University of Missouri, St. Louis IRL @ UMSL Dissertations UMSL Graduate Works 4-23-2021 Is United States’ Economic Power in Decline? Can China Replace the U.S. as the World’s next Economic Superpower? Islam Bakirci University of Missouri-St. Louis, [email protected] Follow this and additional works at: https://irl.umsl.edu/dissertation Part of the International Relations Commons Recommended Citation Bakirci, Islam, "Is United States’ Economic Power in Decline? Can China Replace the U.S. as the World’s next Economic Superpower?" (2021). Dissertations. 1024. https://irl.umsl.edu/dissertation/1024 This Dissertation is brought to you for free and open access by the UMSL Graduate Works at IRL @ UMSL. It has been accepted for inclusion in Dissertations by an authorized administrator of IRL @ UMSL. For more information, please contact [email protected]. Is United States’ Economic Power in Decline? Can China Replace the U.S. as the World’s next Economic Superpower? Islam Bakirci M.A. in Political Science, May, 2017, University of Missouri – St Louis MPA/MSPS in International Relations, January, 2010, Suffolk University Master of Business Administration, May, 2007, Southern New Hampshire University B.A. in International Relations, July, 2003, Bursa Uludag University A Dissertation Submitted to The Graduate School at the University of Missouri-St. Louis in partial fulfillment of the requirements for the degree Doctor of Philosophy in Political Science April 2021 Advisory Committee Kenneth P. Thomas, Ph.D Chairperson J. Martin Rochester, Ph.D David C. Kimball, Ph.D Yuguo Liao, Ph.D Copyright, Islam Bakirci, 2021 2 Is United States’ Economic Power in Decline? Can China Replace the U.S. as the World’s next Economic Superpower? Table of Contents Chapters 1. Introduction 6 2. Literature Review 14 3. Rationale of the Study 32 4. Methodology 40 Part I 5. Case Studies 53 Introduction 53 France and the Breakdown of the Bretton Woods International Monetary System 54 The Oil Crisis and the Role of Saudi Arabia 74 The General Agreement on Tariffs and Trade (GATT) and the U.S. - the EC – Japan Triangle 86 World Trade Organization (WTO) - Relationship between the U.S. and Developing Countries 93 Conclusion for the Case Studies 96 Part II 6. Economic Power of the United States 102 Introduction 102 The Truth About U.S. Gross Domestic Product (GDP) Growth 103 The Evolution of U.S. Inflation - Consumer Price Index (CPI) 120 The Long Story of U.S. Debt 131 Saving Trends of the United States 148 Fluctuation in U.S. Productivity 154 Conclusion for the Second Part (Economic Power of the U.S.) 161 Part III 7. Economic Power of China 176 Introduction 176 The Myth and Reality of Chinese GDP 177 China’s Inflation (CPI) Dilemma 195 China’s Debt Bomb 202 Puzzle of China’s High Saving Rate 214 The Rise and Decline of China’s Productivity 223 Conclusion for the Third Part (Economic Power of China) 235 8. Conclusion 250 Reference List 253 3 Figures and Tables Figure 1 Relative Share of the World Wealth (1830-1940) Figure 2 Share of World GDP (1950-1970) Figure 3 Gold Reserves from 1957 to 1971 Figure 4 Algeria and Libya Gold Reserves from 1965 to 1969 Figure 5 Price of Crude Oil from 1960 to 1976 Figure 6 U.S. GDP, GDP growth Rate, CPI, Unemployment Rate from 1972 to 1976 Figure 7 EU – Japan GDP (1960-1986) Figure 8 U.S. – World Nominal GDP and U.S.-World GDP (1950-1959) Figure 9 U.S. – World GDP and U.S.-World Real GDP (1950-1959) (2010 prices) Figure 10 World Nominal GDP (1970-1979) Figure 11 World Real (2010 Prices) GDP (1970-1979) Figure 12 U.S. – World Nominal and Real GDP (2010 Prices) (1990-1999) Figure 13 U.S. – World Nominal and Real GDP (2010 Prices) (2000-2009) Figure 14 U.S. – World Nominal and Real (2010 Prices) GDP (2010-2018) Figure 15 U.S. Share as Percentage of World GDP Figure 16 U.S. Overall Economic Growth by Decades Figure 17 U.S. Average Real GDP Growth Rate by Decades Figure 18 U.S. Consumer Price Index for All Urban Consumers Figure 19 U.S. Consumer Price Index Price Increase by Decade Figure 20 U.S. CPI Decade Average Figure 21 U.S. Debt (1950-1959) Figure 22 U.S. Debt (1980-1989) 4 Figure 23 U.S. Debt (1990-1999) Figure 24 U.S. Debt (2000-2018) Figure 25 U.S. Federal, Household and Corporate Debt as a Percentage of GDP Figure 26 U.S. Debt as Percentage of World Debt Figure 27 U.S. Total Debt as Percentage of GDP from 1950 to 2018 Figure 28 U.S. Saving as a Percentage of GDP and GNI Figure 29 U.S. Labor Productivity Nonfarm Business and Total Factor Productivity from 1950 to 2018 Figure 30 U.S. Real GDP, Labor Productivity and Total Factor Productivity by Decade Figure 31 China, U.S. and World Nominal from 2000 to 2009 Figure 32 China, U.S. and World Real GDP (2010 Prices) from 2000 to 2009 Figure 33 China Foreign Direct Investment Figure 34 China’s Exports of goods and services (current US$) and Exports of goods and services Figure 35 China, U.S. and World Nominal from 2000-2009 Figure 36 China Economic Growth by Decade Figure 37 China Average GDP Growth Rate Figure 38 China and U.S. Nominal GDP and Growth Rate Figure 39 China’s CPI, GDP and GDP Growth Rate from 1980 to 2018 Figure 40 China – U.S. CPI 2010=100 Figure 41 China – U.S. CPI Increase by Decade Figure 42 China’s Debt to GDP Ratio (Corporate, Household and Government Debts) (1980-2019) Figure 43 China Total Debt as Percentage of GDP from 1980 to 2018 Figure 44 China’s Total Debt as a Percentage of U.S. and World Total Debt by Decade Figure 45 China Total Factor and Labor Productivity (1980-2018) Table 1 U.S. and U.K Balance of Payments 5 Table 2 Saudi Arabia Oil Revenue (1969-1974) Table 3 International Trade from 1929 to 1932 Table 4 GATT Trade Rounds Table 5 U.S. – World Nominal and Real GDP (2010 Prices) (1960-1969) Table 6 Export of Goods and Services from 1970 to 1985 Table 7 U.S. and World Nominal and Real GDP (2010 Prices) (1980-1989) Table 8 U.S. Consumer Price Index - 1982-1984 Base Year Table 9 U.S. Debt (1960-1969) Table 10 U.S. Debt (1970-1979) Table 11 U.S. Debt (1970-1979) Table 12 U.S. Debt Growth Rate Table 13 Household, Government, Corporate and Nonresident Saving Rate in the U.S. Table 14 China – U.S. – World Nominal and Real GDP (2010) from 1980 to 1989 Table 15 China – U.S. – World Nominal and Real GDP (2010) from 1980 to 1989 Table 16 China, U.S. and World Real GDP (2010) from 2000-2009 Table 17 China’s Share as a Percentage of U.S. and World Nominal and Real GDP Table 18 China -U.S. Debt to GDP Ratio (Corporate, Household and Government Debts) 2007- 2018 Table 19 Saving Rates in China Table 20 Saving Rates in the U.S Table 21 China and U.S. Labor and Total Factor Productivity and GDP growth by Decade 6 Chapter 1 Introduction During George W. Bush’s first term many intellectuals in the International Relations (IR) field were talking about the greatness of American power. Many of them labeled the United States “the new Rome on the Potomac” or “A Modern-day Empire”. The United States accounted for twenty-five percent of the world’s economic output with its five percent of the world’s population (Nye, 2010: 2). The U.S. made up nearly half of global military expenditures; at the same time, it had the most extensive soft-power resources (Nye). However, starting with Bush’s second term in office, an increasing number of scholars have hotly debated the future of the U.S. power and its hegemony. They are insisting that something fundamentally changed in the U.S., and they interpret this fundamental change as the beginning of American power decline, which is very much reminiscent of the Athenians’ Sicilian Expedition. It is well-known case in the IR that the defeat of Athenians in Sicily was the turning point for Athenians. This changed the way their power was regarded by its enemies, and more importantly, by its allies. Before the shocked defeat, Athenians were seen as a powerful state that was able to hold wide and strong alliances against its enemies. However, after the defeat, due to the decline of Athenians power, many of its former allies made new alliances against Athenians. According to scholars, this is exactly what is happening to the U.S. They believe that starting from the second half of the first decade of 21st century the U.S. is losing its power in the international relations with fewer allies. Actually, this is not the first time that this debate has been raised. Since World War II, scholars, politicians and economists have resurrected the issue of the decline of U.S. power for each decade. Mao’s victory in China in the late 1940s, the Korean War, the Sputnik challenge of the Soviet Russia in the 1950s, the social unrest and Vietnam War in the 1960s, the 7 end of the Bretton Woods system and the oil shocks in the 1970s, Japan’s challenge and recessions in the 1980s, the dotcom bust, September 11, the war in Afghanistan, and especially in Iraq, were interpreted as the beginning of the American decline.