The Snowball Effects As China's Economy Moves To No. 1

Iron and steel factory in Nantong, China
Iron and steel factory in Nantong, China
Noah Smith


NEW YORK — What a difference two decades make. In 1997, China's gross domestic product was about 11% of the U.S's. By 2017, it was up to 63%.

But this overstates the difference in living standards between the two countries, since prices are generally lower in China. In purchasing-power-parity terms, China's economy became the world's largest in about 2013.

So which country's economy is really bigger? The truth probably lies somewhere between these two figures. If China were to abolish its capital controls and open its currency to foreign speculation, there's a good chance the yuan would rise in value, bringing China's GDP at market-exchange rates closer to its PPP numbers. In other words, the economies of China and the U.S. are now fairly evenly matched in size. But with four times the U.S. population, China has more room to grow. And China is already the world's largest manufacturer and biggest exporter.

In other words, if it's not already the world's dominant economic power, China soon will be. But what does this mean? What are the implications of Chinese economic dominance, for the world and for U.S. policy?

The biggest effect will be that China becomes the leading beneficiary of what economists call agglomeration effects. Agglomeration refers to the tendency of businesses to cluster together in the same region, because one company's workers are another's customers. As economists Paul Krugman, Masahisa Fujita and Anthony Venables showed two decades ago, agglomeration can bring big benefits to whatever region has the densest concentration of economic activity.

The web of institutions that the U.S. built will be increasingly irrelevant and toothless.

Increasingly, that region is China rather than the U.S. China is where the biggest markets are, so that's where multinational companies want to build their factories and offices. That in turn leads to whole supply chains migrating to China, as companies try to locate near their upstream suppliers and downstream customers. This process is accelerated by another phenomenon known as clustering effects — the collection of a huge repository of manufacturing talent and know-how in Chinese cities. China's general hostility to foreign companies will slow this process, but the gravitational pull of the world's biggest economy will be hard to resist.

This also means that President Donald Trump will be fighting an uphill battle in his trade war against China. To push a company to move out of China, U.S. tariffs would have to be very high, since they will have to overcome not just labor-cost differences between the two countries but the pull of the Chinese market, the concentration of manufacturing know-how and the existence of stable supply chains. Many companies say they're ready to pull out, but the reality may be very different — for example, last year Ford Motor Co. declared that it would build its next-generation car in China.

Another result of China's new economic heft is that the web of institutions that the U.S. built to regulate the global economy after World War II will be increasingly irrelevant and toothless. The World Bank, for example, which lends money to poor countries, is already finding itself sidelined as Chinese loans pour into developing nations.

One of the most important U.S.-led economic institutions is the dollar itself. For decades, the dollar has functioned as the world's reserve currency — nations around the world hold their foreign exchange stockpiles in dollars, many issue dollar-denominated debt and commodities such as oil are often priced in dollars. Some believe this has put strains on the U.S. economy, because the increasing demand for dollars tends to make the currency more expensive, contributing to persistent U.S. trade deficits.

If this theory is right, then as China's economy grows, the U.S. will be less able to handle the capital inflows that are necessary to remain the world's reserve currency. It would seem like a good idea for China to shoulder some of the burden of being the global reserve currency, just as the U.S. took over this duty from the U.K. a century ago. But China insists on maintaining its system of capital controls, making it hard to move money in and out of the country. That will prevent the yuan from joining or replacing the dollar in international markets. But as China further eclipses the U.S. in size, that could lead to greater instability in the international monetary system.

The final impact of China's economic rise is geopolitical. Countries that once would cater to the U.S. in military and political matters in order to secure access to U.S. markets will now be tempted to switch their allegiance to China. This pressure will be especially acute for East Asian countries that are close to Chinese markets.

Countries may be tempted to switch their allegiance to China.

The U.S., of course, could have acted to counter or slow this process by establishing a trading bloc with other East Asian countries that excluded the Chinese. President Barack Obama tried to do exactly this with the Trans-Pacific Partnership, but Trump killed that deal as soon as he came into office.

So the fact that China is now or will soon be the world's biggest economy matters a lot. It means the U.S. can no longer depend as much on its large markets to secure investment or geopolitical fealty. Unless China makes severe missteps in the near future — like barring foreign companies, crushing productivity with excessive government control or precipitating domestic conflict — it will enjoy many of the benefits that once flowed to its chief rival.

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The Food Truck, A Sign That The White And Wealthy Are Moving In

In San Diego, California, a researcher tracked how in the city's low-income neighborhoods that have traditionally lacked dining options, when interesting eateries arrive the gentrification of white, affluent and college-educated people has begun.

Balboa Park Spring Fling Food Truck festival

San Diego Food Trucks via Facebook
Pascale Joassart-Marcelli

SAN DIEGO — Everybody, it seems, welcomes the arrival of new restaurants, cafés, food trucks and farmers markets.

What could be the downside of fresh veggies, homemade empanadas and a pop-up restaurant specializing in banh mis?

But when they appear in unexpected places – think inner-city areas populated by immigrants – they're often the first salvo in a broader effort to rebrand and remake the community. As a result, these neighborhoods can quickly become unaffordable and unrecognizable to longtime residents.

An appetite for gentrification

I live in San Diego, where I teach courses on urban and food geographies and conduct research on the relationship between food and ethnicity in urban contexts.

In recent years, I started to notice a pattern playing out in the city's low-income neighborhoods that have traditionally lacked food options. More ethnic restaurants, street vendors, community gardens and farmers markets were cropping up. These, in turn, spurred growing numbers of white, affluent and college-educated people to venture into areas they had long avoided.

This observation inspired me to write a book, titled The $16 Taco, about how food – including what's seen as "ethnic," "authentic" or "alternative" – often serves as a spearhead for gentrification.

Take City Heights, a large multi-ethnic San Diego neighborhood where successive waves of refugees from places as far away as Vietnam and Somalia have resettled. In 2016, a dusty vacant lot on the busiest boulevard was converted into an outdoor international marketplace called Fair@44. There, food vendors gather in semi-permanent stalls to sell pupusas, lechon (roasted pig), single-sourced cold-brewed coffee, cupcakes and tamarind raspado (crushed ice) to neighborhood residents, along with tourists and visitors from other parts of the city.

Informal street vendors are casualties.

A public-private partnership called the City Heights Community Development Corporation, together with several nonprofits, launched the initiative to increase "access to healthy and culturally appropriate food" and serve as "a business incubator for local micro-entrepreneurs," including immigrants and refugees who live in the neighborhood.

On paper, this all sounds great.

But just a few blocks outside the gates, informal street vendors – who have long sold goods such as fruit, tamales and ice cream to residents who can't easily access supermarkets – now face heightened harassment. They've become causalities in a citywide crackdown on sidewalk vending spurred by complaints from business owners and residents in more affluent areas.

This isn't just happening in San Diego. The same tensions have been playing out in rapidly gentrifying areas like Los Angeles' Boyle Heights neighborhood, Chicago's Pilsen neighborhood, New York's Queens borough and East Austin, Texas.

In all of these places, because "ethnic," "authentic" and "exotic" foods are seen as cultural assets, they've become magnets for development.

Food vendor at outdoor international marketplace called Fair@44.

Fairat44 via Instagram

A call for food justice

Cities and neighborhoods have long sought to attract educated and affluent residents – people whom sociologist Richard Florida dubbed "the creative class." The thinking goes that these newcomers will spend their dollars and presumably contribute to economic growth and job creation.

Food, it seems, has become the perfect lure.

It's uncontroversial and has broad appeal. It taps into the American Dream and appeals to the multicultural values of many educated, wealthy foodies. Small food businesses, with their relatively low cost of entry, have been a cornerstone of ethnic entrepreneurship in American cities. And initiatives like farmers markets and street fairs don't require much in the way of public investment; instead, they rely on entrepreneurs and community-based organizations to do the heavy lifting.

In City Heights, the Community Development Corporation hosted its first annual City Heights Street Food Festival in 2019 to "get people together around table and food stalls to celebrate another year of community building." Other recent events have included African Restaurant Week, Dia de Los Muertos, New Year Lunar Festival, Soul Food Fest and Brazilian Carnival, all of which rely on food and drink to attract visitors and support local businesses.

Meanwhile, initiatives such as the New Roots Community Farm and the City Heights Farmers' Market have been launched by nonprofits with philanthropic support in the name of "food justice," with the goal of reducing racial disparities in access to healthy food and empowering residents – projects that are particularly appealing to highly educated people who value diversity and democracy.

Upending an existing foodscape

In media coverage of changing foodscapes in low-income neighborhoods like City Heights, you'll rarely find any complaints.

San Diego Magazine's neighborhood guide for City Heights, for example, emphasizes its "claim to authentic international eats, along with live music venues, craft beer, coffee, and outdoor fun." It recommends several ethnic restaurants and warns readers not to be fooled by appearances.

Longtime residents find themselves forced to compete against the "urban food machine"

But that doesn't mean objections don't exist.

Many longtime residents and small-business owners – mostly people of color and immigrants – have, for decades, lived, worked and struggled to feed their families in these neighborhoods. To do so, they've run convenience stores, opened ethnic restaurants, sold food in parks and alleys and created spaces to grow their own food.

All represent strategies to meet community needs in a place mostly ignored by mainstream retailers.

So what happens when new competitors come to town?

Food vendor at outdoor international marketplace called Fair@44.

Fairat44 via Instagram

Starting at a disadvantage

As I document in my book, these ethnic food businesses, because of a lack of financial and technical support, often struggle to compete with new enterprises that feature fresh façades, celebrity chefs, flashy marketing, bogus claims of authenticity and disproportionate media attention. Furthermore, following the arrival of more-affluent residents, existing ones find it increasingly difficult to stay.

My analysis of real estate ads for properties listed in City Heights and other gentrifying San Diego neighborhoods found that access to restaurants, cafés, farmers markets and outdoor dining is a common selling point. The listings I studied from 2019 often enticed potential buyers with lines like "shop at the local farmers' market," "join food truck festivals" and "participate in community food drives!"

San Diego Magazine's home buyer guide for the same year identified City Heights as an "up-and-coming neighborhood," attributing its appeal to its diverse population and eclectic "culinary landscape," including several restaurants and Fair@44.

When I see that City Heights' home prices rose 58% over the past three years, I'm not surprised.

Going up against the urban food machine

Longtime residents find themselves forced to compete against what I call the "urban food machine," a play on sociologist Harvey Molotch's "urban growth machine" – a term he coined more than 50 years ago to explain how cities were being shaped by a loose coalition of powerful elites who sought to profit off urban growth.

I argue that investors and developers use food as a tool for achieving the same ends.

When their work is done, what's left is a rather insipid and tasteless neighborhood, where foodscapes become more of a marketable mishmash of cultures than an ethnic enclave that's evolved organically to meet the needs of residents. The distinctions of time and place start to blur: An "ethnic food district" in San Diego looks no different than one in Chicago or Austin.

Meanwhile, the routines and rhythms of everyday life have changed so much that longtime residents no longer feel like they belong. Their stories and culture reduced to a selling point, they're forced to either recede to the shadows or leave altogether.

It's hard to see how that's a form of inclusion or empowerment.The Conversation


Pascale Joassart-Marcelli is a Professor of Geography and Director, Urban Studies and Food Studies Programs at San Diego State University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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