America to Become # 2 Global Economy—And That’s Not Great News

Stephen Ezell January 24, 2014
January 24, 2014

Economists anticipate that China will surpass the United States as the world’s largest economy sometime in 2016 or 2017. Some, such as Charles Kenney writing recently in the Washington Post, argue that this does not constitute cause for concern, primarily since per-capita U.S. incomes will remain higher. But ceding a position that the United States has held since 1871 should not be taken lightly. In fact, the United States’ loss of the global economic pole position is quite concerning, first because it brings into stark relief the economic underperformance of the U.S. economy over the past decade and a half—the fundamental causes of which have yet to be ameliorated by enacting policies that would improve the competitiveness of the U.S. economy, its firms and industries. Second, the country poised to take the lead, China, has grown so rapidly in no small part by practicing economic mercantilism on an unprecedented scale, embracing a broad and deep range of mercantilist policies, everything from massive subsidies for state-owned enterprises, abuse of anti-trust policy, currency manipulation, and standards manipulation, to the theft of intellectual property and forced transfer of technology as a condition of market access. But such innovation mercantilist policies harm other nations and cause them to seek to enact similar policies in response, leading to degradation of a global economy characterized by liberalized, market-based trade that will ultimately reduce global consumer welfare. Thus, the United States should not relinquish its position as the world’s leading economy without competing fiercely for that title. It should start by implementing a comprehensive range of innovation, productivity, and competitiveness enhancing policies, as ITIF has long argued, and by continuing to push back aggressively when other nations use trade-distorting policies while pushing for stronger global trade rules that promote market-based economic competition.