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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: