Mere parsimony is not economy. Great expense may be an essential part of true economy. ~ Edmund Burke
The United States (US) and the People’s Republic of China earnestly began dancing around each other on the world’s economic stage as long ago as the early 1980s, when Deng Xiaoping was China’s paramount leader. This dance continues…
The US gross domestic product (GDP) became the world’s largest around 1890, besting the British, according to paleo-economists. By then, the US economy was more than twice as productive as Britain’s. The Chinese GDP became the 2nd largest in 2010. Both nations’ GDPs remain in the top 2 since these dates.
I travelled to Beijing during February 1980 on a UN project to teach Chinese planners about empirically-based macroeconomic forecasting models (no abacuses allowed). It was a memorable experience in many ways, including my learning that the sole Beijing hotel that westerners could stay in provided no heat in the dead of winter to its guests like me. None = BIG Brrrr. The hotel’s archaic Russian-built system did not work. Average Beijing high/low temperatures during February are 39°F/19°F; it felt a lot colder especially during the all too plentiful, freezingly-harsh winds blowing through Beijing from the Gobi desert. I attempted to keep warm by frequently drinking copious amounts of very hot tea when I was awake. This partial solution was definitely second-best. I needed functioning, hot radiators in my hotel room.
Fortunately my stash of Aggregate Supply and Demand curves and least-squares estimators needed for my lectures survived the cold. Aside from a frigid hotel room, it was an extraordinary trip. Ah, foreign travel.
Both the US and China have come a long way since then. In 2024, the US and China once again have the 2 largest GDPs on Earth. A nation’s GDP represents a key indicator measuring a country’s general macroeconomic health. The concept of GDP was created in the US in 1934, during the Great Depression. By the end of WWII, many nations used GDP to measure their economic status. The real (price-adjusted) 2024 US GDP is 24x as large as our 1934 GDP.
This analysis offers my interpretation of the 2024 US GDP relative to China’s. Several highlights of this comparison include:
• The US nominal GDP – the world’s largest – currently is nearly 60% greater than China’s,
• Our GDP per capita is over 3 ½ times greater than China’s,
• Despite having 2 very dissimilar economic systems, the shares of GDP expenditures financed by the US's and China’s governments differ by less than 1% of each other.
My macroeconomic assessment of the US and Chinese economies is based on information shown in the table below. In addition to nominal GDP, this table considers 7 different factors that influence both macroeconomies.
As mentioned above, the US $29.17 trillion GDP, is the largest of any nation and has been since the mid-1890s. Historically, the US became the world's largest maker of manufactured goods and steel by the latter 1880s when it surpassed imperial England’s production.
Our 2024 annual inflation rate, now 2.6%, has declined steadily since 2021 principally due to the Federal Reserve Bank’s tighter monetary policy efforts. The Fed’s “target” inflation rate is 2%. The Fed began raising its Federal Funds Rate (FFR) in March 2022 to quell inflation. At long last, in September the Fed decided that inflation was close enough to its target, so it began lowering the FFR, its principal interest rate. At its November meeting the Fed again reduced its rate – to 4.58% - hopefully ensuring our macroeconomy will not slip into a partial recession.
In 2021, at the peak of the Covid pandemic’s economic disruption, our inflation rate was an excessive 7.0%. Although the 2.6% rate is less than half what it was just 3 years ago, current lower macro price increases have not engendered praise by consumers, much to the dismay of Democrats. This is especially true for grocery store items like eggs, whose price notably increased almost 30%, mostly due to avian flu not Joe Biden. Housing prices are up nearly 25% since 2020. Surveys indicate a strong majority of people want no price increases at all. Fat chance of that happening, especially with taller tariffs on the horizon.
China’s annual inflation rate is a diminutive 0.3%, a level that often typifies an impending macroeconomic slump. China’s low inflation exemplifies the significant economic challenges the nation currently faces. Such challenges include a very distraught property/real-estate market, fragile consumer confidence and increased belligerence from China’s major international trading partners, which directly involves the US especially after January 20.
Chinese authorities have recently expanded monetary policies to speed up their economy. These efforts include reducing the main interest rate, reducing the Chinese Central Bank’s required reserves, cutting citizens’ minimum down payment for 2nd homes and providing financial support for the principal stock market.
China’s 2024 GDP growth rate is far stronger at 4.8%, over 70% higher than the 2.8% US growth rate. Nevertheless, the Chinese government is concerned about GDP growth because it has shrunk from 8.4% in 2021.
Having 1.416 trillion people, China is the world’s second most-populated nation, after India. China’s population is problematically the most rapidly aging on the planet. The US population is the third largest, accounting for only 24% of China’s. This striking difference accounts in part for the impressive disparity in GDP per capita; at $82,715 the US is almost 4x as large as China’s. The US is 9th highest; tiny Luxembourg has the world’s highest GDP/capita, a stratospheric $151,150.
GDP by Sector. The table also shows significant differences between how our and China’s GDP is split by our economies’ 3 major sectors; Agriculture, Industry and Services. The US macroeconomy is dominated by the labor-intensive services sector that accounts for over 80% of total expenditures. In contrast, China’s services sector characterizes a meager majority - 54.6% - of its economic activity. China’s Industry and Agriculture sectors each represent far more endeavor than in the US economy.
GDP by Component. Finally, compare China’s and the US economy’s GDPs with respect to their 4 major expenditure components, the most common way of measuring GDP: Consumption (C: blue), Investment (I: grey), Government (G: orange) and Net Exports (X-M: yellow). The pie charts below illustrate several distinct differences in each nation’s GDP composition.
Start with the biggest component, personal consumption expenditures. In the US, consumption represents over two-thirds of our 2024 GDP, 67.9%. This dominance exemplifies that our economy is driven by consumers including you and me. Although China’s consumption expenditures have risen, they now represent just 39.2% of their economy, less than 60% of the much larger US consumption share. Next, investment expenditures for the US are17.5% of our GDP; China’s are much larger, 41.4%. For at least 3 decades the Chinese government has prioritized economic growth via investment, not through personal consumption as in the US. This markedly different, notable prioritization is illustrated in the charts.
The 3rd component, government expenditures, are unexpectedly quite comparable between the 2 countries. US G expenditures are 17.3% of total GDP; China’s G is 16.5%, less than 1% different. For me this is unanticipated because the US is a democratically-founded, diverse private market-based economy. In marked contrast, China’s economy is communist-founded and run by the Chinese Communist Party. It’s evolved and dramatically grown into a mixed socialist economy with strong central state production and control.
What can explain this surprising similarity of G expenditures between such different economic systems? Possibly that China’s impressive Investment expenditures include a significant amount of unspecified, government-funded investments by its large, state-owned enterprises. In essence, China’s I payments probably include hefty volumes of government investment that’s not included in G expenditures.
Furthermore, China’s public expenditures for their elderly/retired citizens are much lower than many Western nations’ standards. China’s deeply inequitable pension system provides rural elderly Chinese a publicly-financed pension of $30 per month on average. In sharp distinction, the mean retirement benefit for all US Social Security recipients is $1,784 per month. The US government’s Social Security and Medicare/Medicaid expenditures totaled roughly $3 trillion in 2024, more than 10% of our GDP.
Net exports (X-M), the 4th and last component of GDP, is the smallest piece. Both nations’ net exports are less than 3% of their GDP in absolute numerical value. But unlike China’s net exports (+2.9%), the US net exports is a negative number (-2.7%), meaning that the dollar value of our imports exceed the dollar value of our exports.
The yearly US trade deficit (M>X) is not a new thing; it has occurred since the 1970s. Our negative net exports are due to people’s and business’s higher demand for foreign goods and services. This demand leads to greater imports that our domestic industries may not be competitive enough to counter in international markets.
Last year, the highest-value imports into the US from around the world include crude petroleum, machinery, vehicles and pharmaceuticals. Unlike the US, China is often characterized as an export-driven nation. After it joined the World Trade Organization in 2001, China has consistently recorded trade surpluses with the US and most other nations it trades with. China’s most valuable exports to the US include mechanical devices, electrical and electronic equipment (like iPhones) and textile products. Interestingly, soybeans are the highest-valued export from the US into China by a considerable margin.
Overall, the US and Chinese GDPs reflect key aspects of the 2 nations’ distinct, differing economic and administrative systems. These systems ultimately are driven by the ever-shifting behavior of US and Chinese people, businesses and government.