The (GDP) Gap

by Elaine Schwartz    •    Jan 3, 2012    •    361 Views

With the U.S. #1 and China #2, people are starting to wonder when the U.S./China GDP gap will disappear. Here, at the Economist, you can create your own prediction. Just input assumptions about GDP growth rates, inflation and the yuan’s relationship with the dollar and then watch where the 2 nations’ GDP lines cross.

For more of an historical perspective, here, you can look at a new Peterson Institute book, “Eclipse: Living in the Shadow of China’s Economic Dominance.” Graphs on pp. 46 and 47 tell the whole story. In 1870, the top 3 economically dominant countries were the U.K., France and Germany. By 1929 though, the U.S. bar on the graph starts to soar. Russia makes a brief appearance after WWII but within several decades, the U.S., Japan and China remain.

For further insight, you might listen to the Teaching Company’s “Why Economies Rise or Fall.”

The Economic Lesson

It can be tough to compare economies. Even if GDP comparisons use the same components (consumer spending, business investment, government spending, and exports minus imports), still we have to remember that purchasing power differs. Also, we can use per capita (per person) comparisons and other individual standard of living yardsticks.

But, here are some comparisons:

Ranked by 2010 GDP, the U.S is #1 (close to $15 trillion), China is #2 (close to $6 trillion), and Japan is #3 (close to $5.5 trillion). Completing a list of the top 11, then we have Germany, France, the U.K., Brazil, Italy, India, Canada, and Russia.

An Economic Question: Using the Economist calculator, when do you predict that the Chinese GDP will surpass the U.S.?

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