Will China’s Economy Overtake the U.S.’ in 2016?
By Molly Castelazo, FutureofUSChinaTrade.com Facilitator
Earlier this week I set to beef up the Facts & Figures section (see more than 20 new charts and graphs). This morning I sat down to create some graphs showing GDP for the U.S. and China. It wasn’t until the graphs were done and I was ready to upload them to the website that it really hit me: these forecasts (from the Economist Intelligence Unit) say that China’s economy will be bigger than the U.S.’ in 2016.
Let me say it again: According to data from the Economist Intelligence Unit, China’s economy will be bigger than the U.S.’ in 2016.
The assumptions about GDP growth rates in China and the U.S. are not unreasonable (see here). Now, our expert commentator Michael Pettis thinks that China’s rebalancing will bring the country’s growth rates way down (3-5 percent he suggested) – which would of course mean that China won’t overtake the U.S. in 2016 (though it would still be growing faster than the American economy, meaning that China would still overtake the U.S. at some point).
But I think there may be a bigger question at hand here (and I’m prepared for the deluge of angry emails): So what? China has 1.3 billion people to the United States’ 300 million – per capita GDP in China is still just 15% of the U.S.’ But even regardless of that fact, what does it mean for the U.S., for China, for the world that China becomes the biggest economy? I think it means that more people in the world have higher standards of living. As our moderator Art Blakemore wrote, “the growth of China does not require or even imply the decline of the U.S. . . In the end: China is richer. The U.S. is richer.”
In the past two weeks we’ve heard shouting among U.S. policymakers about China’s currency. And I don’t think there are any economists (none I’ve talked to anyway, in the U.S. or in China) who disagree that the renminbi is undervalued. (Though there is disagreement about the effect a revaluation would have.) But I think that what underlies it all is a general fear – one that our moderator Clyde Prestowitz reflects well here – that the U.S. is declining while China rises.
Yet even Clyde who, I think it’s fair to say, is more aggressive about the need for competitiveness policy in the U.S. than our expert commentator Ed Prescott (who would leave it to the free market) would agree that there is nothing inherent in China’s “rise” that means doom for the U.S. Writes Clyde in his scenario sketch: “This imagination of the future of trade between the U.S. and China is not about the U.S. stopping China from being successful. It’s not a zero-sum contest. It is instead about America . . . doing what is good for America.”
I have an idea (and this is really the raison d'être of FutureofUSChinaTrade.com): instead of blaming China for the U.S.’ economic woes, let’s all sit down at the table and talk about a way to engage with each other that is mutually beneficial. Some have said that trade is not a zero-sum game, but politics can make it one. So let’s agree that a mutually beneficial solution is best for everyone involved and then let’s work toward a trade framework that truly is win-win.