The International Monetary Fund recently released the latest financial statistics for the world economy.
If you measure national economic output in terms of “real” goods and services, this year China will produce $17.6 trillion and the U.S. will produce $17.4 trillion.
For the first time since the end of the 19th century America is not the leading economic power on the planet.
We’ve gone from the top creditor nation on the plant to the top debtor nation in just 20 short years.
As recently as 2000, we produced nearly three times as much as the Chinese.To put the numbers slightly differently, China now accounts for 16.5% of the global economy when measured in real purchasing-power terms, compared with 16.3% for the U.S.
This latest economic earthquake follows the development last year when China surpassed the U.S. for the first time in terms of global trade.
I reported on this looming development over two years ago, but the moment came sooner than I or anyone else had predicted. China’s recent decision to bring gross domestic product calculations in line with international standards has revealed activity that had previously gone uncounted.
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These calculations are based on a well-established and widely used economic measure known as purchasing-power parity (or PPP), which measures the actual output as opposed to fluctuations in exchange rates. So a Starbucks venti Frappucino served in Beijing counts the same as a venti Frappucino served in Minneapolis, regardless of what happens to be going on among foreign-exchange traders.
Make no mistake. This is a geopolitical earthquake with a high reading on the Richter scale.
PPP is the real way of comparing economies. It is one reported by the IMF and was, for example, the one used by McKinsey & Co. consultants back in the 1990s when they undertook a study of economic productivity on behalf of the British government.
Yes, when you look at mere international exchange rates, the U.S. economy remains bigger than that of China, allegedly by almost 70%. But such measures, although they are widely followed, are largely meaningless. Does the U.S. economy really shrink if the dollar falls 10% on international currency markets? Does the recent plunge in the yen mean the Japanese economy is vanishing before our eyes?
Back in 2012, when I first reported on these figures, the IMF tried to challenge the importance of PPP. I was not surprised. It is not in anyone’s interest at the IMF that people in the Western world start focusing too much on the sheer extent of China’s power. But the PPP data come from the IMF, not from me. And it is noteworthy that when the IMF’s official World Economic Outlook compares countries by their share of world output, it does so using PPP.
Yes, all statistics are open to various quibbles. It is perfectly possible China’s latest numbers overstate output — or understate them. That may also be true of U.S. GDP figures. But the IMF data are the best we have.
Make no mistake: This is a geopolitical earthquake with a high reading on the Richter scale. Throughout history, political and military power have always depended on economic power. Britain was the workshop of the world before she ruled the waves. And it was Britain’s relative economic decline that preceded the collapse of her power. And it was a similar story with previous hegemonic powers such as France and Spain.
This will not change anything tomorrow or next week, but it will change almost everything in the longer term. We have lived in a world dominated by the U.S. since at least 1945 and, in many ways, since the late 19th century. And we have lived for 200 years — since the Battle of Waterloo in 1815 — in a world dominated by two reasonably democratic, constitutional countries in Great Britain and the U.S.A. For all their flaws, the two countries have been in the vanguard worldwide in terms of civil liberties, democratic processes and constitutional rights.
some voters have very short memories… and they have failed to learn history
Nafta, GATT, MFN for China did it
Thanks Bush and Obama
OUR SPENDING PROBLEM DID IT ,,, WITH THE HELP FROM OUR SO CALLED COMMUNIST PRESIDENT
thanks Republicans borrowing borrowing and borrowing money from China….
Not bad for a bunch of “communists” when the hell were they supposed to start making profits and getting individually wealthy? The cultural revolution is dead.
that thundering and rumbling noise you just heard and felt in arlington nat.cemetery and other cemeteries around the country was the sound of millions of korean war vets ,who have ever wound up on the business end of a chinese made machine gun during the korean war.spinning in their graves at maximum velocity..and THIS is what they fought and died for? and what about all of us who served our country during the cold war against the soviet threat,and we beat it and for what? so we can be overtaken and playing kissy-face by a regime that is just as evil as the soviets were? gen douglas maccarthur should have told truman to go screw himself and taken care of the problem right there,nixon should have never gone to china and carter should have never thrown taiwan under the bus and establish relations with bejing,they should still be riding bicycles insted of driving buicks.
If America has the 2nd largest economy, than why is the gov’t broke and unemployment is ridiculously high? I’d really like to know that!!!!!
Obama borrowed from China
They are working on taking the the American currency out of being the world currency. When that happens our dollar will not be worth 50¢. We’re losing more of our country freedoms and life as we know it and all congress can think about is bashing Cruz the one person who has the nerve to stand up and fight for the US and the constitution and citizens. Wake up congress and fight obama china and everyone and everything thst is against this country. You congress people are not exempt from all that is in the future for this country if you don’t fight to save it. GOD BLESS AMERICA.