How much difference does the total strength of China and the United States make?

Someone once sent me this picture:

A rough estimate of the relative power position of the world’s major economies over 500 years (the maximum is 1).

This is the work of Ray Dali, the president of Bridgewater. He assesses the relative strength of the world’s major countries in terms of education, competitiveness, innovation/technology, trade, economic output, military, financial center status and reserve currency status, and concludes that China and the United States are very close in power in the world today.

However, I do not agree with this view.

Purely in terms of total economic output, China may indeed be moving closer to the US — but in other respects, I’m inclined to think Dario is probably overestimating China’s power.

This overestimation is based on a measure of economic output per person (GDP per capita), rather than a complex indicator. To some extent, this comparison of economic output per capita is itself an underlying reflection of a range of indicators, including innovation, education, competitiveness, financial centers and reserve currencies.

To illustrate this point, let’s do what Dario did and expand the comparison beyond the two countries to focus on the current major economies in the world and even some economies with potential.

According to the population statistics of countries in 2020, there are 90 countries or regions in the world with a population of more than 10 million, covering 95 percent of the world’s human population.

Of these 90 countries and regions, only 24 have a per capita GDP of more than $10,000 — that is, reaching the world average level. They are among the world’s middle and upper income countries and regions (China just reached that level in 2019).

Among these 24 economies, the United States is like Thanes in terms of economic aggregate and GDP per capita.

China, which is closest to the United States in terms of total economic size, is only about 70 percent of that of the United States.

The Netherlands, Sweden and Australia, the closest countries to the US in terms of economic output per head, have only about 80 per cent of that.

In other words, no country in the world with a population of more than 10 million can compete with the United States regardless of its total economic size or per capita economic output.

You think this is just a 2020 phenomenon?

No, no, no, this has been the norm for the last 100 years because the US has been the global economic hegemon for the last 100 years!

In terms of total economic size, we all know that the United States has been the world’s largest economy for more than 120 years. In fact, in terms of real economic output per capita, no large economy has surpassed the United States since the end of World War I.

No matter in terms of output per capita or economic aggregate, China has always been able to secure the first place in the world.

What is this? This is the hegemonic power of the world economy!

This is not only true of the United States today, but it is also clear from the two charts above that the same was true of the Great Britain, the global economic hegemon 200 years ago.

Nor is it just America and Britain. So is the former global hegemon, the Netherlands.

The chart below is my personal chart of changes in GDP per capita for 12 major economies in the world from 1500 to 1973, based on data from Madison’s World Economy 2000.

It can be clearly seen from the figure that the per capita GDP of the Netherlands had been the first in the world since around 1600, until it was replaced by the newly emerging hegemon Britain after the Napoleonic Wars.

So, summarizing the experience of the Netherlands, the United Kingdom and the United States, which have dominated the global economy since 1700, we can say that having the highest GDP per capita in the world and having the highest standard of living for one’s citizens is almost a necessary condition for economic hegemony.

On the other hand, some once-rising powers, such as Germany, Japan and the former Soviet Union, were far from global leaders. Their per capita GDP, even during their rise, remained far lower than that of their then hegemons, which perhaps doomed them to a tragic fate when they challenged the economic hegemons.

Why is that?

Perhaps this is because, since the beginning of the Industrial Revolution, the ease of transportation, the globalization of trade and production, the ease of information transmission, and the explosion of education have enabled the vast majority of elite individuals to feel their true status in the world. Under such circumstances, the rise of any country is not merely the rise of its economic aggregate, but must include the rise of the life and survival dignity of every citizen in it.

This kind of dignity of life and survival is reflected in the improvement of per capita economic output and income level, at least close to the world’s highest level at that time, otherwise, the rise of the majority of the people cannot be recognized. In the process of its rise, it will also be subjected to precise differentiation and blows from external forces (which is inevitable), which will eventually make the “rise” become a short-term mirror.

Specific to the comparison between China and the United States, the comparison of economic aggregate is an indicator of relative strength, but per capita GDP is equally important. If some people feel that they have risen or surpassed, or are even tempted to challenge, the United States, just as the economy is beginning to approach but output per person is still far apart, it is a dangerous way to tear apart the national consensus.

As I said earlier, per capita GDP itself is the underlying reflection of innovation, education, competitiveness, financial center, reserve currency and other indicators. In order to simplify the comparison of power between China and the United States, I compared China’s GDP size and per capita with that of the United States, and assigned a weight of 50% to each, so as to calculate China’s real power relative to the United States.

Note: This method is only used to calculate the strength comparison of major economies in the world, and is not applicable to the comparison between small and medium-sized economies and the United States.

By Dario’s calculation, China’s total power is now close to 90 per cent that of the US.

However, based on my simple comparison of the strength of total economic size and economic output per capita:

By the end of 2021, China’s total power will equal about 47 percent of that of the United States.

Using Madison’s data, apply my simple algorithm as well:

In 1700, when the Netherlands replaced Spain as economic hegemon, the ratio was 1.42;

In 1820, when Britain replaced the Netherlands as economic hegemon, its power ratio was 4.69;

In 1913, when the United States replaced Britain as economic hegemon, its power ratio was 1.59.

 

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