Think America is guaranteed to lose out to China? Think again…

A quick survey question: Who do you think is more likely to be better off — on top of the pile, if you will — in the year 2025? America or China?

The conventional wisdom (what everybody knows) is that China is on a relentless march upward, and America has entered an era of permanent decline.

And yet, as management guru Peter Drucker once observed, “What everybody knows is frequently wrong.”

Does that mean the China transcendence prediction, and America’s guaranteed demise, could be looked on as foolishness from a future vantage point? Stranger things could happen. You never know…

To stretch your mind a little, today we will make the base case for “America triumphant” in the year 2025. Fourteen years from now, about the time so many expect Uncle Sam to be on a respirator, America could actually be doing great, even as the dragon slips on some unexpected banana peels.

To start out, let’s address a contradiction that doesn’t make a lot of sense.

On the Western side, faith in America’s leadership has hit all-time lows. (Speaking collectively here: Democrats, Republicans, the Federal Reserve, all of them.) And yet America itself still has a core so vibrant, a set of cultural ideals and can-do capabilities so strong, that the country can’t be counted out. Under the right circumstances, America can shake off weak leaders like a bad case of fleas.

On the Eastern side, faith in China’s leadership has hit all-time highs. How else do you explain investors’ belief that a fraud-wracked totalitarian state, still “command and control” oriented in so many ways, will just keep going from strength to strength?

It is a truly wacky paradox. Everything we have learned about economics, about how markets work and political systems work, points in the direction of “free markets for free men” — the culture that America used to uphold better than anyone else, and a culture the USA can re-embrace.

And yet today, countless Western world investors (who made their wealth in free-market, free-speech environments) are now putting their faith in (drum roll please) a quasi-capitalist, quasi-fascist politburo, where decisions as to what to build and where, and which articles can be run in the newspaper and which can’t, are made by connected government officials!

The assumption is that China’s top-down, authoritarian political structure will necessarily evolve toward free-market democracy as capitalism further takes hold. But that’s one heck of a big assumption, no? Perhaps in line with W.’s assumption that democracy would flourish in Iraq?

The alternative view (regarding political change) is that, even if China does not embrace “free markets for free men,” it can still succeed anyway. To this your humble editor asks: Have we learned nothing from the communists, or even the Japanese for that matter, when it comes to state-driven “command and control?”

But getting back to the “America wins by 2025″ argument…

The crux of the scenario focuses on three things: food, energy and manufacturing.

First up, food: America, as you know, is an agrarian superpower. The USA is one of the largest grain exporters in the world. We grow so much food, in fact, that we can afford to burn up food in our gas tanks (in the form of cockamamie ethanol subsidies).

China, in contrast, does not have enough food, and their troubles are only going to grow worse. China as a country is wracked by devastating droughts. Their water reservoirs are both polluted and depleted, with the problem bordering on catastrophe.

So what is going to happen, then, over the next decade as China’s hunger grows (and weather patterns worsen)? If the long-run agriculture forecasts are correct, a lack of self-sufficiency in future years could be a very big problem. America will have that self-sufficiency. China won’t.

Next up, energy. Once again, a big problem for China, especially with “peak oil” kicking in (as it inevitably will over the next few years) and with the Middle East threatening to blow up (a virtually guaranteed occurrence also).

But did you know America is a major power when it comes to energy too? The USA is addicted to oil, to be sure, but there are huge quantities of another valuable, clean-burning fuel under Americans’ feet — natural gas.

Is it so hard to imagine an American energy culture switched over from oil to natural gas? A world with natgas hybrid electric cars, and natgas power plants fueling electric generator stations all across the country?

Remember, we are talking about the year 2025 here. Somewhere between now and then, the price of oil will surpass $200 a barrel, perhaps even $300, at which point the heavy infrastructure costs for switching from crude to natty will seem cheap.

But the point is, America will get through the crude oil crisis and have natural gas waiting for it on the other side, with enough abundance to support the U.S. economy (perhaps with further help from our Canadian friends). That is long-term energy security. What kind of energy security does China have?

The final point to consider is manufacturing. Over the past few years we have seen and heard a great deal about the “China price,” with China being the low-cost manufacturing outlet to the world. That reality is already fading now, as wages and input costs in China rise.

What happens to the manufacturing equation, though, if America endures a fiscal crisis of great proportion at some point in the next few years? At least two things happen. First, Americans stop buying so much from overseas exporters. Second, jobs start coming home!

Imagine America, five years from now, in the midst of true “Great Depression” conditions, with unemployment at 30%. Were this to be the case, the rest of the global economy would be in a major slump too, as the USA is worth a quarter of world GDP.

But with all those Americans out of work, what would happen to manufacturing jobs? They would start coming home! To the extent that America declines economically, the USA once again becomes a cheap labor state. Why wouldn’t corporations start aggressively moving factories back home in droves?

And by the way, for those who expect the dollar’s value to fall to zero and stay there — how does that work in a world where food and energy are scarce with the U.S. having an abundance of both? As the technology picks up, we may even be able to export gas (in the form of LNG) as well as grain at some point.

How well would grain sell to a hungry world if priced in “worthless” dollars? How quickly would manufacturing jobs return to the USA if cheap American workers were paid in dirt-cheap greenbacks?

And by the way, we haven’t even touched on America’s capacity to innovate… if someone solves the peak oil problem in a big way by engineering bacteria that eat carbon dioxide and excrete gasoline (a real project), which country do you think will pull it off? If there is a new cleantech and biotech revolution that sweeps the planet, bringing in trillions of revenue from aging humans on every continent, which country do you think will have the innovation lead?

Now, imagine fast-forwarding to the year 2025…

The great dragon, which was supposed to be dominant by now — it is 2025 remember — actually hit a series of snags beginning in late 2011, when the entire Chinese economy imploded under the weight of overcapacity and fraud. China then bounced back from this implosion, as Jim Rogers predicted it would, but quickly ran into further problems of intractable civil unrest, infrastructure problems born of “command and control,” and chronic shortages of food and energy that crippled economic output and acted as a huge brake on growth.

America, meanwhile, has once again become “a shining city on a hill” by 2025. A major fiscal crisis hit the USA hard in late 2011, as a Middle East oil spike created “rage riots” and led to inflationary collapse of the bond market. And yet, while the years 2012-2015 were very dark for the USA, an incredibly cheap dollar, coupled with the surging value of grain exports and a return of U.S. manufacturing jobs, enabled Uncle Sam to find his feet.

A vicious wave of inflation swept through the United States for most of the teens, but a new Paul Volcker stepped up in 2020 and “broke the back” of inflation once again. The benefit of all that inflationary pain was that most of America’s debt was monetized out of existence (with China and Japan caught holding the bag). By today — the year 2025 — America is reaping the fruits of new balanced budget laws, huge agricultural profits, a resurgence in home-based manufacturing, and the fruits of a cleantech/biotech new innovation boom.

Could the above not happen? Write in and tell me why it’s impossible. If China can survive near-fatal shocks to the system, as Jim Rogers predicts, then America still can too. And the underlying power of America’s institutions, coupled with potentially significant food, energy and innovation advantages, means the pain of a serious debt and inflation crisis can be endured and then overcome.

China’s food and energy shortages, on the other hand, are only set to become worse — and China’s long-run success as a quasi-capitalist command-and-control state is a dubious proposition at best, with the prospects of successful free-market handoff unknown.

Sound crazy? Write in and tell me why it’s crazy.

This isn’t so much a hard prediction, by the way, as a “thinking outside the box” exercise. So much of the commentary today is just ad nauseum repetition of the obvious party lines that it becomes dangerous to one’s health and wealth to listen to it. We must think for ourselves, and be ready for counterintuitive surprises of all kinds.

– Justice LitleSource: Taipan Publishing Group

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