China Has Surpassed U.S. As #1 Economy But It Doesn’t Mean Much

China Has Surpassed U.S. As #1 Economy But It Doesn’t Mean Much

As many have predicted, China has finally surpassed the U.S. as the world’s largest economy- a position America has held for 142 years, since 1872 when we first surpassed the size of the UK economy. No, we are not the leading economy in the world anymore… in terms of size.

Market Watch:

The International Monetary Fund recently released the latest numbers for the world economy. And when you measure national economic output in “real” terms of goods and services, China will this year produce $17.6 trillion — compared with $17.4 trillion for the U.S.A.

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.

Market Watch also explains how IMF came up with the results:

These statistics are measured by Purchasing Power Parity (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.

The U.S. would still be leading by nearly 70% if you look at international exchange rates, but PPP is arguably the best and most accurate way of measuring.

However, the writer Brett Arends is dramatizing what is really happening.  While China’s economy may now be the world’s largest, it’s still not the richest. The U.S. is still greatly ahead in GDP, which is the economic output per person. America is still almost 75 years ahead of China when considering the more important measure of GDP. If you want to read more about how this calculation was formed, check out the post by AEI.

Obama has not helped our economy improve in the past nearly 6 years he has been in office for, but becoming #2 in economic size does not equal political or military power, as some may think- that power truly lies in taxes. I know it looks like a big deal, and it sure feels like a big slap in the face for the U.S, but while it looks like the U.S. is at all all time low, and in some ways, that may be true, China is not going to become the next world superpower and the economy statistics don’t doom the U.S. to its death- America is still one of the world’s greatest superpowers in history.

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