Tag Archives: China

The Major Challenges Facing the United States

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As I frequently remind my readers I am a fiscal conservative and a social moderate. I usually write about particular economic and fiscal problems facing our country.  But every now and then I like to step back and view our overall situation at one time.  The last time I did this was here.
Let’s take another look:

  • The economy is puttering along at 2% annual growth with a relatively low unemployment rate of 4.3% and a good indication that faster growth, up to 2.5% annually, is right around the corner, see here and here.  The economy, at least, is headed in the right direction.
  • Foreign policy. Long term our biggest problem is China, which has four times as many people as we do and is growing economically three times as fast. China will soon surpass us in both economic and military strength. Our best insurance for this inevitable day is to have lots of democratic friends around the world.
  • Global warming is real and getting worse. Our best strategy for dealing with it is a revenue neutral carbon tax, rather than depending on ad hoc regulations like the Clean Power Plan and ever increasing auto emission standards. If the U.S. demonstrates its seriousness with a carbon tax, it is likely that the U.S. and China (which is highly polluted) could work together to establish world-wide carbon emission standards.
  • National debt, currently 77% of GDP (for the public debt on which we pay interest), is predicted by the CBO to keep getting steadily worse (see chart)  without major changes in current policy. Right now our approximately $14.3 trillion public debt is almost “free” money because interest rates are so low. But sooner or later interest rates will return to more normal levels and, when this happens, interest payments on the debt will rise by hundreds of billions of dollars per year. This will inevitably lead to a severe fiscal crisis, far worse than the Financial Crisis of 2008.

Conclusion. I am relatively optimistic that we can maintain good relations with China and will have the good sense to better control carbon emissions. But our debt problem is politically very difficult to address because it will require spending curtailments.  How do we successfully address such a huge problem?

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Donald Trump and Foreign Policy

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“Speak softly and carry a big stick”              President Theodore Roosevelt, 1858 – 1919

Donald Trump was elected President because of his strong support from white blue-collar workers who feel left behind in the modern world of globalization and rapid technological change. While the President has to work with Congress to implement new economic and fiscal policies, he has almost free rein in conducting foreign policy.

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There are major international issues that President Trump will have to deal with such as:

  • Rapid Chinese economic growth and assertion of power in Southeast Asia. Also currency manipulation and over-protection of domestic industry against foreign imports.
  • Russian assertion of power in Eastern Europe and the Middle East make it a dangerous adversary. All the more so since the Russian population is in decline and its economy is stalled under Putin.
  • Iran’s nuclear ambitions are only temporarily halted under the Iranian nuclear deal of 2015. Iran continues to support terrorism in Syria and elsewhere in the Middle East.
  • The defeat of ISIS and the containment of terrorism all around the world but especially in the Middle East.
  • Support of our democratic allies in hotspots around the world such as Japan and South Korea in Asia as well as our NATO allies in Europe.

Ever since WWII when the U.S. emerged as the sole superpower, the world has benefitted from overwhelming U.S. economic and military strength. The resulting “Pax Americana” has resulted in a long lasting period of relative peace and stability. But U.S. military strength is not automatic nor does it occur in a vacuum.  It depends fundamentally on the underlying strength of the U.S. economy which has been growing at the very slow rate of 2% annually since the end of the Great Recession in June 2009.

Conclusion. If we want continued peace and stability around the world, then we need faster economic growth to better support the U.S. effort to project strength.

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