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We're Number 2: What Happens When China Surpasses the United States as the World's Largest Economy?

May 2, 2014
| Blogs & Op-eds

Last week, the World Bank released new calculations of countries’ GDP based on purchasing power parity (PPP) data suggesting that China is poised to eclipse the United States as the world’s largest economy later in 2014—a significant acceleration from its previous prediction that China’s economic size would surpass that of the United States in 2019. While some have argued that this news offers no cause for worry (because U.S. per-capita incomes remain much higher), there are actually several compelling reasons why this news should be concerning. First, it provides further evidence that the U.S. economy is significantly underperforming its potential. Second, it would be one thing if China’s rapid economic growth were occurring with the country abiding by the tenets of the rules-based multilateral trading system, instead a not insignificant share of China’s economic growth has been fueled by innovation mercantilist practices. Third, as the United States slips from the global economic pole position, it will be relatively less able to wield influence over and to shape the global economic system on terms most favorable to it. In short, the United States should not look forward to the day it’s no longer the world’s largest economy, and should rather compete fiercely—including by enacting a range of pro-innovation economic growth policies—to maintain its leading position.