China or NAFTA: The World's Largest Market in the 21st Century?

By Targowski, Andrew; Korth, Christopher | Advances in Competitiveness Research, Annual 2003 | Go to article overview

China or NAFTA: The World's Largest Market in the 21st Century?


Targowski, Andrew, Korth, Christopher, Advances in Competitiveness Research


ABSTRACT

This paper addresses the economic role of these two countries: Will the Chinese economy, as many suggest, continue its strong economic advance under its system of "undemocratic capitalism" and surpass in size the United States and its economically-integrated partners (currently NAFTA), or will China convulse and stagnate? This paper explores the scenario that the United States will see its destiny at the heart of a Free-Trade Area of the Atlantic with an economy significantly greater than China's and with even a larger population. China will remain the dominant Asian economy, but independently and not part of a regional economic union.

MARKET AND POLITICS

World economies strongly affect international politics. At present, about 210 national economies interact on the world political and economic stages. This interaction raises important questions: Will the United States maintain not only military superiority, but also its economic dominance in the world? Will any country or group of countries challenge the U.S. as the superpower? Will the reconfiguration of the world market in the 21st century mean peace or war? Will it mean the "clash of civilizations," or the "end of history?"

Many books and articles have sprung up, suggesting that China will become the world's largest market (Lin and Robinson, 1994; Henderson, 1999; Foy and Maddison, 1999; Hines, 1997). The same kind of predictions were made back in the 1970s, when Japan's economy was growing 7 percent annually and very soon, according to some writers, would become the number one economy in the world.

However, since 1989 the Japanese economy has stagnated, real estate and stock markets have imploded, and the Japanese government has been unwilling, if not unable, to tend to its wounds. Japan's role in the world has contracted.

In the 1980s, when the Asian Tigers were also growing at 7 percent, a few writers even predicted that sooner or later they would become the largest economy. However, these implausible predictions were not fulfilled. The Asian crisis in 1997 proved that the Asian Tigers had switched to a restricted "diet" as the region passed through a disastrous economic contraction. It has become evident that the Asian Tigers are more economically dependent on the West than vice-versa. Both the "Tigers," collectively, and Japan, individually, are too small to become the world's dominant economy.

The People's Republic of China is the only economy that has the economic potential to possibly challenge the U.S. for economic leadership in the next generation. The question, however, is whether China can actually fulfill that potential. A related issue is whether, in an era of regional economic integration, the United States will become the heart of an even larger economic group than the current North American Free-Trade Area (NAFTA) during this decade. Current trends could well see NAFTA (comprised of the United States, Canada and Mexico) expanding to encompass most of the Americas (the Free-Trade Area of the Americas--FTAA). An even grander, but still very plausible, scenario could see the Americas plus most of Europe (perhaps to be called the Free-Trade Area of the Atlantic--FTAAT), unite into a massive free trade area.

That economic integration, coupled with the economic dynamics resulting from that process, would likely maintain the American economic predominance. This process could integrate as many as fifty to sixty Western-Civilization countries and create the world's largest market by 2020. It would have even more consumers than China and include almost half of the world's gross national product in 2020.

This development could lead to a continuation of the long dominance by Western Civilization but it could also lead to a "clash of civilizations" between east and west. Much will depend upon the country that will possibly be the dominant Asian country in the first third of the 21st Century: China. …

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