You're right about the skewed view of PPP. PPP is for measuring a countries internal buying power, since items will cost different amounts in each nation due to internal factors such as production costs, currency exchange rates and inflation. However, international trade is not denominated in a nation's purchasing power, it's denominated in what the buying and selling countries negotiate or the current going-rate for said item on the international market. This means that countries with high PPP will not have the same advantage in international trade as they would with internal consumption. Here's an important point on PPP as it relates to China:
China’s gross domestic product will climb to $17.6 trillion this year, while the U.S. grows to $17.4 trillion, IMF projections showed yesterday. One major caveat: the comparison is based on purchasing power parity, which uses exchange rates that adjust for price differences of the same goods between nations.
“The U.S. remains the biggest by the more common, more widely accepted and in our view, more useful measure,” said David Hensley, JPMorgan Chase & Co.’s director of global economic coordination in New York. As for PPP, “it’s not quite the real thing.”
From
Hold on China, U.S. Still World’s Top Economy by Main Benchmark - Bloomberg
In short, PPP has little relevance outside of a country's internal sales as international trade does not base the selling and buying strength of a nation on its purchasing power.
Other nations don't care about how much a hamburger costs in your country, and they certainly aren't going to accept the price of one in foreign nations as compensation for their own goods in international trade. They will accept the going-rate for said item in international markets... hence why oil is not sold at national prices, it's sold in accordance to international market demand and supply.
@Chinese-Dragon I've seen you and others mention the lack of relevance of PPP, I agree, it's useful, but flawed and not a true measure of a nations economic poise on the international stage, it just measures their internal strength.
@IRAN 1802 - PPP is important to an extent, but on an international scale it losses its importance as a metric. Vietnam may have greater purchasing power then my native Sweden, but Sweden has a much higher median household income and greater quality of life, and this matters to people as well. PPP is one of many metrics that, but one that is skewed more towards the developing and away from the developed world... hence why nations like China see their rise while the US remains stagnant in its PPP growth.
