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Can US economy thrive as China rises?

The US economy retains top status, but Beijing's economic engine is shrewdly built – and set to propel China forward fast.

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Little wonder that China feels able to push back against the Obama administration in some global forums.

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But the rise of places like India and Brazil as investment magnets makes clear that America's competition is not just from China. The larger story is that the global economy is becoming multipolar rather than dominated by one superpower.

"It's a good thing when other countries are developing capabilities and their standards of living are going up," says Gary Pisano, a Harvard Business School expert on technology strategy. It creates new opportunities for the US – new export markets and imports that boost productivity or enhance the quality of life in the US.

Unlike competition between individual companies or sports teams, countries typically reap mutual benefits from trade, Professor Pisano says.

But some economists worry that other nations' rapid catch-up could come at America's expense, and even Pisano argues that the US needs policies to ensure its prosperity.

Obama sketched his own policy prescriptions in his Jan. 25 speech – a mix of proposals that include research funding, infrastructure support, education efforts, and reforms of taxes and immigration. But while many economists support those ideas, others call for different approaches, such as tougher trade policies with China or a fiscal austerity plan that might make America less beholden to China as a buyer of Treasury debt.

"The solutions are right here at home," says Joseph Quinlan, chief market strategist at US Trust – Bank of America Private Wealth Management.

A central theme of his new book, "The Last Economic Superpower," is that America can gain by coaxing forward the trend of globalization, and would be greatly harmed if US-China rivalry degenerated into an economic cold war.

The prescriptions that he and others offer in many ways echo those Obama proposed in his address. "The president's got it right, in terms of we need to invest more in the future," Mr. Quinlan says.

Topping Quinlan's list is better education and retraining of less-skilled workers, and grappling with America's dependence on foreign oil (a problem China shares).

Others emphasize the role that government can play by supporting basic research. And although the private sector excels at applied research, Pisano points to the Internet as an example where government-backed investment paid big dividends.

The list from economists and business groups goes on: Improve outdated infrastructure, reform the tax code to make America a more attractive place for multinational firms, welcome more highly trained immigrants.

Even some free-trade conservatives call for a tougher stand to protect US interests against China. Irwin Stelzer, a contributing editor of the Weekly Standard, argued recently that the US must keep closer watch on the transfer of technologies that China pushes for. He says a General Electric joint venture in avionics, which GE claims is nonmilitary, could well help the Chinese advance "the brains" of their military jets.

Despite all its challenges, the US still has considerable strengths, from its entrepreneurial tradition to a consumer culture that serves as a test bed for honing new products. The need, economists say, is to keep building on those strengths, so America remains a magnet for centers of innovation such as Silicon Valley.


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