By 2020 who will have more global middle class consumers with incomes ranging from $11,500-$43,000 – Europe or China?
According to the Economist Magazine, it will likely be China, currently with 225 million. This middle class did not exist in 2000. The Chinese middle class has become the bedrock of Communist party support. It is also positioned between the party and the masses.
Beijing cannot afford to lose that support and stay in power. Once peasants become consumers they will not go back to pure poverty without significant social and economic repercussions. Chinese society can be controlled through repression to a degree, but repression would also result in a dysfunctional economy making matters worse.
Beijing has gone to great lengths with stimulus and debt accumulation to manage a slow-down in economic growth from what were unsustainable levels. There doesn’t appear to be an easy answer for how to deflate the debt bubble created.
One also gets the impression that the action to secure control of the South China Sea may provide Beijing with a source of a diversion if necessary to direct the Chinese middle class attention away from pending economic problems with a nationalistic wave of the red flag.
The Economist noted, “For most of China’s modern history, its people have concentrated on building a materially comfortable existence. Since 1978 more than 700 million people have been lifted out of poverty. For the past four decades almost everyone could be confident that their children’s lives would be better than their own.
But the future looks less certain, particularly for the group that appears to be China’s greatest success: the middle class. Millions of middle-income Chinese families are well fed, well housed and well educated. They have good jobs and plenty of choices in life. But they are now confronting the dark side of China’s 35 years of dazzling growth.”
Trade has allowed China to accomplish this. Donald Trump sees their success as having been stolen from the U.S. at the expense of our middle class and vows to end the system by which China has benefited from trade. That is an “America First” policy, but I don’t think that it will make the world better and is fraught with risks much worse than we have now.
From the ag perspective, the first thing that a peasant does when gaining the income to become a consumer is improve his diet. They will never willingly go back to poverty. U.S. ag and Beijing are now both dependent on Chinese ag imports for different reasons, with both fearing disruption.
That is one reason why China carries such huge grain reserves.
Donald professes to have an “America first policy,” but his support of Brexit was a UK first policy. The Brexit triggers another round in the global currency war which will over-inflate the value of the dollar.
I believe that the negotiation of the UK exit from the EU will not go well. I am not convinced that anyone will benefit in the long run from the Brexit but we sure won’t. The value of British currency plunged as did the value of the euro so the individual parts of the European economy will be worth less than their sum was together.
Brexit is likely just the next step in the unraveling of the European economy. That will likely be followed by a liquidity crisis for Italian banks. The Brexit-prompted Beijing to lower the value of the yuan reducing its buying power.
The world’s goods just all got cheaper relative to the dollar hurting U.S. manufacturing, exports and trade. When the trade data comes in, Donald will see it as them cheating on us and will look to retaliate with tariffs.
It just made our wheat the least competitive in the world putting it in feed bunks that otherwise would have feed corn. Protectionist isolationist trade policy practiced by us or any of our trade partners will not benefit the global economy or any country’s middle class.
I cannot point to a single benefit from the Brexit for the global economy. It undermined their buying power of U.S. products. It will make Europe weaker, which Donald seems to believe makes us stronger. This is an enormous reversal in mindset from recent decades and GOP dogma.
Donald doesn’t appear to care if the world economy contracts as long as the U.S. is a relative winner. He appears to have no problem with the world burning up as long as we are at the top of the ash heap. He says that he will build the greatest military ever.
It already is, but we will need it and it may still be inadequate to the threats that a collapsing global economy would create. He sees globalization as having taken advantage of the US rather than being the engine for world stability.
The recent period of globalization has generated enormous growth of wealth creating millions upon millions of global consumers with buying power from peasants who had none. That has been the source of growing commodity demand.
Donald’s trade policies would fully reverse that trend.
Global protectionists have taken an every man for himself mentality that will undermine global economic growth and evolve into chaos.
In my opinion, the gravity of protectionism that will pull the global economy down is like putting the lunatics in charge of not just the asylum, but the entire global economic outcome. Good morning.
David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.
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