If you ask Americans who their country's biggest competitor is, many people will tell you China. In a 2012 poll, two-thirds of Americans said they saw China as a competitor of the U.S., rather than a partner or an enemy.
It's clear why Americans think this. Turn on the TV, and it's not hard to find a politician or pundit talking about America's failure to deal with the China challenge -- Donald Trump in particular, as the video below shows.
But is China really the competitive threat that Trump and others claim? A new comprehensive report from the World Economic Forum that looks at the competitiveness of 140 countries shows this is actually far from the truth. What's more, America's biggest competitors are countries that most Americans are not really worrying about.
The report defines competitiveness as a set of institutions, policies and factors that determine how productive an economy is – basically, the raw materials necessary to ensure a country can grow and improve the lives of its people, from good schools and hospitals to stable banks and support for innovation.
By these measures, the U.S. economy looks very good. The report ranks the U.S. third in global competitiveness, behind Switzerland and Singapore. Next is Germany, the Netherlands, Japan, Hong Kong, Finland, Sweden, the UK and then Canada.
China is way down the list at 28th, behind Qatar, Saudi Arabia, Malaysia and others. The interactive map below shows those rankings:
So who is America's biggest competitor, really? Judging from the report, the best candidate might be Germany, which climbed one position last year to rank 4th. Germany has sophisticated and innovative businesses and a highly trained and skilled labor force that can really compete with American companies and workers.
The other thing that people might find surprising is just how well the U.S. ranks in this report. Despite Trump's exhortations to "Make America great again," the country still looks pretty good, at least compared to other places in the world.
In fact, the U.S. climbed to a ranking of 3rd up from 7th position in 2012. This is partly because things are looking dour in other parts of the world, where conditions have been trending toward a ‘new normal’ of lower economic and productivity growth and higher unemployment. For example, here's how much the unemployment rate rose in some countries between 2007 and 2014:
The report ranks the U.S. so highly in large part due to its record of innovation (it ranks 4th by this measure), and the sophistication of its businesses (4th), as well as its developed financial markets (5th) and large market size (2nd). America is also strong in its universities and their partnerships with companies (2nd), its "human capital," including scientists and engineers (4th), company spending on research and development (3rd), and flexible labor markets that let workers and companies change jobs as they please (4th).
There are some areas the U.S. is not doing well, according to the report. The U.S. ranks more poorly in infrastructure (11th), the strength of its institutions (28th) and its macroeconomic environment (96th). It also doesn’t look that great in terms of the quality of its education system (18th), math and science education (44th), and its over-dependence on imports and weak export ability (both 136th).
China, in comparison, faces challenges like rising production costs, an aging population, and diminishing returns on the massive capital investments it has made in things like factories, property and infrastructure over the past three decades. The country ranks 78th in terms of the soundness of its banks, which have accumulated a lot of bad loans. It ranks 67th for incidences of bribery, and 123rd for the amount of time it takes to start a new company, a measure of efficiency. It ranks 68th in higher education and training and 74th in technological readiness.
China’s stalled property market, stock market crash and growing debt all cast doubt on the country's future, but the report argues the country's economy isn't headed for a sudden crash. China benefits from strong economic foundations, including an effective basic public health system, good infrastructure, and a stable macroeconomic environment. But the country still needs to work hard to find a new source of growth in innovation and domestic consumption.
The report divides the 140 countries into five groups based on their stage of growth. The groups range from the poorest countries, like Bangladesh and Ethiopia, where growth is driven by land and labor, to countries like China where gains in efficiency are driving growth, to advanced economies, like the U.S., Japan and Switzerland, where innovation is the big driver.
The report puts China in the third group, and the U.S. in the fifth -- a clear sign that America’s real source of competition is from its trade allies in Europe, not the low-cost manufacturers of Asia or Latin America.
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