Eclipse: Living in the Shadow of China's Economic Dominance

Peterson Institute
Free sample

By most accounts, China has quickly grown into the second largest economy in the world. In this controversial new book, Subramanian argues that China has already become the most economically dominant country in the world in terms of wealth, trade and finance. Its dominance and eclipsing of US global economic power is more imminent, more broad-based and larger in magnitude than anyone has anticipated. Subramanian compares the economic dominance of China with that of the two previous economic superpowers--the United States and the United Kingdom--and highlights similarities and differences. One corollary is that the fundamentals are strong for the Chinese currency to replace the dollar as the world's reserve currency. The final chapter forecasts how the international economic system is likely to evolve as a result of Chinese dominance.
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Additional Information

Publisher
Peterson Institute
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Published on
Dec 31, 2011
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Pages
216
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ISBN
9780881326413
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Language
English
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Content Protection
This content is DRM protected.
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Since 1980, China has evolved from a poor and mostly rural society into one of the largest economies in the world. As it grew into a major industrial power, it demanded enormous amounts of steel for new factories and cities, copper for electronic wires, petroleum for cars and manufacturing plants, and soybeans and cattle to feed its workers. By the 1990s, many Latin American countries were riding China's coattails and beginning to prosper from the new demand. Ever since China entered the World Trade Organization at the turn of the century, Latin America supplied China with more and more of the primary commodities it needs and more. That in turn has produced one the most impressive periods of economic growth on the continent in fifty years. And it was more evenly spread too - a region infamous for its extreme inequality saw it decline by a couple of percentage points over the course of the era. In The China Triangle, Kevin P. Gallagher traces the development of the China-Latin America trade over time and covers how it has affected the centuries-old (and highly unequal) US-Latin American relationship. He argues that despite these opportunities Latin American nations have little to show for riding the coattails of the 'China Boom' and now face significant challenges in the next decades as China's economy slows down and shifts more toward consumption and services. While the Latin American region saw significant economic growth due to China's rise over the past decades, Latin Americans saved very little of the windfall profits it earned even as the region saw a significant hollowing of its industrial base. What is more, commodity-led growth during the China boom reignited social and environmental conflicts across the region. Scholars and reporters have covered the Chinese expansion into East Asia, Southeast Asia, Australasia, Africa, the US, and Europe. Yet China's penetration Latin America is as little understood as it is significant-especially for America given its longstanding ties to the region. Gallagher provides a clear overview of China's growing economic ties with Latin America and points to ways that Latin American nations, China, and even the United States can act in order to make the next decades of China-Latin America economic activity more prosperous for all involved.
The global financial crisis and ensuing economic downturn has raised many questions concerning the future of global economic growth. Prior to the financial crisis, global growth was characterized by growing imbalances, reflected primarily in large trade surpluses in China, Japan, Germany, and the oil exporting countries and rapidly growing deficits, primarily in the United States. The global crisis raises the question of whether the previous growth model of low consumption, high saving countries such as China is obsolete. Although a strong and rapid policy response beginning in the early fall of 2008 made China the first globally significant economy to come off the bottom and begin to grow more rapidly, critics charged that China's recovery was based on the old growth model, relying primarily on burgeoning investment in the short run and the expectation of a revival of expanding net exports once global recovery gained traction. Critics, however, argued that as government-financed investment inevitably tapered off, the likelihood was that global recovery would not be sufficiently strong for China's exports to resume their former role as a major contributor to China's economic expansion. The prospect, in the eyes of these critics, is that China's growth will inevitably falter.

This study examines China's response to the global crisis, the prospects for altering the model of economic growth that dominated the first decade of this century, and the implications for the United States and the global economy of successful Chinese rebalancing. On the first it analyzes the strengths and weaknesses of China's stimulus program. On the second it analyzes the nature of origins of the imbalances in China's economy and the array of policy options that the government has to transition to more consumption-driven growth. On the third successful rebalancing would mean that more rapid growth of consumption would offset the drag on growth from a shrinkage of China's external surplus. Successful rebalancing would mean China would no longer be a source of financing for any ongoing US external deficit. From a global perspective China would no longer be a source of the global economic imbalances that contributed to the recent global financial crisis and great recession.
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