Is China an Economic Threat to the U.S.?

Via Matthew Yglesias comes this AEI op-ed:

While there are many and very real short-term risks to the Chinese economic miracle, the more fundamental reason why the US need not fear a long-run economic challenge from China lies in the disparate productivity performance between the two economies. China’s recent rapid growth has not been the product of technological innovation or productivity increases of the sort that is now taken for granted in the US. Rather, it has been the product of investing an inordinate proportion of its income and of bringing part of its rural labor surplus into the market economy. For China to pose a real long-term economic threat to the US, China would need to match the US’s sustained productivity performance, which has long been the envy of the world. Unless China truly embraces free-market economics, there is little chance of that occurring anytime soon.

Matt makes an important philosophical (as well as economic) point:

The claim I agree with here is that for China to overtake the U.S. economy in the long-run, it would need to match the U.S.’s sustained productivity growth. But there’s no “threat” here. German workers are more productive on a per-hour basis than are American workers. Americans would be better off if we achieved German levels of per-hour productivity, but closing the gap by reducing German productivity wouldn’t help Americans. Similarly, Chinese people becoming as rich and DVD-laden as Americans wouldn’t threaten anything. Indeed, it would be good, since if Chinese people were richer, they would presumably buy more American stuff.

I would like to expand on my earlier post. The fact that China’s per capita GDP is only 15% of our per capita GDP begs the convergence question. While the U.S. likely will continue to be an innovator in terms of having a more significant commitment to R&D, Barro and Sala-i-Martin note in Technological Diffusion, Convergence, and Growth:

In the long run, the world growth rate is driven by discoveries in the technologically leading economies Followers converge toward the leaders because copying is cheaper than innovation over some range. A tendency for copying costs to increase reduces followers growth rates and thereby generates a pattern of conditional convergence. We discuss how countries are selected to be technological leaders, and we assess welfare implications. Poorly defined intellectual property rights imply that leaders have insufficient incentive to invent and followers have excessive incentive to copy.

China has certainly adopted a policy of copying as opposed to innovating. While the Communist government is not as free market orientated as the folks at AEI would hope, there is little reason to believe that its per capita income will not increase relative to the U.S. even if convergence does not lead to equality of per capita income for the two nations.