Union Sundown — where to from here, and will China edge the US aside?

Daily Maverick

26-05-2025

Given the analysis in the first four parts of this series, it is not hard to see how Donald Trump and his circle might have concluded that, before the US financial system risked breaking down altogether, US manufacturing needed to be restored.
Theoretically, this would reduce the external deficit, and so by extension reduce the dependency on foreign financing of the US deficit. If, in parallel, the US budget deficit could also be reduced ('Doged'), then so much the better.
The only problem is… IT IS WAY TOO LATE TO RESTORE US MANUFACTURING, especially if it is envisaged that it will bring back high-paying jobs to Middle America.
This dog barked – with Bob Dylan – in the 1980s. The caravan has since moved on… so far on, it is back to where the world's centre of economic gravity was before 1840: Asia.
Even where jobs are still critical in the costing of the manufacturing process, Asian wages are still considerably lower than those of the US. Even if in 2025, China's manufacturing wages are now 'only' one-sixth of those of the US (in 2001, they were one 33rd.), India's wages are still at the ratio to those of the US, where China's were in 2001. Result? In April 2025, Apple announced it was moving iPhone manufacture for the US market from China, not back to the US, but to India. Plus ça change, plus c'est la même chose.
The Modern Times of Charlie Chaplin are now Ancient Times
But increasingly, wages are not the reason why it will be difficult to resuscitate US manufacturing. Today, China's trump card is automation… and not just automation, but automation turbocharged by AI: a glance at the YouTube of Xiaomi's 'Dark Factory' making 72 cellphones a minute and with 'no' employees, or the YouTube of Xiaomi's EV factory outside Beijing completing a car every 67 seconds with very few employees, and it is abundantly clear that today's manufacturing game is a world away from those Chaplinesque manned assembly lines of the 1980s. (If you truly want to scare yourself, watch a video of BYD's car plant under construction in Zhengzhou.)
Automation China-style means factories running for 8,000 hours a year versus the best of Germany: 2,000 hours.
All work is energy transformed
Add to this the fact that the energy increasingly used by Chinese industry is renewable and likely some of the cheapest on Earth (Chinese electricity prices are half those of the US), and it is clear that modern Chinese manufacturing now lives on another planet altogether. China is not merely the 'Workshop of the World' – its industrial capacity now exceeds the next nine countries combined.
It's the thought that counts
By focusing new investment on next generation industries (what China calls New Quality Productive Forces, such as lithium-ion batteries, solar panels, wind turbines, humanoid robots, electric vehicles and even nuclear power plants), China is no longer an industrial follower but the industrial leader. Much of this new advantage is born out of home-grown research.
There is ample evidence to suggest the US is losing (and perhaps has already lost) the edge in many spheres of research and development. The Australian Strategic Policy Institute releases a bi-annual update on the state of play in 64 key areas of research: their Critical Technology Tracker. In the latest update, China leads in 57 categories, the US in just seven: quantum computing, atomic clocks, vaccines and medical countermeasures, genetic engineering, nuclear medicine and radiotherapy, small satellites and natural language processing.
The December 2024 arrival of Deep Seek's AI programme (and now a host of Chinese copycats like Ali Baba's Qwen3), has raised doubts about the latter category too. Whoever wins the race in the AI revolution, it surely helps that Chinese data costs one-fifth of that of US data.
All this makes the Trump Administration's attack on science – especially the research being pursued by US universities – particularly short-sighted. But it may be too late even for US universities: the March 2025 Georgetown University's Emerging Technology Observatory reports that no US university made the top 10 universities in chip research: eight were Chinese, one was French and one was Singaporean.
Where does all this leave us?
Here are my top 10 predictions for the next decade.
A difficult-to-predict period of global reset lies ahead. The US economy will go through a rough patch as it tries to reboot its manufacturing sector growth drivers. Though most Americans living in their US dollar 'bubble world' might not see it, the relative size of the US economy in a global context will shrink. Indeed, by 2035, China's economy may even be larger than the US's at market exchange rates and not just (as now) in terms of Purchasing Power Parity 'dollars'. The dislocations involved in this reordering – this clear recentering of the global economy on Asia – will be many and varied. The trade reorientation has been under way for 20 years and will continue; the capital reset will be new and so particularly noticeable to market participants and especially global investors.
The rest of the world's net savers will begin the uncomfortable process of breaking their addiction to the 'easy and rewarding' comfort of the US Bond market as the latter gradually loses its 'store of value' credentials.
Globalisation, as it means the dominance of the Atmosphere of Capital and its centrality on the US, will decline. It will gradually be replaced by a new form of globalisation, a 'reorientation' driven by the Atmosphere of Trade. This will be focused on a China-centric Asia.
Trump's America First policy will mean trade beyond the West will grow faster than trade between the Rest and the West. This is because trade within the Rest will find new avenues of growth connecting parts of the world that previously traded mostly with the West.
The Anglo-Saxon nations – with the US addicted to monetising its 'exorbitant privilege' – will learn to live within their means, which, in the first instance, will be easier for the commodity-rich trio of Canada, Australia and New Zealand than the US and UK.
That said, the US's economic profile will become more commodity-rich over time, led by its energy and agricultural sectors. The UK – with little residual commodity wealth to fall back on – may find itself the hardest hit of the Anglo-Saxon nations and so find it most difficult to adjust to the new global realities. One avenue still open to the UK might be to become China's leading 'capital partner' inside the developed West.
Just as the US economy will rebalance toward trade and away from capital, so China's economy will, albeit more slowly, do the opposite. China will not seek an early acceptance of the renminbi as the world's primary reserve currency. Yes, China will grow the renminbi as a currency used as a medium of exchange in trade, but not aggressively pursue the idea of the Chinese currency as a store of value… at least not for now.
Non-US equities – and particularly those outside the West altogether – will fare better versus US alternatives in the future than they have in the past (though, as always, do not expect the outperformance to be 'straight line'). This will also happen for non-US bonds, especially for nations whose external accounts are broadly balanced or in surplus.
The role of the US dollar, while remaining powerful, will slip as the US re-emphasises trade over capital. This will mean – albeit with fluctuations – a gradual decline in the US dollar's value, first against Western peers and thereafter especially versus Asian peers.
Commodities – for as long as they are still mostly priced in US dollars – are likely to rise in value as the US dollar retreats in value. This will be especially noticeable when overall world trade returns to growth after the oncoming reset. Gold prices are likely to be firm, but the yellow metal's recent run up is likely to settle into a higher trading range once the current shift away from the US lessens in intensity.
Quo vadis?
When John Connally, Richard Nixon's Treasury secretary, attended a G10 meeting in Rome in 1971 after the US ended the US dollar's automatic convertibility into gold, he told his shell-shocked peers: 'The dollar is our currency, but it's your problem.'
The US dollar is still the rest of the world's problem, but the nature of that problem has changed. More and more, the world's surplus countries are looking for alternative stores of value for their savings, a search that is gradually eroding the US dollar's reserve currency status.
Likewise, trade invoiced in a currency other than the US dollar is spreading: China's CIPS – the alternative to the SWIFT settlement system – is growing in this space.
All this said, the biggest difference between 1971 and 2025 is that the US dollar is now America's problem too.
How today's world navigates the treacherous shoals it is now entering – shoals leading to the oceans of opportunity beyond – is hard to predict. But under the Trump Administration, that journey has begun.
. DM