Manufacture This

The blog of the Alliance for American Manufacturing

Don’t believe the hype. The U.S. is still home to the top economy in the world.

There’s a nasty rumor going around that China is now the world’s largest economy.

The reasoning? Things are cheaper in China than they are in the United States. Here’s the main argument for anointing China No. 1, as put forth by MarketWatch:

When you measure national economic output in “real” terms of goods and services, China will this year produce $17.6 trillion — compared with $17.4 trillion for the U.S.A.

Don’t panic, my fellow Americans. We shouldn’t be worried. The MarketWatch rumor is not true.

Economists love to measure economies in terms of “purchasing power.” After all, a “real” dollar is only worth as much as you can buy with it (so $1 = two bananas). Which is why everyone likes to talk about Big Macs and Lattes. But does it really help us understand a whole nation’s economy?

In the United States, prices for energy, food, and manufactured goods respond to the global market — if steel is more expensive in London, it’s more expensive in New York. The value of our currency adjusts to balance the cost of goods in both countries. But that doesn’t happen in China where the yuan is manipulated to make imports more expensive and exports cheaper.

When you compare the two economies using actual U.S. dollars rather than Crocs, there’s no competition: China’s total economic output is just 56 percent of the United States’ $16.8 billion.

And purchasing power parity (PPP) helps us compare the economic lives of Chinese citizens to individual Americans. To do so, we have to look at things per capita.

According to the International Monetary Fund, the average American is 4.5 times more affluent than the average Chinese citizen, bringing in an average annual income of $53,000 versus $11,900 in 2013.

Look, there’s no doubt that China’s economy has grown stronger in recent years (the country certainly benefited from the 3.2 million jobs that we’ve sent their way since 2001, but that’s for another blog post). In any case, it’s only natural that a nation of 1.3 billion people will grow into a large global economy. And the rise of the developing world is one of this century’s most inspiring stories.

But why should that mean negativity about our own economy? No matter how hard we work each year, the pundits keep trying to fill America’s stocking with coal.

It’s important to keep in mind:

  1. Thirty-nine of the world’s 100 most innovative companies are American, just six are Chinese, according to Forbes.
  2. America is the third most competitive economy in the world, according to the World Economic Forum. China ranks 28th, behind Malaysia, Saudi Arabia, and Ireland.
  3. American inventors own more than twice the patents as their counterparts in China, according to the World Intellectual Property Organization.
  4. Living standards, education, and social equality put the U.S. among the top five most developed nations, while China is tied for 91st with St. Vincent and the Grenadines, the United Nations Development Programme reports.

So, don’t fret my friends. The United States shouldn’t cede its economic leadership with so little thought. It’s premature, it’s not real, and it’s just another way to beat down expectations for a brighter future.

Our prosperity was built by the hands of American workers. Don’t we deserve a little acknowledgment for that — and maybe an American-made scarf