price it obtains for the product it exports. As a result, national income increases in both countries.

Yet, a country’s products are predominantly produced by a combination of two or more “factors of production” – labor and capital, for example. If a country’s production of the imported good is labor-intensive, the imports may cause wage rates to fall; if capital-intensive, the return on capital may fall. (There can be a reduced return on laboror on capital though not on both.)

It is worth saying, however, that after China achieved what Walt Rostow dubbed “take-off into sustained growth” its economy soon became large relative to the countries with which it traded as measured by gross national product. As a consequence, China’s gains from trade with America have generally lessened. And after America lost its high rapid growth, China was able to become still larger relative to America and thus gaining still less from trade.

Now, though, there have been –most importantly in America – some forces operating through channels other than trade that have had important impacts on China. In this presentation, I will take up three such forces in America: First: the severe loss of productivity growth (i.e., the growth rate of TFP) and resulting fall in the rate of return to investment. Second: the broad decline of the “spirit” to invest. Last: the huge increases in the size of the U.S. public debt.

Download the full report：Impacts on China of America’s Long Slowdown, a Loss of its ‘Spirit’ to Invest and the Huge Rise of Its Public Debt