The United States became the world’s biggest economy between World War I and World War II, but at the end of the second world war, the United States constituted fully 25 percent of the global economy. This economic power allowed the United States to relatively quickly and cleanly take the mantle of global leadership from the United Kingdom, which was the leading global power for much of the 19th century.
We seem to be in a similar transition period now, with the United States in a relative decline when compared to other nations, and China in particular rising economically. So how do the United States and China stack up currently? Is the United States still top dog economically? Or has the upstart already lapped us?
I’ll give the punchline right here and then explain my reasoning: China is already a larger economy than the United States and will probably be twice our size by 2030. This fact will reverberate with very serious consequences in the coming decades as China increasingly throws its economic weight around.
China’s average annual growth during the 21-year period from 1995 to 2015 was about 10 percent growth per year. There’s a good trick for getting a feel for how fast anything is growing, called the Rule of 72. Just divide the growth rate into 72 and that gives the doubling rate. So a 10 percent annual growth gives 7.2 years for each doubling. This means that from 1995 to 2015, China’s economy doubled in size three times, which is eight times (2 x 2 x 2).
This illustrates very well the perils of linear thinking when it comes to exponential growth. The United States, by contrast, has been growing about 2 percent annually for the past couple of decades. Seventy-two divided by 2 gives 36 years for each doubling. Comparing the two, we see that China has grown eight times bigger in the same time period that the United States hasn’t even doubled.
Now, extrapolate these trends forward another decade or two and we can see easily why people are beginning to worry more and more about China as an economic rival to the United States and other world powers. It’s a very real problem.
China may indeed continue to slow down in its growth. It already has slowed to an annual average rate of about 7 percent in the past few years. But even at 7 percent per year, China’s economy still will double every 10 years.
So how does China currently stack up in relation to the U.S. economy? The International Monetary Fund calculates each economy’s size in an annual report. Based on the measure of Gross Domestic Product (the total goods and services produced each year) called Purchasing Power Parity (PPP), China surpassed the United States as the world’s biggest economy in 2014.
You heard me right: China is already a bigger economy than the United States.
China made up 16.6 percent of the global economy in 2014 compared with 15.9 percent for the United States. The IMF projects that China will comprise 20 percent of the global total by 2021, with 14.4 percent for the United States. By 2030, if these trends continue, the United States will be literally half the size of China’s economy by 2030.
That’s essentially tomorrow — just 13 years away.
If we accept this data as accurate (there is considerable debate, however, about how accurate it is), we should be thinking very seriously about how China will be using this new economic power. Based on Xi Jinping’s various initiatives — which Harvard professor Graham Allison calls a “Make China Great Again” approach — it seems likely that China will be looking to throw that weight around to make itself even larger and dominant not only in Asia, but before very long around the world.
This column is the first of a series where I’ll be looking at various aspects of the U.S.-China relationship and Pacific Rim foreign policy more generally. I’m not an expert in this field. I studied international law in law school, I’ve written widely as a columnist in foreign policy, and I’ve studied Mandarin for a few years now (though I’m far from fluent) — but I’ve not been to China yet, and I’m not involved in daily discussions about China and U.S. foreign policy.
My intent in writing these pieces is to learn from my writing and research process and to become educated on these highly important issues. And I’m hoping that you, my readers, will help me learn and go through a similar journey with me.
When we reflect on the fact that China is on the verge of becoming twice the size of the U.S. economy, the urgency of learning more about this relationship should become clear.
— Tam Hunt is a writer and lawyer based in Hawaii.