Economic Growth Isn't a Consequence of Others Weakening

Last week, President Trump summed up his philosophy of the global economy in eight words: “As others falter, we will only get stronger.”

The meaning is clear, and it summarizes Trump’s attitude perfectly. But it is dead wrong, it is based on an abysmal failure to understand how the global economy functions, and it reflects a view that is not only uneducated but dangerous.

Quite simply, we don’t get stronger as others falter - we get stronger as others succeed. Trump’s attitude might make some sense if the United States was Coke and if China, say, was Pepsi. But they are not. That would be a complete misunderstanding of the U.S relationship with other countries.

China and the United States are not just each other’s competitors. They are each other’s customers and suppliers, borrowers and lenders, investors and investment opportunities.

When a billion-and-a-half Chinese are able to buy more, they become better customers. When they have better infrastructure, telecommunications capacity, and a more skilled workforce, they become better suppliers. When they have an abundance of capital, they become better investors. In fact, in China’s case, they are such good investors in the United States that the U.S desperately needs to retain their investment - at the potential cost of maintaining its ability to run deficits.

What is true of the U.S relationship with China is just as true of its relationship with Germany, Mexico and any other country. We are not solely each other’s competitors. Our relationship with other countries is much more nuanced than that, requiring more thought to express and a broader view of the world to pursue.

We don’t advance by competing; we advance by cooperating. But the best way to ensure cooperation - perhaps the only way - is to ensure competition. The free market is the best instrument of cooperation we have. It ensures that we cooperate, because that is the only way we become better off.

Basically, in embracing a free market, we are embracing each other. But rather than link hands and pointlessly sing “Kumbaya” we link interests by pursuing wealth. The invisible hand drives us to meet the needs of others in order to meet our own needs. As Adam Smith pointed out: “It is not from the benevolence of the butcher, the brewer or the baker that we can expect our dinner, but from their regard to their own interest.”

When we pursue our own interest, we generally do so by meeting the interest of others. When Apple invented the laptop and the iPhone, it didn’t just benefit its shareholders - it benefited its customers.

Today, the leading producers of smart phones is based in Cupertino, California. But at one time, the leading producer of cell phones was based in Finland. The old Nokia flip phone was used by more Americans than any phone produced by a U.S company. Was the United States being ripped off by Finland - or was the United States benefiting from the groundbreaking work of thousands of Finlanders?

We are not competing with each other in order to be wealthier than the other guy, we are competing in order to be wealthier than we would otherwise be. What difference does it really make to a phone user if in the process some Fins also make some money?

Thought experiment: If you had the choice between a national growth rate of 2 percent that is higher than every other country’s, or a growth rate of 3 percent that is lower than some, which would you choose? Anyone with any sense who has thought about the question would respond that we are better off with a higher growth rate even if others have growth rates that are higher still. It makes little difference to Americans if they are better or worse off than the average Nordic. It makes a great deal of difference to Americans - as is the case with everybody else - if they are as well off as they can be.

If you want to get a sense of the value of receiving a smaller share of a growing pie, consider the difference between the 1940s and today. At the end of World War II, the United States produced more than 40 percent of the wealth in the world. Today, it produces less than 25 percent. But were we worse or better off 75 years ago than we are today?

Are we worse or better off when we have seamless connectivity? Are we worse or better off when we have access to dramatically improved, and continually improving, medical technologies, medications and procedures? Worse or better off when we have a much wider choice of foods to eat and clothes to wear? When air-conditioning, laundry and dishwashing are so easily obtained? When we have more choice - in the kind of car we drive and the kind of home in which we live?

We are far better off today than we were decades ago, or any time in the past. We have achieved that not by clinging to what we have and beggaring others, but by opening our markets and thereby increasing what we have access to.

As others have grown stronger, the United States has not faltered - it has only grown stronger still. Pursuing an economic philosophy based on making others poorer does not just beggar our neighbours - it beggars ourselves.