About a decade ago, headlines trilled an economic passing-of-the-baton on a global scale. According to the International Monetary Fund, the United States was no longer the largest economy on the planet, having lost that title for the first time in nearly a century and a half, to China.
It wasn’t quite that simple. The IMF based its declaration on an exchange rate called purchasing power parity, which equalizes how much stuff can be bought in different countries with local currencies. By that measure, China’s gross domestic product overtook America’s in 2016. But even if one used conventional market exchange rates, the U.S.’s lead was closing fast. Size matters in geopolitics, and China’s apparently inevitable path to overtaking the U.S. reflected a new balance of power in the world.
Only, it’s a story we’ve heard before. In the 1960s and ’70s, academics and economists fretted that the Soviet Union was on track to jump ahead of the U.S. By the 1980s and ’90s, Western business and political leaders were consumed by the prospect of Japan becoming No. 1.
In both instances, reality played out far differently. Though Soviet leader Nikita Khrushchev once declared his country would bury Western capitalism, by 1989, the USSR had collapsed. Japan’s rise, accompanied by a torrid spree of Japanese conglomerates buying U.S. assets, ended when the country’s asset-price bubble burst in the early 1990s. In both cases, growth rates that had previously been the envy of U.S. policy makers dramatically downshifted, and America stayed on top.
The rapid growth trajectory of China’s economy appears to have stalled, too—at least for now. As a share of U.S. GDP, China’s economy peaked at 74.9% in 2021 (narrowly besting Japan’s peak of 72.5% in 1995) and has since rolled over as its COVID-19 lockdowns dragged on and tariff-happy U.S. presidents (Trump, then Biden, now Trump again) have sought to reclaim America’s lost manufacturing clout. As a result, China’s growth has slowed, made worse by a population that’s now in outright decline.
China’s massive size and growing wealth means it may yet reverse course and resume its ascent toward global economic domination. But history isn’t on its side.
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