What can India do to boost exports

The economic decline of a superpower - Who will take China's place?

This column appears regularly on cicero.de in cooperation with the think tank Geopolitical Futures.

Relations between the US and China have long been in decline. The United States had given China relatively free access to the American market for years. They wanted equivalent access to the Chinese market, but China was unable to provide it.

Its industrial base produced more products than the Chinese people could consume in terms of quantity, price, and types of products made. China was forced to export products because it was only able to maintain its industrial base and thus its economy and financial system through exports.

Why China had to introduce US tariffs

Granting the United States broad access to the Chinese market based on the financial regime of Chinese exports to the United States would have undermined the financial basis of the Chinese system - a system that had largely funded the creation of Chinese industries and depended on both domestic consumption and foreign sales to compensate.

China's financial system was under pressure even before 2008. Therefore, the Chinese could not grant the US equivalent trading rights, which led to the introduction of US tariffs. The Chinese were unable to agree to American demands because of the financial consequences, and the United States was unable to lower tariffs because of the social realities within the United States.

The origins of the industrial revolution

Many industries benefited greatly from lower production costs and selectively allowed access to the Chinese market, even though Chinese imports had destroyed some American industries. They each represented different social groups and provoked tension in the American economy.

This was not a new story in the history of capitalism. From about 1890 until the late 1920s, it was the United States that took the place of China. In the late 19th century, the United States launched an industrial revolution that relied on access to overseas markets as domestic consumption was unable to sustain the industrial base.

Capitalism does not need efficient manufacturers

Cheap US goods flooded Europe until World War I destroyed the US market. The US continued to try to boost exports, but also to limit imports. Ultimately, the collapse in global demand for American goods resulted in vital imports from abroad. He was a major force in driving the United States into depression.

The history of China is a history of social tension. Global capitalism, which is built on a global supply chain, does not require an efficient, low-cost manufacturer of products. The name for it is now "Supply Chain". The U.S. supply chain is critical to the functioning of much of the global supply chain. The same goes for China. World War I restricted imports and hit the American part of the supply chain.

How the Covid-19 virus damaged China's economy

The same thing happened to China as a result of the COVID-19 crisis. The damage to the affected economies led to a fall in demand in most countries, which put China in a difficult position.

But there was another dimension. The increased demand for some products such as pharmaceuticals could not be met. The virus had also hit China, and its own internal supply chain had been disrupted or redirected to meet Chinese needs. When the loss of export markets rocked the Chinese economy, it was also hit by importers' realization that reliance on one country was too risky for their supply chain.

China needs to boost domestic demand

China was considered a reliable exporter, one of its most important virtues. But even if it could offer products at low cost, it was of no use to importers if the products they needed were not available. It is not that confidence in China is inevitably shaken; rather, the lack of reserves in the supply chain has revealed a risk.

Two questions arise. First, China has reached the political limits of an export-based economy, with a series of tensions with the United States and with great suspicion about the resilience of its supply chain. China needs to do what the US did after two decades of depression and war, and create massive domestic demand to propel its economy. Since global capitalism prefers a low-cost supplier - or many low-cost suppliers - the question now arises: Who will take the place of China?

Can India replace China?

The obvious first option is India, a country with a massive, diverse, and generally poor population, but with a degree of discipline and entrepreneurship, similar to China in 1980. However, India is not in a starting position. It is the fifth largest economy in the world and is also already a major exporter. China exports $ 2 trillion worth of goods a year, while India exports just $ 345 billion.

Exports account for 19 percent of China's gross domestic product and 14 percent of India's gross domestic product. China has a population of around 1.4 billion people, which is roughly the same as the population of India. It has a large workforce available. More importantly, India is a nation that is far less dependent on exports to fuel its economy, and yet it is still poor. The main feature of the US and China development model is the fact that the workforce is better paid.