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The U.S. and China are trading places in the economic growth race.
U.S. gross domestic product rose 12.2% in the second quarter of this year from a year earlier, outpacing China’s 7.9% gain.
The American edge should continue for at least the next few quarters, many economists say. That would be the first sustained period since at least 1990 in which the U.S. economy grew faster than China’s.
In the short term, the reversal reflects the difference in the two nations’ responses to the Covid-19 pandemic. The coronavirus circulated earlier in China and the country’s leaders quickly imposed quarantines in the pandemic’s epicenter of Wuhan and elsewhere. Chinese GDP fell by 6.7% in the first quarter of 2020 from a year earlier, while the U.S. GDP registered a small gain.
China’s aggressive response initially restored the country’s growth to a pace faster than America’s, which faced the economic brunt of the pandemic later and largely eschewed mandatory quarantines.
Although the U.S. economy took longer to right itself than China’s, the U.S. poured far more resources into a recovery. A combination of vaccinations, massive fiscal stimulus and near-zero interest rates pushed the U.S. ahead of China in GDP growth. The two countries’ responses to the Delta variant of the coronavirus may once again greatly affect their growth prospects.
Government aid helped U.S. households accumulate $2.6 trillion in what Moody’s Analytics calls excess household savings—savings that exceed what would have been anticipated before the pandemic. That is nearly seven times as much as in China.
Moody’s forecasts that U.S. GDP growth will outstrip China’s for five consecutive quarters, starting in the second quarter of 2021. Capital Economics and Oxford Economics see a similar trend though they think it will last three quarters.
These are year-over-year comparisons because China doesn’t report quarter-vs.-quarter comparisons that are annualized and seasonally adjusted; the U.S. economy grew at a 6.5% annual rate in the second quarter. Economists’ estimates of Chinese quarter-vs.-quarter results vary widely but still tell a similar story of U.S. growth now outpacing China’s.
Andy Rothman, a China specialist at Matthews Asia, views the growth reversal as a blip along a road leading to China eventually becoming the world’s largest economy. The recent U.S. results are “like getting so excited about the Washington Nationals winning five in a row but they’re still five games below .500,” he said.
With four times as many people in China and decades of policy encouraging growth through savings and investment, it makes sense for China to pull ahead of the U.S. Through 1870, economist Angus Maddison estimated, China’s large population made it the largest economy in the world, though it was soon eclipsed by industrialized nations which were far more productive per person.
Since China started to open up its economy to the world in the 1970s, it has greatly narrowed the GDP gap with the U.S. Oxford Economics figures China will become No. 1 in 2030; Moody’s figures the crossover will occur in 2038. The wide difference in estimates shows the imprecision of the calculation.
Who ranks No. 1 isn’t simply a matter of bragging rights. The world’s largest economy sets business and consumer trends globally; it also has more resources to pour into technology and project power overseas.
The recent reversal in growth delays somewhat China’s prospective economic ascendancy. Beijing also faces significant problems that could push the date back further, economists say, including a crackdown on the private sector, steep increases in government debt and an aging population.
China’s labor force—those ages 15 to 59—peaked in 2014, and has been shrinking since then, including a 0.5% decline in 2020, according to Capital Economics, which expects China’s GDP growth to slow to about 2% by 2030. That is roughly the same as the expected U.S. long-term growth rate.
Chinese leader Xi Jinping “appears to be working to regain China’s place in history before demographic decline sets in,” said Arvind Subramanian, an economist at the Peterson Institute for International Economics.
The U.S. also has plenty of long-term challenges to growth, including a sharply divided political system, mounting bills for healthcare and slow productivity growth.
But the GDP race provides just one way to view relative economic strength. Derek Scissors, an American Enterprise Institute economist, says that GDP, a gauge of national output, doesn’t accurately measure power. Wealth does. Aircraft carriers and overseas investments are paid out of a country’s wealth, not its GDP, he says.
On that score, China has much further to go to catch the U.S. Between 2011 and 2021 China closed the GDP gap with the U.S. by $2 trillion, according to International Monetary Fund estimates.
But during that same period, America’s lead in wealth increased by $13.5 trillion, according to Credit Suisse estimates. Chinese wealth grew faster on average than America’s but that hasn’t been fast enough to narrow the dollar total.
“It’s the wealth of nations, not the production of nations that matters,” said Mr. Scissors.
https://www.wsj.com/articles/u-s-ec...to-contrast-in-pandemic-responses-11629036000
U.S. gross domestic product rose 12.2% in the second quarter of this year from a year earlier, outpacing China’s 7.9% gain.
The American edge should continue for at least the next few quarters, many economists say. That would be the first sustained period since at least 1990 in which the U.S. economy grew faster than China’s.
In the short term, the reversal reflects the difference in the two nations’ responses to the Covid-19 pandemic. The coronavirus circulated earlier in China and the country’s leaders quickly imposed quarantines in the pandemic’s epicenter of Wuhan and elsewhere. Chinese GDP fell by 6.7% in the first quarter of 2020 from a year earlier, while the U.S. GDP registered a small gain.
China’s aggressive response initially restored the country’s growth to a pace faster than America’s, which faced the economic brunt of the pandemic later and largely eschewed mandatory quarantines.
Although the U.S. economy took longer to right itself than China’s, the U.S. poured far more resources into a recovery. A combination of vaccinations, massive fiscal stimulus and near-zero interest rates pushed the U.S. ahead of China in GDP growth. The two countries’ responses to the Delta variant of the coronavirus may once again greatly affect their growth prospects.
Government aid helped U.S. households accumulate $2.6 trillion in what Moody’s Analytics calls excess household savings—savings that exceed what would have been anticipated before the pandemic. That is nearly seven times as much as in China.
Moody’s forecasts that U.S. GDP growth will outstrip China’s for five consecutive quarters, starting in the second quarter of 2021. Capital Economics and Oxford Economics see a similar trend though they think it will last three quarters.
These are year-over-year comparisons because China doesn’t report quarter-vs.-quarter comparisons that are annualized and seasonally adjusted; the U.S. economy grew at a 6.5% annual rate in the second quarter. Economists’ estimates of Chinese quarter-vs.-quarter results vary widely but still tell a similar story of U.S. growth now outpacing China’s.
Andy Rothman, a China specialist at Matthews Asia, views the growth reversal as a blip along a road leading to China eventually becoming the world’s largest economy. The recent U.S. results are “like getting so excited about the Washington Nationals winning five in a row but they’re still five games below .500,” he said.
With four times as many people in China and decades of policy encouraging growth through savings and investment, it makes sense for China to pull ahead of the U.S. Through 1870, economist Angus Maddison estimated, China’s large population made it the largest economy in the world, though it was soon eclipsed by industrialized nations which were far more productive per person.
Since China started to open up its economy to the world in the 1970s, it has greatly narrowed the GDP gap with the U.S. Oxford Economics figures China will become No. 1 in 2030; Moody’s figures the crossover will occur in 2038. The wide difference in estimates shows the imprecision of the calculation.
Who ranks No. 1 isn’t simply a matter of bragging rights. The world’s largest economy sets business and consumer trends globally; it also has more resources to pour into technology and project power overseas.
The recent reversal in growth delays somewhat China’s prospective economic ascendancy. Beijing also faces significant problems that could push the date back further, economists say, including a crackdown on the private sector, steep increases in government debt and an aging population.
China’s labor force—those ages 15 to 59—peaked in 2014, and has been shrinking since then, including a 0.5% decline in 2020, according to Capital Economics, which expects China’s GDP growth to slow to about 2% by 2030. That is roughly the same as the expected U.S. long-term growth rate.
Chinese leader Xi Jinping “appears to be working to regain China’s place in history before demographic decline sets in,” said Arvind Subramanian, an economist at the Peterson Institute for International Economics.
The U.S. also has plenty of long-term challenges to growth, including a sharply divided political system, mounting bills for healthcare and slow productivity growth.
But the GDP race provides just one way to view relative economic strength. Derek Scissors, an American Enterprise Institute economist, says that GDP, a gauge of national output, doesn’t accurately measure power. Wealth does. Aircraft carriers and overseas investments are paid out of a country’s wealth, not its GDP, he says.
On that score, China has much further to go to catch the U.S. Between 2011 and 2021 China closed the GDP gap with the U.S. by $2 trillion, according to International Monetary Fund estimates.
But during that same period, America’s lead in wealth increased by $13.5 trillion, according to Credit Suisse estimates. Chinese wealth grew faster on average than America’s but that hasn’t been fast enough to narrow the dollar total.
“It’s the wealth of nations, not the production of nations that matters,” said Mr. Scissors.
https://www.wsj.com/articles/u-s-ec...to-contrast-in-pandemic-responses-11629036000
