As new coronavirus infections in the U.S. have steadily decreased from a level of 30,000 per day at the beginning of April, and have now plateaued at about 20,000 per day, it becomes more and more important to try to foresee, and plan for, what the world will look like after the pandemic.
In my last post, I showed that the U.S. has a strong upper hand in relations with China and should be able to maintain both economic and military dominance for many years to come.
It turns out that even more can be said. Matthew Klein, the chief economist at Barron’s, makes a strong case that Chinese growth relative to the U.S. will level off about 2040 and then begin to decline. Here is a summary of his argument:
- Starting in the late 1970s, under Deng Xiaoping, the Chinese economy grew to 66% of America’s size by 2019 (see chart).
- From 2002 through 2011, China’s GDP per working-age adult rose 18% per year compared with 3% per year in the U.S. During this time period Chinese GDP grew from 13.5% to 48% of U.S.GDP.
- After the Great Recession of 2008, the economic collapse of China’s main trading customers caused a huge debt bubble to build in China hitting 250% of GDP by 2019.
- After addressing the debt problem, Chinese GDP per working adult has grown 6% per year from 2014 – 2019, compared with 4% each year in the U.S.
- The U.N. predicts that the number of working age Chinese will fall by half between now and 2100 while the number of Americans of working age should rise by 15%.
- All of this leads to the conclusion that the Chinese economy will peak relative to America’s around 2040 at about 76% of U.S. GDP (see chart). China will then steadily lose ground relative to the U.S., eventually shrinking back to where it was in 2011 when Xi Jinping took office.
Conclusion. The likelihood is that “the People’s Republic is near the peak of its relative power and will soon enter a long period of relative decline.” But let’s not become complacent about this!!!