Paper - Belfer Center for Science and International Affairs, Harvard Kennedy School

The Great Economic Rivalry: China vs the U.S.

| Mar. 23, 2022

Executive Summary

For the first time since the U.S. overtook Great Britain in the 1870s to become the leading economy in the world, the U.S. now faces an economic rival that is as large, and by some measures, larger than it is. This chapter examines China’s record of closing the gap with the U.S. in most economic races, and even overtaking it in some. Our analysis focuses on four pillars of economic power: GDP, trade, business and investment, and finance. GDP creates the substructure of power in relations among nations. While the race is not always to the swift, nor the battle to the strong, nations with larger GDPs have historically exercised greater power in international relations. As Adam Smith taught us, trade enriches both seller and buyer, creating a larger pie for everyone. But it also creates webs of asymmetrical interdependence that advantage some over others. Investments by businesses in manufacturing reflect their judgments about where they can produce the best product at the lowest price. While no one denies that these choices have consequences for the relative manufacturing strength of one nation over another, that is not the business of businesses. Financial firms are rewarded for earning the highest returns at the lowest risk for their clients – without regard to the impact this has on the growth of some nations’ economies at the expense of others.

Having reviewed the evidence about the relative performance of China and the U.S. over the past generation, we report eight bottom lines up front:

  • China’s sustained “miracle economic growth” over the past four decades at an average rate four times that of the U.S. has redefined the global economic order.

  • When measured by the traditional yardstick – market exchange rate – since 2000, China’s GDP has soared from $1.2 trillion to $17.7 trillion. On the current trajectory, it will overtake the U.S. within a decade. By the yardstick both the CIA and the IMF judge to be the best metric for comparing national economies – purchasing power parity – China has already surpassed the U.S. to become the world’s largest economy.

  • China has displaced the U.S. to become the manufacturing workshop of the world.

  • China has overtaken the U.S. to become the No. 1 trading partner of most nations in the world.

  • China has established itself as the most essential link in the world’s critical global supply chains.

  • China has replaced the U.S. as the primary engine of global economic growth. Since the 2008 financial crisis, one-third of all growth in the world’s GDP has occurred in just one country: China.

  • In 2020, China supplanted the U.S. as the home to the largest number of the most valuable global companies on Fortune’s Global 500 for the first time. It has also rivaled the U.S. as the leading country in attracting foreign investment and is neck and neck with the U.S. in gross R&D investments.

  • On the other hand, the dollar remains the world’s dominant reserve currency, accounting for 60% of foreign exchange reserves. While Beijing’s aspirations and progress deserve careful attention, America retains its lead in several key arenas: the dollar remains the preferred currency for cross-border transactions, U.S. equity markets remain the world’s largest, and the U.S. retains a significant lead in venture capital investments. Moreover, as the society that attracts the most talented inventors and entrepreneurs in the world and gives them the freedom and opportunity to realize their dreams, the U.S. remains unrivaled.

For more information on this publication: Belfer Communications Office
For Academic Citation: Allison, Graham, Nathalie Kiersznowski and Charlotte Fitzek. “The Great Economic Rivalry: China vs the U.S..” Paper, Belfer Center for Science and International Affairs, Harvard Kennedy School, March 23, 2022.