Why development, welfare should trump tariffs

2019-09-02 11:04:34 China Daily Mo Hong'e

There is no point making a calculated guess on the U.S. government's intention of repeatedly imposing sanction-like policies upon China, but the well-thought-out effects are definitely heading nowhere close to the expectation. 

If the sorrows of the American people had a sliver of correlation with the growth of China's trade surplus and overall economic competitiveness, the real driver would have been lying elsewhere.

Delving deep into the root, it is the fundamental economic growth that really matters, not only in the industrial age but also in the digital era. The rationale is crystal clear from the perspectives of classical economics and political science.

The essence or one indispensable construct of electoral democracy, among others, is the well-grounded and well-rounded responsiveness to the electorates' appeals, particularly to those on economic benefits.

According to economics theories, demand can only be met with effective supply, which is mainly derived from economic development. When the U.S. economy was marching north with a high single-digit GDP growth, let alone the strong double-digit ones, the goldilocks prosperity benefited all classes.

All walks of life shared the economic increment and the coffer of social welfare remained sufficient. Though there were disparities and predicaments in certain areas, they were easily absorbed by related parties.

Strong economic growth also enabled the enlargement of the middle-income group, the stable force of the society. With a GDP growth rate of 3 percent and above, the new wealth created was allocated to mass population in the form of welfare benefits or tax cuts, and hence the process of Pareto Improvement kicked in, where all parties involved became more or less better off in economic terms.

The politicians' task was then very straightforward, to readdress their campaign promises with well-devised strategies in order to strengthen their party's position for the next round of elections. The distinctions of right or left, conservative or liberal, etc, are no more than labels, whereas monetized benefits are concrete attributes to prove the party's policies show foresight and are correct.

A strong economy allows the incumbents to go either way to demonstrate how responsible and capable they are and how wise the people are to choose them to be the captain to sail the big boat through choppy waters, as what happened many times in modern American history.

However, entering into the new millennium, the U.S. economy has been moderating substantially. Given that its deceleration actually took place even before the 2008 Great Recession started, the GDP growth rate has been below 3 percent for so long that it has become the normal.

The underperforming economy had lost its magic to satisfy the overall demand of the whole spectrum of its people, from the elite to the grassroots, and the economic increment is merely enough to keep the government running with tightened purse strings.

This harsh reality leads naturally to a makeshift political gimmick that resorts to redistributing the stock benefits among different social classes. As a result, it has gradually turned from a positive-sum game to a zero-sum one, the soil and temperature of which are just right for the resurgence of populism and nationalism.

Politicians can only direct the limited resources to satisfy specific concerns of their support groups and voters, with the hope that the pick-the-voter strategy will guarantee them another win. The new wealth is grabbed by the elites, or the so-called 1 percent, whereas the masses are left with little.

The middle-income group is shrinking and the social welfare system is in jeopardy. The happiness of one group is at the expense of the others - that is when social gaps emerge and enlarge.

Instead of political tricks, the steady economy growth, with a 3 percent plus bottom-line GDP growth rate empirically, would be the real solution to maintain overall social prosperity, healing social wounds without destroying the well-established ethnic, gender, religious structures, etc.

Otherwise, the slowly increasing pie will always be too meager to cover the ever-increasing needs of all different classes. As soon as the existing benefits of one class are redirected to another, no matter how small the proportion might be in comparison to the total, the discords will inevitably be sown. In lockstep, hostility and hatred will creep in and contaminate the society as a whole, the evidences of which have been often displayed in recent years across the world.

The trade tensions between the U.S. and China today have diverted attention from the real issues that should concern the world, which are the economic development, welfare improvement, climate change and so on.

If those issues are addressed in a balanced and inclusive way, the others, including trade and technology conflicts, are just secondary in nature and solvable in practice.

Take the right path, make due efforts on wealth creation and economic growth, and then the current eyesores might not be as unbearable.

The author, Liu Jun, is a member of the China Finance 40 Forum. His opinions are entirely his own.

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