Though facing a largely uncertain prospect for its economic recovery after the 2008 financial tsunami, the US has for five years worked strenuously to promote economic restructuring, lay out plans for developing new industries globally and shore up its potential competitiveness for future growth.
Before 2008, the US reported a real GDP growth rate of 3%, a nominal GDP growth rate of 5-6% and an inflation rate of 2-3%. After 2008, its nominal GDP growth rate fell the trend line by 15% which was even lower than the potential growth rate. The issue before the US economy, in the short term, remains “fiscal rebalancing”. In the past four years, the federal tax revenue of the US accounted for less than 16% of GDP, while its spending was more than 22% of GDP, with the gap filled up by increasing federal borrowing. The result was that federal debt has increased a hovering 16.2 trillion dollars. However, in our view, compared with European or Japanese debt crises, US debt was more a cyclical phenomenon which can be resolved through future growth.
The US economy is showing signs of long-term and structural improvement, indicating that it has entered an upswing cycle. The two worst hit areas, financial institutions and the household sector, have by and large completed their de-leveraging process through spending cut, capital write-off and debt reorganization. The leverage ratio of US firms has for years stayed at its all-time low but their cash flows and profit earnings at the best level in history. Thanks to a bullish stocks market and a booming real estate market, the household sector has again found the wealth effect at work. All these are likely to pave the way for a steady economic recovery in the US.
What, then, holds the key to the prospect of US economic growth in the coming decade? According to forecast by the 2010 Economic Report of the President, US real GDP growth rate will come down from 4.3% to 2.5% between 2011 and 2020, as calculated in chain-type price index. The report believes that contribution from a bigger population will make only for 0.2 percentage point and that from a higher productivity for 2.3 percentage points, or 92% of the GDP growth. Therefore, the prospect of US economic growth, to a great extent, hinges on rising productivity in the coming decade.
In our view, the US has already begun to cultivate a number of new comparative advantages geared to rising productivity and a more sustainable economic growth:
The first is a new competitive edge in manufacturing. After the financial tsunami, the US adopted a “reindustrialization” strategy and pushed for “reshoring of manufacturing jobs”. The so-called reindustrialization is, in essence, an attempt to upgrade US industries with higher-end manufacturing as the core.
Guided by such a strategy, the US has moved quickly to map out new industries globally and secure itself a clear advantage over others. The so-called “reshoring” also means industrial upgrading. With President Obama in his second term energetically seeking greater potential for growth (through better R&D, education and infrastructure development) and promoting “energy independence”, “reshoring” and other reindustrialization policies, it is likely that sectors benefiting from improved innovation and cheaper energy, such as machinery, automobiles, airplane, aviation and space equipment, computers and others, will see robust growth in export, which will help US efforts to regain competitiveness.
The second is a new competitive edge in energy. The US “energy independence” initiative has achieved a major progress. According to IEA 2012 World Energy Outlook, US will overtake Russia in 2015 as the world’s largest natural gas producer and Saudi Arabia in 2017 as the world’s largest crude oil producer. And by 2035, it will achieve full energy self-sufficiency. Lower energy prices will substantially cut manufacturing cost, increase export, accelerate the recovery of the real economy, promote a manufacturing resurgence, set US trade balance to rights and help rebalancing the US economy.
The third is a new competitive edge in ICE. ICE, namely information, culture and education, is an intelligent industry widely believed to enjoy a big growth potential in the next decade. The combination of intelligent manufacturing and low-carbon energy, based on intelligent industries and new energy industries, is expected to point the way for the “Third Industrial Revolution”.
The fourth is the relative advange of the US dollar. The European debt crisis will last five more years at least , making the US dollar an attractive currency safe haven. In particular, as US dependence on imported energy decreases, its current account balance sheet will improve steadily, which will make the dollar strong and bring about a reflux of global capital to the US.
As far as China is concerned, the comprehensive adjustment of US economic structure is both a challenge and an opportunity. The ongoing “reshoring” of US manufacturing will reshape global industries, as well as the lineup of Chinese industries. Yet opportunities for China-US cooperation remain substantial. As its per capita income increases, consumption pattern upgrades and mode of production changes, China will need still more US capital equipment and commercial services. According to some forecasts, in the next decade, China’s hi-tech market will see an annual growth of 20-40%. If the US can relax its export restrictions on China, given its 18.3% share of China’s import market, it will achieve a hi-tech product export of over 60 billion dollars. This not only helps innovation and technological upgrading of Chinese industries but also contributes to the spread and investment of US technology worldwide.
What is more, the “shale gas revolution” of the US can generate new opportunities for energy cooperation between the two countries. Enterprises from both sides stand to gain from their strategic cooperation in shale gas development technology, manufacturing of key equipment, financing, marketing and others, as China will build a shale gas industries cluster after relevant technological breakthrough is achieved.
Zhang Monan is the Deputy Director and Associate Research Fellow of World Economy Study at the Economic Forecast Department of the State Information Center.