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Countries Do NOT Compete Against Each Other Economically

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Here’s a letter to the Financial Times:

Lawrence Summers makes many good points in “Washington may bluster but cannot stifle the Chinese economy [2]” (Dec. 3). But Mr Summers regrettably promotes a popular myth when he speculates that “for the US to lose its position as the world’s largest economy, after a century of dominance, would be a seismic event.”

It’s not at all clear what sort of “dominance” America enjoys by being the world’s largest economy. Of course, Americans’ wealth  enables Uncle Sam to spend lots of resources on diplomatic and military programs. But how exactly does the wealth of us Americans enable us to dominate non-Americans economically? Whether the American economy is ranked as the first, second, 20th, or 200th largest economy in the world, we can’t force non-Americans to buy our exports, to sell us their imports, or to invest in America.

Even if the large size of the American economy increases the likelihood that the US government will succeed in its efforts to persuade non-American governments to lower their trade barriers, non-American consumers will not purchase American exports unless those consumers believe that American exports make them better off. Under such circumstances, American businesses aren’t “dominating” anyone; they’re simply competing vigorously and, in doing so, improving the lives of non-Americans consumers.

Nor is it clear why America losing its position as the world’s largest economy “would be a seismic event.” What matters to me as an American is how well I can provide over time for myself and my family. And my ability to so provide does not change just because there’s a change in where US GDP ranks relative to the GDPs of other countries. The Bill Gates household remains very prosperous because it can consume lots of goods and services – and this prosperity is neither reduced nor shaken by the fact that the Jeff Bezos household has surpassed the Gates household in net wealth. What’s true of households is here true of countries.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

……

I thank my Mercatus Center colleague Dan Griswold for alerting me to Summers’s essay.

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