Trump says SA is ‘rich’. He has a point

US President Donald Trump speaks to members of the media during a meeting with Prime Minister of Greece Kyriakos Mitsotakis in the Oval Office of the White House January 7, 2020 in Washington, DC. Picture: Alex Wong / Getty Images / AFP

Surely there are more than just ‘developed’ or ‘developing’ economy categories?

US President Donald Trump unleashed a flurry of criticism when he remarked that a lot of countries categorise themselves as developing countries “to avoid World Trade Organisation [WTO] rules to get special treatment”.

He clearly explained his trade policy to the world within the maximum number of characters that Twitter allows: “The WTO is BROKEN when the world’s RICHEST COUNTRIES claim to be developing countries to avoid WTO rules and get special treatment. NO more!!! Today I directed the US Trade Representative to take action so that countries stop CHEATING the system at the expense of the USA!”

That was some six months ago and last week America announced the outcome of a review of its list of countries that enjoy preferential trade terms. It said the previous list, dating from 1998, was obsolete.

The US trade department removed 25 countries from the list of least-developed countries, mentioning that investigations, whether nations are harming US industries with unfairly subsidised imports, are unnecessary.

Not surprisingly, China tops the list of countries Trump accuses of benefiting unfairly from trade terms designed to help poor countries.

He took to Twitter again last week to ensure that the world takes notice of the changes. “China is viewed as a developing nation. India is viewed as a developing nation. We’re not viewed as a developing nation. As far as I am concerned we are a developing nation too,” said Trump.

Trump is probably right. China established itself as the manufacturing and trade behemoth of the globe decades ago – all the while receiving criticism of its manufacturing processes ranging from environmental damage, unfair labour practices and low regard for human rights to shoddy safety concerns for workers and customers alike. Overall, its system of manufacturing and trade is skewed in its own favour by the blatant manipulation of its exchange rate.

What the figures say

Figures from the World Bank and the International Monetary Fund (IMF) bear out Trump’s arguments that China, at least, should not be allowed to demand preferential trade terms. In economic terms, China is second only to the US measured by its total gross domestic product (GDP) if one accepts that GDP figures and their variants are suitable measurements for wealth.

Read: Is GDP still a good measure of economies?

The IMF calculated China’s nominal GDP for 2019 at $14.1 trillion ($14 100 billion) compared to America’s $21.4 trillion. It estimates total world GDP at just above $82 trillion, meaning that China produced around 17% of the world’s good and services last year.

Basic economics teaches us that nobody will produce something that they can’t sell, and that production thus equals income. China, with an income of $14.2 trillion is indeed one of the world’s richest countries.

Trump also specifically mentioned India. The IMF ranking puts India in fifth place with a GDP of $2.9 trillion, just behind Germany and ahead of the UK, France and Italy.

Countries ranked by nominal GDP

Rank Country Nominal GDP ($bn)
 World GDP 87 265
1  United States 21 439
2  China 14 140*
3  Japan 5 154
4  Germany 3 863
5  India 2 936
6  United Kingdom 2 744
7  France 2 707
8  Italy 1 989
9  Brazil 1 847
10  Canada 1 731
11  Russia 1 638
12  South Korea 1 630
13  Spain 1 398
14  Australia 1 376
15  Mexico 1 274
16  Indonesia 1 112
17  Netherlands  902
18  Saudi Arabia  779
19  Turkey  744
20 Switzerland  715
 Taiwan  586
21  Poland  566
22  Thailand  529
23  Sweden  529
24  Belgium  518
25  Iran  459
26  Austria  448
27  Nigeria  447
28  Argentina  445
29  Norway  418
30  United Arab Emirates  406
31  Israel  388
32  Ireland  385
 –  Hong Kong  373
33  Malaysia  365
34  Singapore  363
35  South Africa  359
36  Philippines  357
37  Denmark  347
38  Colombia  328
39  Bangladesh  317
40  Egypt  302
41  Chile  294
42  Pakistan  284
43  Finland  270
44  Vietnam  262
45  Czech Republic  247
46  Romania  244
47  Portugal  236
48  Peru  229
49  Iraq  224
50  Greece  214
51  New Zealand  205
52  Qatar  192
53  Algeria  173
54  Hungary  170
55  Kazakhstan  170
56  Ukraine  150
57  Kuwait  138
58  Morocco  119
59  Ecuador  108
60  Slovakia  107
 –  Puerto Rico  100
61  Kenya 98.6
62  Angola 91.5
63  Ethiopia 91.2
64  Dominican Republic 89.5
65  Sri Lanka 86.6
66  Guatemala 81.3
67  Oman 76.6
68  Venezuela 70.1
69  Luxembourg 69.5
70  Panama 68.5
71  Ghana 67.1
72  Bulgaria 66.3
73  Myanmar 66.0
74  Tanzania 62.2
75  Belarus 62.6
76  Costa Rica 61.0
77  Croatia 60.7
78  Uzbekistan 60.5
80  Uruguay 59.9
81  Lebanon 58.6
 –  Macau 55.1
82  Slovenia 54.2
83  Lithuania 53.6
84  Serbia 51.5
85 DRC 49.0
86  Azerbaijan 47.2
87  Turkmenistan 46.7
88  Côte d’Ivoire 44.4
89  Jordan 44.2
90  Bolivia 42.4
91  Paraguay 40.7
92  Tunisia 38.7
93  Cameroon 38.6
94  Bahrain 38.2
95  Latvia 35.0
96  Libya 33.0
97  Estonia 31.0
98  Sudan 30.9
99  Uganda 30.7
100  Yemen 29.9
101  Nepal 29.8
102  El Salvador 26.9
103  Cambodia 26.7
104  Honduras 24.4
105  Cyprus 24.3
106  Zambia 23.9
107  Senegal 23.9
108  Iceland 23.9
109  Papua New Guinea 23.6
110  Trinidad and Tobago 22.6
111  Bosnia and Herzegovina 20.1
112  Laos 19.1
113  Afghanistan 18.7
114  Botswana 18.7
115  Mali 17.6
117  Gabon 16.9
116  Georgia 15.9
118  Jamaica 15.7
119  Albania 15.4
120  Mozambique 15.1
121  Malta 14.9
122  Burkina Faso 14.6
123  Mauritius 14.4
124  Benin 14.4
125  Namibia 14.4
126  Mongolia 13.6
127  Armenia 13.4
128  Guinea 13.4
129  Zimbabwe 12.8
130  North Macedonia 12.7
131  Bahamas. The 12.7
132  Madagascar 12.6
133  Nicaragua 12.5
134  Brunei 12.5
135  Equatorial Guinea 12.1
136  Moldova 11.7
137  Congo. Republic of the 11.6
138  Chad 11.0
139  Rwanda 10.2
140  Niger 9.44
141  Haiti 8.82
142  Kyrgyzstan 8.26
143  Tajikistan 8.15
 –  Kosovo 8.00
144  Malawi 7.52
145  Maldives 5.79
146  Togo 5.50
147  Mauritania 5.65
148  Montenegro 5.42
149  Fiji 5.71
150  Barbados 5.19
151  Somalia 4.96
152  Eswatini 4.66
153  Sierra Leone 4.23
154  Guyana 4.12
155  Suriname 3.77
156  South Sudan 3.68
157  Burundi 3.57
158  Liberia 3.22
159  Djibouti 3.17
160  Timor-Leste 2.94
 –  Aruba 2.90
161  Bhutan 2.84
162  Lesotho 2.74
163  Central African Republic 2.32
164  Eritrea 2.11
165  Belize 2.00
166  St Lucia 1.99
167  Gambia 1.77
168  Antigua and Barbuda 1.69
169  Seychelles 1.64
170  San Marino 1.59
171  Solomon Islands 1.44
172  Grenada 1.24
173  Comoros 1.18
174  St Kitts and Nevis 1.03
175  Vanuatu 0.95
176  Samoa 0.91
177  St Vincent and the Grenadines 0.86
178  Dominica 0.59
179  Tonga 0.49
180  São Tomé and Príncipe 0.43
181  Micronesia 0.38
182  Palau 0.29
183  Marshall Islands 0.22
184  Kiribati 0.18
185  Tuvalu 0.04

 

Source: IMF data as published by Wikipedia

* Figures exclude Taiwan and the special administrative regions of Hong Kong and Macau.

It made local headlines last week that the US – if not Trump personally – suddenly decided that SA is a rich country.

According to GDP figures, SA is not a “poor” country. It is ranked number 35 on the list of 185 countries. We are in the top 25% in the world in terms of nominal GDP.

‘One or the other’ inadequate

The effective reclassification of the 25 countries from developing countries to developed countries for purposes of trade concessions shows that classifying countries as either one or the other is totally inadequate.

Where would one draw the line between rich and poor on the above list of GDP figures? Drawing the line in the middle of the list would assume that all the countries listed to number 92 are rich and those from 93 to 185 are poor.

Tunisia is at 92 with a nominal GDP of $38.7 billion and Cameroon is at 93 with a GDP of $38.6 billion. That the figure of around $39 billion is equal to less than 0.2% of the GDP of the US clearly shows that it is simplistic to put the distinction between developing and developed countries in the middle of the list.

Putting it at the average number instead of the mean also yields a nonsensical answer.

That would result in only 24 countries in the world being classified as rich, with Belgium being regarded as the poorest of the rich with a GDP of $517 billion. Austria, Norway and the United Arab Emirates would then be considered poor.

However, the IMF mentions that comparing nominal GDP doesn’t take into account differences in the standard of living from country to country. One of the big shortcomings when using nominal GDP as a yardstick is that figures can change significantly from year to year due to changes in exchange rates.

Adapting raw GDP figures to reflect the purchasing power of a country’s currency and comparing purchasing power parity GDP figures (PPP GDP) tries to solve the problem of different currencies and variations in the cost of living between countries.

This ranking puts China way ahead of the US and moves India up to the third spot. but it still does not change the problem of where to draw the line between poor and rich.

Countries ranked highest by purchasing power parity GDP

Rank Country PPP GDP ($bn)
1  China 27 309
2  United States 21 439
3  India 11 326
4  Japan 5 747
5  Germany 4 444
6  Russia 4 349
7  Indonesia 3 737
8  Brazil 3 456
9  United Kingdom 3 131
10  France 3 061
11  Mexico 2 628
12  Italy 2 443
13  Turkey 2 347
14  South Korea 2 320
15  Spain 1 941
16  Canada 1 900
17  Saudi Arabia 1 899
18  Iran 1 471
19  Egypt 1 391
20  Thailand 1 383
21  Australia 1 365
 Taiwan 1 300
22  Poland 1 287
23  Nigeria 1 217
24  Pakistan 1 202
25  Malaysia 1 079
26  Philippines 1 026
27  Netherlands 1 005
28  Argentina  904
29  Bangladesh  838
30  South Africa  809

 

Source: IMF data as published by Wikipedia

The list of the 30 richest countries based on PPP GDP still includes SA (number 30), as well as Brazil, Thailand and South Korea – which were all taken off the US list for special trade deals, along with China and India.

Read: Why Korea has first-world economy and developing-market currency

It is interesting (and clever) for Trump to refer to different countries and nations in his arguments and not to people. The richest countries are not necessarily home to the richest people, as analysis of GDP per capita shows.

Well-to-do countries with relatively small populations head the list when ranked by GDP per capita. Tiny Luxembourg is number one with a per capita GDP of $113 196, followed by Switzerland ($83 716) and Norway ($77 975). The US drops to number 7 with an average of $65 111, far behind Luxembourg. Their huge populations push China to number 65, Brazil to 72 and India to 139.

Once again, where should one draw the line between rich and poor? The mid-point is between SA with $6 100 and North Macedonia with $6 096. This line would rate SA citizens as rich, despite our average annual GDP per capita being less than 10% of that of our US counterparts

The world average of $11 355 indicates that there are only 60 countries on the list of 186 where per capita income is above average. India’s citizens are suddenly poor, with a per capita GDP of only $2 171.

Selection of countries ranked by GDP per capita

Rank Country GDP per capita
1  Luxembourg 113 196
2  Switzerland 83 716
3  Norway 77 975
4  Ireland 77 771
5  Qatar 69 687
6  Iceland 67 037
7  United States 65 111
8  Singapore 63 987
9  Denmark 59 795
10  Australia 53 825
11  Netherlands 52 367
12  Sweden 51 241
13  Austria 50 022
 Hong Kong 49 334
14  Finland 48 868
15  San Marino 47 279
16  Germany 46 563
17  Canada 46 212
18  Belgium 45 175
19  Israel 42 823
20  France 41 760
21  United Kingdom 41 030
22  Japan 40 846
23  New Zealand 40 634
24  United Arab Emirates 37 749
25  The Bahamas 33 261
26  Italy 32 946
27 South Korea 31 430
28  Malta 30 650
29  Spain 29 961
30  Kuwait 29 266
31  Brunei 27 871
32  Cyprus 27 719
33  Slovenia 26 170
34  Bahrain 25 273
35  Taiwan 24 827
36  Estonia 23 523
37  Czech Republic 23 213
38  Portugal 23 030
39  Saudi Arabia 22 865
40  Greece 19 974
41  Slovakia 19 547
42  Lithuania 19 266
48  Hungary 17 463
49  Seychelles 17 052
55  Croatia 14 949
56  Poland 14 901
57  Romania 12 482
 World GDP per capita 11 355
61  Russia 11 162
62  Malaysia 11 136
64  Mexico 10 118
65  China 10 098
66  Argentina 9 887
78  Botswana 7 859
89  South Africa 6 100
90  North Macedonia 6 096
91  Namibia 5 842
109  Indonesia 4 163
127  Angola 3 037
137  Ghana 2 223
138  Nigeria 2 222
139  India 2 171
140  Kenya 1 997
153  Lesotho 1 338
154  Zambia 1 307
166  Zimbabwe  859
167  Rwanda  824
178 Democratic Republic of Congo  500
179  Mozambique  484
183  Malawi  370
186  South Sudan  275

 

Source: IMF data as published by Wikipedia

The Swedish doctor and academic Hans Rosling wrote in his book Factfulness that one of the major misconceptions in the world is that people divide the world in two. “I’m talking about that irresistible temptation we have to divide all kinds of things into two distinct and often conflicting groups, with an imagined gap – a huge chasm of injustice – in between.

“It is about how the gap instinct creates a picture in people’s heads of a world split into two kinds of countries or two kinds of people: rich versus poor,” says Rosling in one of the first paragraphs in the first chapter.

Factfulness introduced a different way of looking at figures and a novel way to draw graphs to break down the temptation to see only two categories.

Its final analysis finds that the bulk of the world’s population falls right in the middle between rich and poor – in that gap that most people fail to recognise.

The book makes the point that this is the case when using any figures that measure development and living standards, including level of education, nutrition, infant and child mortality, access to clean water, household income, size of families, economic growth and life expectancy.

The graphs in the book show that the bulk of the world’s population is neither rich nor poor. Based on 2017 figures, the conclusion is that most of the world’s citizens fall within a per capita GDP range of around $2 500 to $25 000.

The minority fall outside this admittedly wide range. The poor minority reside mostly in Africa and the rich minority in Europe, America and Japan.

Rosling forecasts that life will get much better for the middle block by 2040 and that the poor minority will nearly halve in number to 600 million, while the population in the middle will remain the majority with some 6.8 billion people. The rich will number around 1.7 billion in 2040.

 

Brought to you by Moneyweb

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