Walls Vs Roads : The Differing economic strategies of Two Superpowers

In 2017 I wrote an article published in Family Office Magazine which in today's climate has become highly topical.

At the time of publishing, there was very little discussion in the Western media of China's One Belt One Road initiative which looks to change the global economic balance exponentially. At the same time much was being discussed about the US Mexico border wall.

I felt it necessary to open discussions on the impact of these two contrasting economic initiatives. So i wrote this.....

It’s no secret that global economy depends on the success of the individual economies of world super powers China and the United States. This has been a fact for quite some time. What is interesting, however, is the recent focus with economic policy shown by both countries. The U.S., has begun looking for ways to bring trade back inside its own borders. China on the other hand, has begun working to connect many countries to make other regions – and itself – more prosperous. So, which economy should we be most positive about right now?

Building a wall. We’ve all heard by now the plans of the new U.S. president to build a wall between his country and Mexico as a major immigration initiative. It’s said the wall could cost $22B, and the Trump administration has said it will be paid for by the American public and reimbursed by Mexico. The wall is meant to control illegal immigration, but it may pose a threat to the Mexican economy and indeed prices at the tills in the US.

Some say the wall looks to be paid through severe taxation on imports from Mexico, which could actually hit pockets in the U.S. as those taxes trickle down to the U.S. consumers. Mexico is the 3rd biggest trading partner for the U.S. after Canada and China. Mexico ha $545B in total trade with the U.S. last year, with its exports to the U.S. exceeding imports by $63B, the fourth largest bilateral U.S. trade deficit after China ($347B), EU ($146B), and Japan ($69B).

The U.S. administration is working on bringing trade more within its borders by offering tax breaks for U.S. companies and imposing import taxes on major trade partners. I don’t see this could ever work long term. The introverts guide to economics no longer works in a such a highly-connected world. Putting “America First” may result in “America By Itself.”

Building a road. China, on the other hand, is taking a different approach. They are working on the OBOR project – One Belt, One Road – a connection of countries and economies over the Silk Road economic belt (inland trade route following the world’s first trade route – the silk road) and the Maritime Silk Road (MSR).

China is working to connect approximately 70 countries with new roads and trade routes that will not only increase the economies of these countries, and in turn the investment that China is making in them, but also create additional profit for China’s economy by making the logistics of their exports cheaper and more cost effective.

China may also look to control which developers, suppliers, and construction teams work on these connecting roads through these countries, and whilst boosting the economy of the countries will also boost their own through deals on steel and other materials required for these developments

The CPEC – China Pakistan Economic Corridor – is the flagship product for this development and will be the poster child to many of the other countries for the positive impact it is having on Pakistan’s economy. It also cuts the logistical time for product delivery from China to the Middle East, Africa, and Eurasia. China is investing $46B into CPEC and this will be more than made up for in the increase in its economic standing due to the development in Pakistan.

Can the U.S. keep up? Working to create a prosperous global economy should be the way forward for a world superpower. How can the U.S. compete by being more introverted? Perhaps it can’t. The U.S. may be building a wall between themselves and a prosperous economy.

Simon Calton is the co-founder and chief executive officer of Carlton James Group.