The White House seemed caught flat-footed by the news, crowing on Wednesday about America’s relative economic strength in comparison with the rest of the world.
The US has been the global leader since it overtook Britain in 1872, but has now lost its status as top dog. The latest IMF figures show the Chinese economy is worth $17.61 trillion compared with $17.4 trillion for the U.S.
China – whose wealth has accelerated in recent decades amid rapid industrialization – is expected to extend its lead, with the IMF estimating its economy will be worth just under $26.98 trillion in 2019.
That would be 20 per cent bigger than the U.S. economy, which is forecast to be worth $22.3 trillion by then. White House Press Secretary Josh Earnest seemed oblivious to the news as it percolated on Wednesday.
Asked for his assessment of the health of the global economy in the face of Russia’s zero-sum economy and other troubles in Europe – including Germany’s search for stimulus measures to head off a recession – Earnest crowed. Those conditions, he said, ‘make the president’s policies look pretty good. They certainly make the performance of the American economy look pretty good.’
‘The United States is showing the kind of resilience that other counties are desperate for,’ Earnest claimed. ‘And a lot of that is due in no small part to the policies that this administration put in place.’
‘There is no doubt that the economic policies that this president put in place are the envy of the world,’ he boasted. Earnest added that the White House is ‘hoping that the economy of our allies and partners around the globe strengthens. We certainly would like to see that happen.’
He cited ‘a tremendous record of progress that we have made here in the United States … occurring against the backdrop of a global economy that continues to struggle.’
That, Earnest told reporters, ‘is an indication of how strong the America economy is.’ President Barack Obama himself showed his confidence in a U.S.-centered manufacturing economy on October 3 during a speech in Princeton, Indiana.
‘About 10, 15 years ago, everybody said American manufacturing is going downhill, everything is moving to China or other countries,’ Obama said. ‘And the Midwest got hit a lot harder than a lot of places because we were the backbone of American manufacturing.’
‘But because folks invested in new plants and new technologies, and there were hubs that were created between businesses and universities and community colleges so that workers could master and get trained in some of these new technologies, what we’ve now seen is manufacturing driving economic growth in a way we haven’t seen in about 20-25 years.’
Spokespersons for several U.S. senators who serve on the Finance Committee did not respond to requests for comment. Two Republican aides said on background that they wouldn’t be offering a critique.
The new IMF analysis is based on a statistic called ‘purchasing power parity’ (PPP), which makes adjustments for the fact that goods are cheaper in China and other countries relative to the US.
Without these cost adjustments factored in, the Chinese economy is still smaller than that of the U.S., at $10.3 trillion.
But experts have described the toppling of America after nearly 150 years by China, even on the PPP measure, as a ‘symbolic’ moment for the global economy. China enjoyed three decades of double-digit growth before the global downturn, as industrialization and sweeping economic reforms created a new powerhouse in the East.
Growth has slowed in recent years but remains strong by Western standards with the IMF forecasting expansion of 7.4 per cent this year and 7.1 per cent in 2015. By contrast, the IMF is predicting growth of just 2.2 per cent in the US this year and 3.1 per cent next year.
The Fund said Tuesday that the U.S. and the UK ‘are approaching economic lift-off’ as they bounce back from the recession. But Olivier Blanchard, chief economist at the IMF, warned that ‘potential growth is lower than it was in the early 2000s’ for much of the West, including the U.S. and the UK.
He added that China is ‘maintaining high growth’ which will slow in the coming years to a more ‘healthy’ level between 6 per cent and 7 per cent. Arvind Subramanian, senior fellow at the Washington-based Peterson Institute and an expert on China, recently highlighted the ‘symbolic’ importance of China overtaking the US. ‘China is very big and getting bigger,’ he said. ‘It’s not to be underestimated.’
The news that China is now the largest economy in the world is an embarrassment for Barack Obama and ends America’s 142 years at the top.
Britain had out-produced the U.S. and its European rivals for much of the 19th century, at the height of the industrial revolution and with trade links across the Empire. But the US caught up as a growing population, the expansion of the railways and a focus on industry as well as agriculture boosted its economy.
The PPP measure of output makes India the third largest economy, followed by Japan in fourth place and Germany in fifth. Russia, Brazil, France, Indonesia and the UK make up the rest of the top 10 in that order.
Many economists believe the PPP measure of an economy is the fairest measure because it takes into account the cost of living in different countries. For example, although wages are typically far lower in less developed countries than in mature economies, goods and services are often also cheaper, which affects individual consumers’ comparative purchasing power.
But critics argue that analysis does not take into account how well off people actually are. China has a population of around 1.3 billion – four times that of the U.S. – but its economy has only now become the biggest.
That means Americans are typically far wealthier than their Chinese counterparts, and better off than people in other emerging markets that benefit from huge work forces and more rapid growth.
Source : Daily Mail