China’s Economy Is Not Overtaking America’s

Most scholars and pundits, along with the general public, believe that China is an economic juggernaut set to overtake America as the world’s dominant power. But the conventional wisdom is wrong. The United States is several times wealthier than China; and since the global financial crisis over a decade ago, the absolute gap between the two nations has been growing by trillions of dollars each year. China’s economy is big but inefficient. It produces high output at high costs. Chinese businesses suffer from chronically high production costs, and China’s 1.4 billion people generate massive welfare and security burdens. The United States, by contrast, is big and efficient, producing high output at relatively low costs. American workers and businesses are seven times more productive than China’s, on average; and with four times fewer people than China, the United States has much lower welfare and security costs. 

The conventional wisdom about China, besides being wrong, has dangerous policy implications. For starters, it creates the impression that the United States and China are locked in “Thucydides’ trap” in which a rising power challenges the ruling hegemon, and the two slide into a major war. This misguided notion, widespread in both countries, is driving a spiral of hostility. Slowing this spiral requires both sides to take a clear-eyed look at the real balance of power, which is now, and will likely remain, highly skewed in America’s favor.

A second danger is that an exaggerated sense of China’s rise continues to fuel the current trade wars. The United States should aggressively punish unfair Chinese trade practices, but do so through a reformed WTO, regional free trade pacts, and targeted investment restrictions and economic decoupling—not with unilateral tariffs. 

A third danger is that exaggerated fear of China’s rise and America’s decline could cause the United States to back off from many of its foreign policy commitments, divesting all obligations to maintaining the global order save those linked to vital national interests. Advocates of an “America First” foreign policy are probably right that the United States could improve its relative position by ditching allies and international institutions and letting the world burn. But one of the benefits of unrivaled wealth and power is that the United States can afford to pursue absolute gains, sacrificing a bit of relative advantage to make the United States and the world better off overall.

As the most secure and powerful country in history, the United States can and should do more than ceaselessly struggle for power.