The changing world order

 

Ray Dalio, a famous investor, has the theme of “The changing world order” in his YouTube video and his corresponding book.

https://www.youtube.com/watch?v=xguam0TKMw8

 

The Ukraine invasion is speeding up the process. However, I believe it will take a long time for China to overtake us especially in GDP per capita; hopefully the day is not in my lifetime as I and my children are living in the U.S., and it would adversely affect our lifestyle. Let me argue on both scenario and hope we do not let our dumb nationalism cover judgement.

 

Dalio outlines the hints of China taking over us and let me comment on these with my own hints while some have been discussed in this book.

 

·         Education. Obviously Chinese students are academically far better than the U.S. students as evidenced by the uniform test scores by many organizations, especially on science and technology. If you believe the extra hours of our students playing video games can compete with students of other countries not doing so, you believe in miracles. However, the U.S. is still far ahead in higher education. and that explains why we have so many foreign students including China today. We encourage creativity and are shown by our high-tech companies such as Facebook and Google.

We attract the best brains from the entire world including China. Unfortunately, our government limits foreign students from China on the grounds of security. These politicians are short-sighted as many Chinese students want to settle down in the U.S. for a better living standard and better opportunities for their children; they have contributed to our research and the economy. Hopefully we will not limit students from India, as most of them do not want to return to India as the opportunities and living standard back home are far inferior than the U.S.

Besides the obvious STEM (technical fields), our students and citizens are less civil than our previous generations. The evidence is in the high crime rate, the murder rate and constant shootings. Many enjoy our generous welfare and benefits. If you can collect more benefits by not working, why should you work? Our gun control should be tightened.

·         Technology. It is helped by the education and the research grants from the government in addition to the hard work of the Chinese. Stealing our IP is a thing of the past, and it is similar to how we stole Germany’s technology after WW2 and many other examples. We have laws to protect personal privacy and hence it slows down many applications such as AI. We have moral considerations to limit our research on stem cells and drugs. Most likely, new drugs are produced in foreign countries such as China, as it is too expensive to develop them here.

China is closing the gap in the number and quality of the research papers and grants. China leads us in many sectors in technology such as 5G, AI applications, high-speed trains, electronic payment, etc. Once they fix the fabrication of computer chips (due to our sanctions), we may lose our chip industry by the cheap chips from China. It will take at least 2 years.

·         Reserve currency. USD is depreciating due to our excessive printing of the USD. Many countries are abandoning it. Saudi Arabia and Iran accept Chinese Yuan for trading and Petro Dollar is instantly dead by their decisions. The sanction on Russia’s Ruble and excluding them from SWIFT are hitting our foot more than on Russia. BRICK may form their own SWIFT system. The West has found out now the importance of Russia’s economy as they found out the hard way.

The “One Belt, One Road” trades would make China’s Yuan for trading, although as of 2022, USD is still the majority currency for international trades. But, it is changing fast. The sanctions make many countries worry about the chance of suffering the same fate Ruble is facing. They would cut down USD in the reserve currency partly due to the high inflation in the U.S. (i.e., the purchase power of their reserve funds in USD is depreciating). The rich folks in a country similar to Russia would fear their assets and USD would be seized if there is a conflict between their country and the U.S. I did not expect our great country would do such stupid act.

·         High inflation. Besides the Ukraine war, the pandemic, our government has to face high inflation. As of 4/2022, we have 8.5% based on the latest report of CPI. It would get worse in the coming months due to the contract with longshoremen negotiation and the lockdown of Shanghai that would affect the supply chain. The lack of truck drivers and workers is another problem.  The impact on the poor is higher than the rich. Ukraine and Russia are major countries to export wheat and we will feel the pain when Russia cuts down fertilizer to us. Europe depends about 40% of energy and a lot of precious ores from Russia.

·         Manufacturing. We have to protect our workers, our environment, etc. Hence, we cannot compete with the cheap labor from foreign countries. Globalization solves some problems but the poor in the U.S. depending on manufacturing suffer. Hence, bringing manufacturing back home is not feasible as a $20 wage can never compete with a $2 wage. Moving factories to low-wage countries is not a perfect solution. To illustrate, an iPhone needs thousands of parts and they are supplied by many Chinese companies today, where most of them are in close proximity to the iPhone factory. In addition, these poor countries do not care about the environment and they are not rich enough to buy our products. Basically most of them are similar to China 20 or 30 years ago. Some Chinese factories have been moved there due to high-rising salaries in China.

·         Trade. To me, it is not an important factor for us. We are self-supplied and do not need a lot from foreign countries. China is just the opposite. They need oil and gas, and many minerals.

·         Military. We are the strongest in the world with many foreign military bases. The high cost does not justify our national security and our economy except for the defense military. Our advanced weapons can make one-sided wars with Iran and many Middle East countries, but not with Russia and China that could promote a nuclear war. If we cut down these expenses after the Afghan, we could have balanced our budget. Deploying our fleet in the China Seas is a fast way of burning money. Our carriers could be sitting ducks facing the hypersonic missiles that cannot be defended as of today.

 

Even  with the above, I still believe we are still #1 in many fields if #1 is important to you. If we cooperate with China, we can share the technologies (that would achieve carbon neutrality by at least 2 years) and their low-cost labor to rebuild our infrastructure. I am optimistic due to our high share of resources and farmland per capita and the possible cut in our defense expenditures.

 

We have invaded about 16 countries in recent decades claiming national security, and these countries are thousands of miles away. Russia would react naturally when the neighboring Ukraine invited NATO. The comedian makes his citizens cry over the membership of NATO. The only winner is China and her currency would be far stronger. Any new sanctions on China are not as effective as before. Besides India, there are more countries that would side with Russia, especially the EU countries feeling the pain of high inflation and energy cuts.