March 21, 2023

Since the end of WWII the US has been the world’s greatest economic, diplomatic and military power. When the Cold War ended with the collapse of the USSR that left the US as the only superpower.

For nearly 80 years we’ve got used to being the top dog, and most of us never even consider that our status could change. Maybe we should though, because history tells us that it can, and probably will.

Someday, maybe sooner than we expect, someone will overtake us – and right now the most likely candidate for that is China.

Are We Losing The Race?

Not that long ago the idea of China outcompeting the US seemed ridiculous. Despite its huge population, it was a poor country.

Its military was large, but armed with crude copies of 1950s Soviet equipment. Chinese exports were notoriously cheap and nasty. And, despite frequent – and often brutal – attempts to reform its economy, it grew slowly or not at all.

About 20 years ago that suddenly changed. Communist Party leader Jiang Zemin took power in 1989 and built on the reforms of his predecessor, Deng Xiaoping. As he started to hand over to his successor Hu Jintao, those reforms started to pay off and China’s economy began to grow dramatically.

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The US economy is significantly larger than China’s. In 2022 our estimated Gross Domestic Product (GDP) is around $25,035 billion. China, in second place, has an estimated GDP of $18, 321 billion. That makes the US economy around 37% larger, which is definitely a big lead.

That lead needs to be put in perspective, though. The world’s third-largest economy is Japan, with a GDP of about $4,301 billion – smaller than the difference between China and the US.

The US and China are far out in front of the pack. That wasn’t always true, though. In fact, in 1980 China wasn’t second only to the US; it was tenth, behind countries like Italy, Canada and Brazil.

Looking at how far behind the two leading economies Japan is now, that gives an idea of how much, and how fast, China has grown. Today the US economy is 37% larger than China’s; in 1980 it was 1,266% larger.

Even as recently as 2010 it was 257% larger – well over twice the size. The speed of China’s economic growth has been stunning. Even more stunning, and worrying, is how much faster than us China is growing.

What Happens If China Becomes The Ruling Economic Power Of The WorldLooking at economic growth from 2005 to 2019, before the pandemic disrupted world economies, we can see that US GDP growth never broke 4% per year and is usually closer to 2%. (Source)

It’s also obvious that the gap has closed a lot in the last ten years – but it hasn’t closed enough.

In 2019 the Chinese economy was still growing more than twice as fast as ours. In fact it grew 3.7% faster. How long will our 37% lead last if China keeps outperforming us like this?

Just ten years.

What Happens If China Overtakes Us?

So, unless the US manages to increase economic growth, there’s a good chance China will overtake us around ten years from now. What difference will that make?

Some historians think it won’t make any difference at all, for a while. After all, the US economy overtook the British Empire’s in the 1880s, but Britain was still the only real global superpower until the 1920s and dominant until WWII.

It wasn’t being overtaken economically that knocked them off the top spot; it was the cost of fighting two world wars. So, if China overtakes us, could life carry on as before?

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Unfortunately, the answer is probably not. The British Empire stayed at the top of the pile because the US, which was mostly isolationist, didn’t try to knock them off. America might have had a bigger economy, but Britain still had a much stronger navy and a lot more diplomatic influence.

All the evidence says that China won’t be happy to let the US remain dominant – and it’s already using its economy to increase its power. In the last 20 years China has slashed the size of its military, but it’s spending a lot more on what’s left.

chinese militaryInstead of a huge mass of half-trained men with old equipment, China now has an all-volunteer military with aircraft carriers, stealth fighters and modern tanks. Are they up to US standards? No – but they’re closing the gap.

China is also exploiting its money to build diplomatic influence.

Schemes like its “Belt and Road” plan have invested billions of dollars into countries in Asia, Africa, even Europe and South America.

Chinese cash has built ports and railroads around the world, making it easier to export Chinese goods – and giving Beijing growing diplomatic power.

In disputes at the United Nations, if a country’s economy depends on Chinese investment, which way is it going to vote?

China certainly isn’t isolationist, the way the US was before 1917. It’s aggressively pushing territorial disputes with its neighbors – especially Taiwan, which it claims is its own territory. It’s building a chain of fortified islands to dominate the western Pacific and South China Sea.

It’s also supporting countries that have disputes with major western powers, for example backing Argentina’s claim to UK territory in the Falkland Islands. China clearly plans to use its muscle, and that would have consequences for us.

What Could China Do?

There are several ways an economically dominant China could make its presence felt. In fact some smaller ones are already happening.

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Remember the original Top Gun? In the 1986 movie Maverick’s leather flying jacket had flag patches showing where his ship had been, and they included the flags of Taiwan and Japan – two nations China is hostile to.

In the 2022 sequel those flags are gone. Why? Because in 1986 nobody cared what China thought, but since Beijing started allowing American movies to be shown in the 1990s China has become a market of 1.4 billion potential viewers.

The success of a movie can be decided by how that market reacts. So Hollywood is already self-censoring anything that might upset China. As Chinese economic power grows, expect that trend to accelerate.

What Happens If China Becomes The Ruling Economic Power Of The World

China is spending money on its military and it isn’t scared to use it.

It’s already trying to intimidate Taiwan, and regularly threatens to seize the island democracy by force.

Not that long ago, US military power would have been enough.

Now Beijing seems to think their own military is powerful enough, at least within a couple of hundred miles of their coast, to keep the US out of a battle in Taiwan.

If their economy overtakes ours then their military won’t be far behind, and we can expect them to use that military to settle disputes. Without the US military to back it up, Taiwan won’t survive as an independent democracy.

China will control the South China Sea, taking over the territory it claims from Vietnam, the Philippines, Borneo and Indonesia. That will give it the power to interrupt key shipping lanes.

Economic power will also allow China to build a network of overseas military bases in countries that rely on Chinese investment. That leaves key western allies like Japan and Australia surrounded by Chinese-influenced territory. Most of Africa will be friendly to Beijing.

Even the Americas aren’t safe; Cuba, Argentina, Chile, Venezuela and Peru are just some of the Latin-American countries that are now being propped up by Chinese money. China could even use its influence there to attack the west through proxies – for example, a rearmed Argentina threatening the Falkland Islands to distract US and British forces.

If China becomes the dominant economy it can attack our finances directly. China holds over a trillion dollars in US debt. If they call that in, or even increase interest rates, the effects could be devastating.

Americans could be forced to pay more tax to cover the interest, while spending on our military and public services is slashed. Beijing could use this threat to force the US government to adopt China-friendly policies. Chinese economic dominance would mean the end of US independence as we know it.

What Will We Notice?

cargo shipThe consequences of China overtaking the US economically are alarming, but how much difference would we notice in our everyday lives?

Unfortunately the answer is quite a lot.

Right now we import huge quantities of Chinese goods, because they’re cheap.

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The reason they’re cheap is that, compared to us, China is a low-wage economy. It’s cheaper to make things there, which is why so many American companies just design products then have them manufactured in China. China won’t always be a low wage economy, though. In fact it’s already changing.

As the gap closes Chinese goods will become more expensive, but often we’ll have to buy them anyway because our own manufacturing industries have declined too much to meet demand in the short or medium term.

Even if US companies start producing at home again prices will still rise, so we won’t be able to buy as much as we can now.

There could also be shortages, as more of the goods China currently exports are bought by its own growing middle class.

Shortages lead to higher prices, and the only alternative to shortages – making more goods here in the US – isn’t going to bring prices back down. If China overtakes us we’re all going to feel poorer, because our money won’t buy as much.

Does It Have To Happen?

Chinese dominance isn’t inevitable. Their economy is still growing faster than ours, but the gap has shrunk over the last few years.

If the COVID pandemic makes our government think twice about the wisdom of buying our goods from China, and America starts making things again, we could rebuild our own strength and slow China’s growth even more.

But, unless we move away from globalization – which means relying on China’s huge, cheap industrial production – and become self-sufficient again, China will dominate the second half of this century.

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