The Last Years of America's Historic GDP ReignMichael Dolgow
If the International Monetary Fund is right, in a mere four years the U.S. will no longer be the world’s largest economy. By 2016, the People’s Republic of China’s total economic output will eclipse that of the U.S. Should this prediction prove true, Americans will see their nation knocked off a pedestal it has occupied for so long that holding any other place has become simply unimaginable.
For the moment, the U.S. retains a substantial lead in overall gross domestic product. In 2011, U.S. GDP, at over $15 trillion, was more than double China’s $7 trillion output. When measured by purchasing power parity (PPP)—which unlike calculating nominal GDP does not involve converting yuan to dollars—the figures are closer, but the U.S. economy still leads China by $15 trillion to $11 trillion. The IMF projection is based on purchasing power.
National status aside, if and when China becomes the world’s largest economy, the average Chinese citizen will still be significantly poorer than the average American. With about 1.3 billion people, the PRC’s per capita income—assuming current population growth rates continue—will barely exceed $13,000 by 2016. This compares with a projected American per capita income of $57,200 by the same time. Since the U.S. population of about 315 million is only one-fourth the size of its emerging rival, Beijing will owe its economic triumph principally to sheer numbers.
There is an historical echo to the U.S.-China economic rivalry. While exact numbers are hard to come by, studies of industrial capacity suggest the U.S. overtook Britain, the former reigning GDP champion, around 1880. “At the turn of the 20th century, European governments and people were extremely aware of America’s increasing might,” says Eric Foner, a professor of history at Columbia University. “By around 1900, as many industrial goods were produced in the United States as were manufactured in Britain, France, and Germany combined. Products made here were flooding their markets.”
“The U.S. makes a mantra of free trade,” Foner says, “but America’s rise in the 19th century was accompanied by strong government protection. We sold goods abroad, but we didn’t want other countries selling goods here.” Sound familiar?
How quickly China surpasses the U.S. will depend on a number of factors that are difficult to predict. The IMF model assumes Beijing will maintain a healthy pace of growth, which has averaged around 10 percent annually for over a decade now. But there are signs the Chinese economy is slowing. It grew at an annualized 7.6 percent in the second quarter of this year, down from 8.1 percent in the three previous months. America, meanwhile, has been chugging along at growth rates ranging from 1.3 percent to 3 percent since the start of 2011. It grew by 1.9 percent in the first quarter this year—slower than hoped—but still outpacing most industrialized nations.
In the long run, playing No. 2 to China may be nothing to fret about. China’s rise benefits the U.S. because it provides a consumer base for U.S. goods, according to China scholar Edward S. Steinfeld in his book Playing Our Game: Why China’s Rise Doesn’t Threaten the West. “China is serving not just its own interests but ours as well,” writes Steinfeld. “The global division of labor that China has fostered is the very same one that has permitted the world’s wealthiest nations … to surge forward in technological innovation and commercial creativity.”
All that may be true, but after what could be a reign of over 135 years as the world’s dominant economy, playing No. 2 could be a difficult adjustment for many Americans.