US-China Competition: GDP Can Be Misleading

(23 September 2021) Gross Domestic Product (GDP) has for years been the key economic indicator used for cross-country comparisons. The value of GDP shows how large a country's economy is, and per capita GDP is used to compare countries' productivity and technological development. However, emphasis on these directly measurable indicators often obscures qualitative characteristics of development that can significantly affect the estimates of a country's economic potential.

• With China becoming an economic superpower, comparison of US and Chinese economic strength has become a regular exercise for experts and research institutions. Such exercises often prioritize cross-country GDP comparison, which shows that China's economy today is 33% smaller compared to the U.S. economy, and shows an even wider gap in productivity/technological development. The most optimistic (for China) calculations indicate that China's GDP per capita is 75% smaller than that of the U.S.
  
• However, there are other metrics showing China's capability to challenge the position of the U.S. in the global economy. For example, data from the World Bank shows that China produces two times more industrial goods than the U.S. In addition, trade statistics show that China has closer trade ties with the rest of the world than the United States.
• But quantity is not the only factor. The gap in economic power between the U.S. and China looks much closer than GDP and productivity data shows when technological and innovation potential is accounted for through indirect measures. For example, the Economic Complexity Index constructed by Harvard’s Growth Lab suggests that China has almost caught up with the United States in the ability to sustain a diverse range of productive know-how, including sophisticated, unique capabilities, and to produce complex products that few other countries can make.