In recent years, the contrast between China's economy and the U.S. economy has been the focus of global attention. In 2021, China's total GDP approached 77% of the United States, reaching $17.82 trillion, and its share of US GDP reached an all-time high. However, in the first quarter of 2024, this percentage slipped to an eye-popping 59%. A lot of people are starting to talk about what exactly this "cliff" drop means, and the reasons behind it.
Some people say that the widening gap is the suppression of China's economy by the United States. There are international rumors that when a country's GDP reaches 70% of the GDP of the United States, the United States will take action to suppress that country. Both the former Soviet Union and Japan suffered setbacks under the "clutches" of the United States. In 2021, China's GDP surpassed the 70% threshold, followed by an economic reversal in 2022. The story sounds like a conspiracy theory, but in reality the reasons may be more complicated.
The Inflation Shock: The "Moisture" of US Data
In 2022, the domestic price level in the United States continued to climb, and inflation reached a 40-year high. In response to soaring prices, the Federal Reserve has rapidly raised interest rates in an attempt to control inflation. However, this approach has had a knock-on effect: inflation has pushed up the nominal growth rate of GDP. Although the real economic growth of the United States in 2022 was just over 2%, inflation contributed a whopping 7% to GDP. That said, inflation makes the US GDP data look brighter than it really is.
In the first quarter of 2023, the impact of inflation on US GDP is still close to 3 percentage points. Because nominal GDP is mixed with water, GDP in the United States appears to be growing faster than in the past. But in reality, the side effects of rising inflation and interest rates have left the U.S. economic growth on a weak footing.
The steady growth of China's economy
Although the gap between the GDP of China and the United States has widened, China's economy has maintained stable growth. In the first quarter of 2023, China's economic growth rate reached 5.3%, and its total trade volume increased by 5.7% year-on-year, further consolidating its position in the global trading system. In addition, a number of economic indicators show that China's economy has gradually recovered after the impact of the epidemic and has entered a period of steady expansion.
Whether it is the Qingming Festival or the May Day holiday, the consumption data proves that the vitality and potential of China's domestic consumption are still being released. With the support of various policies, it is not difficult for China's GDP to achieve a growth rate of 5% in 2024. In the United States, against the backdrop of high inflation, maintaining a growth rate of 2% will require a lot of effort.
Although there is a view that the widening of the GDP gap between China and the United States is due to the United States' suppression of China, combined with the inflation factor, the GDP growth of the United States is obviously mixed with a lot of water.
Therefore, this apparent widening of the gap does not represent the real state of the actual economic gap between the two countries. China's economic growth potential remains strong and its position in the global trading system is rising. The Fed's interest rate hike strategy has gradually brought inflation under control in the United States, but it has also weakened the foundation of its economic growth.
In this case, where will the economic gap between China and the United States go? This remains an unsolved puzzle. But what is certain is that in the complex context of inflation, trade and global competition, measuring the strength of two economies is far more than just a numbers game, and requires a deeper understanding of how the global economy works in a complex way.