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The US economy has been the world largest since 1872 when it overtook the UK’s. A heckuva run, no doubt. But that may end this year, according to the Financial Times:
The US is on the brink of losing its status as the world’s largest economy, and is likely to slip behind China this year, sooner than widely anticipated, according to the world’s leading statistical agencies.
Both economies will have gross domestic products of around $16 trillion when you adjust for “purchasing power parity,” or the much cheaper cost of living in China. Economists previously thought China would pull ahead by 2019, but the glacial US recovery has allowed the gap to narrow more quickly. (All this analysis, of course, depends on the accuracy of Chinese economic statistics.)
Some important context here: on a per person basis, PPP GDP is $51,000 in the US vs. $11,000 in China. Anyway you slice the data, China is still a much poorer nation than America. (More than 30 million Chinese, basically the population of Texas, live in caves.) And at market rates, the US economy is about twice as large as China’s. Also note that within two decades or so, China will have an older population than the United States. The Middle Kingdom has become old before it has become rich. In addition to demographic problems, China is still trying to transition to a sustainable, consumer-driven growth model. So the other team has its problems, too.
Now here is what the FT’s headline, “China poised to pass US as world’s leading economic power this year,” really gets wrong. The US remains the world’s leading economic power due to its technological innovation. Most global innovation surveys put the US at or near the top. For instance, the World Economic Forum ranks the US as the 7th most innovative economy, China the 32nd. Bloomberg puts the US at third, while China did not make the top 30. And which global economy is most critical to expanding the technological frontier —a country like Sweden, Bloomberg’s #2 ranked economy with a population of 9.5 million and a $400 billion economy, or the #3 US with its 315 million people and $16 trillion economy? Pound for pound, no nation innovates like America. It’s our deep magic, and a competitive advantage we should be careful not to squander.