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Each country measures economic growth by its gross domestic product or GDP. Negative or positive GDP indicates whether the economy is contracting or expanding. When you combine the total economic output of each country, the result is global GDP. In this article, we will reveal how America’s contribution to global GDP has been falling while China’s has been rising.
Changes in the Global Economy
The Conference Board estimates that by 2018, China’s contribution to global GDP will surpass that of the U.S. In other words, China’s economy will become more significant than America’s. How is this possible? Is the golden era of “Made in America” in our rearview mirror? Is China entering a modern-day economic dynasty? To find the answer, we will examine the period beginning in 1970 and the forecast through 2025.
The Standard Chartered Bank building, center, HSBC Holdings Plc headquarters building, center right, and other buildings standing illuminated and shrouded in clouds are seen from Victoria Peak at night in Hong Kong, China, on Wednesday, April 6, 2016. Cash is pouring into Hong Kong stocks from across the mainland border. Photographer: Justin Chin/Bloomberg
As the chart below indicates, the U.S. contributed 21.2% of total global economic output in 1970. This remained consistent until the year 2000. In every year since, with one exception, America’s percentage of the world’s economic output has declined. In 2015, the U.S. contributed 16.7% of the world’s economy. By 2025, this is expected to fall to 14.9%. Equally noteworthy is the exceptional rise in China’s economy. In 1970, China was responsible for a mere 4.1% of the total. This rose to 15.6% in 2015. In 2025, China’s contribution to the global economy is projected to be 17.2%. Since 1990, China’s percentage of total global output has risen every year with one exception (1998), when it fell by one percent. The vertical black-dotted line on the chart denotes the year (2018) that China’s economic contribution is projected to surpass the U.S.
There are some other notable conclusions we can make from the chart. Europe’s economic contribution to global GDP is rapidly declining. India is gaining economic influence but still has a long way to go. In 2015, India’s contribution to global GDP was 6.7%. This is expected to rise to 8.7% by 2025. One of the most significant observations is that large developed economies are becoming less significant while smaller, emerging economies are gaining power. This is not a complete surprise as smaller economies are much more nimble than large ones.
China’s Rise
How has China become such a dominant economic power? Part of the reason is its booming auto industry. To illustrate, the total number of autos sold last year in China was 24.6 million. This dwarfs total auto sales in the U.S. last year, which hit a record 17.5 million cars and trucks. In addition, SUV sales in China increased a whopping 52% in 2015. China’s auto industry is thriving and should provide stiff competition for U.S. auto manufacturers in the years ahead. Unless the U.S. government levies high tariffs on imports to equalize prices between Chinese autos and those made in America. It is important to remember that the cost of production (labor included) is much lower in China.
The world’s economy is changing and globalization is alive and well. There will likely be a large number of new trade agreements in the months ahead as well as an increase in U.S. based companies deriving revenue overseas. Gone are the days when it was sufficient for investment analysts to analyze trends in the U.S., to the exclusion of foreign markets. In the current “global” climate, we must recognize how foreign companies will compete with U.S. corporations. Rising globalization should result in greater competition. If the federal government does not levy new and increased tariffs on imported goods, the added competition will result in lower prices for the consumer. However, I wouldn’t get too optimistic about a lack of tariffs. The federal government will likely view this as a source of revenue and a way to help its constituents rather than allow cheap imports to flood the U.S. Perhaps Americans will be buying more goods online, directly from foreign companies. Does UPS or FedEx FDX -0.33% deliver cars? It could happen.
http://www.forbes.com/sites/mikepat...na-will-surpass-the-u-s-in-2018/#1cf44883474b
Changes in the Global Economy
The Conference Board estimates that by 2018, China’s contribution to global GDP will surpass that of the U.S. In other words, China’s economy will become more significant than America’s. How is this possible? Is the golden era of “Made in America” in our rearview mirror? Is China entering a modern-day economic dynasty? To find the answer, we will examine the period beginning in 1970 and the forecast through 2025.
The Standard Chartered Bank building, center, HSBC Holdings Plc headquarters building, center right, and other buildings standing illuminated and shrouded in clouds are seen from Victoria Peak at night in Hong Kong, China, on Wednesday, April 6, 2016. Cash is pouring into Hong Kong stocks from across the mainland border. Photographer: Justin Chin/Bloomberg
As the chart below indicates, the U.S. contributed 21.2% of total global economic output in 1970. This remained consistent until the year 2000. In every year since, with one exception, America’s percentage of the world’s economic output has declined. In 2015, the U.S. contributed 16.7% of the world’s economy. By 2025, this is expected to fall to 14.9%. Equally noteworthy is the exceptional rise in China’s economy. In 1970, China was responsible for a mere 4.1% of the total. This rose to 15.6% in 2015. In 2025, China’s contribution to the global economy is projected to be 17.2%. Since 1990, China’s percentage of total global output has risen every year with one exception (1998), when it fell by one percent. The vertical black-dotted line on the chart denotes the year (2018) that China’s economic contribution is projected to surpass the U.S.
There are some other notable conclusions we can make from the chart. Europe’s economic contribution to global GDP is rapidly declining. India is gaining economic influence but still has a long way to go. In 2015, India’s contribution to global GDP was 6.7%. This is expected to rise to 8.7% by 2025. One of the most significant observations is that large developed economies are becoming less significant while smaller, emerging economies are gaining power. This is not a complete surprise as smaller economies are much more nimble than large ones.
China’s Rise
How has China become such a dominant economic power? Part of the reason is its booming auto industry. To illustrate, the total number of autos sold last year in China was 24.6 million. This dwarfs total auto sales in the U.S. last year, which hit a record 17.5 million cars and trucks. In addition, SUV sales in China increased a whopping 52% in 2015. China’s auto industry is thriving and should provide stiff competition for U.S. auto manufacturers in the years ahead. Unless the U.S. government levies high tariffs on imports to equalize prices between Chinese autos and those made in America. It is important to remember that the cost of production (labor included) is much lower in China.
The world’s economy is changing and globalization is alive and well. There will likely be a large number of new trade agreements in the months ahead as well as an increase in U.S. based companies deriving revenue overseas. Gone are the days when it was sufficient for investment analysts to analyze trends in the U.S., to the exclusion of foreign markets. In the current “global” climate, we must recognize how foreign companies will compete with U.S. corporations. Rising globalization should result in greater competition. If the federal government does not levy new and increased tariffs on imported goods, the added competition will result in lower prices for the consumer. However, I wouldn’t get too optimistic about a lack of tariffs. The federal government will likely view this as a source of revenue and a way to help its constituents rather than allow cheap imports to flood the U.S. Perhaps Americans will be buying more goods online, directly from foreign companies. Does UPS or FedEx FDX -0.33% deliver cars? It could happen.
http://www.forbes.com/sites/mikepat...na-will-surpass-the-u-s-in-2018/#1cf44883474b
