If you just listen to all the hype about China. You’d be convinced they are going to take over the world. There’s so much talk today about their incredible growth rate and the power of their economy; we may forget just how good we are doing in the US.
Yes, it is amazing how quickly the Chinese government has forced their growth pattern. They’ve literally flooded millions of people from their hometowns with the Three Gorges project and forced them to move to the city. They are relocating 250 million people, according to a NY Times report, from the countryside to the city, from farms to factories.
The mainstream press and many American’s seem to think that our best days are behind the USA. To see if economic growth of the USA measures up, we turn to world GDP. GDP = Gross Domestic Product. It’s the total of all of the goods and services each country provides to the world. The table below with data from World Bank has some highlights for comparison:
When we look at the table, number 1 is the USA generating 24.6% of world GDP with 4.6% of the world population. China is number 2 making 14.8% of world GDP with 23% of the world’s population. Go back and read those two sentences again, I’ll wait.
Do you see how fantastic the good old USA is doing! The USA is 80% smaller than China, yet we are almost double their GDP. You are some productive people working your tails off out there!
With a great economy comes great wealth. And two of the most fundamental building blocks of an effective capitalistic economy are the rule of law and personal property rights. We certainly have both in the USA. Not so much in China. Here’s what’s amazing. People in China create massive amounts of wealth and then what do they do? They get out of China. They get their wealth out of China. You see, because at the end of their life someone in the Chinese system is just going to take it.
Contrast that with your life’s work. Your home, cars, investments, and possessions. You get to oversee the distribution of your life’s work and make sure it goes to who YOU choose. That’s personal property rights and the rule of law protecting you. What a novel concept!
Going back to the table, Japan is the third largest economy. Remember what everyone said about Japan in the late 80’s? Japan was faster and more nimble than the USA. Well, their economy peaked in 1989 at 13.9% of the world’s GDP. Today Japan represents 6.5% of the world’s GDP.
Next, look at Russia and India. They are two huge population centers and nuclear powers. Together they represent 42% of world population. Yet, combined at 4.7% they don’t beat Japan!
Now, in all fairness, our friends in India are growing tremendously. They have personal property rights. They have the rule of law. They are the world’s largest democracy. And they are working diligently to grow their economy. If there’s anyone on this list who has the ability to surpass the US in GDP, it’s India.
What about the Russians you say? Well, I’m not sure what they are doing, except producing a lot of oil and generating headaches for the world.
Now, I know that was a lot of numbers. So let me boil it down for you. We in the USA are the most productive people on Earth. Nobody is doing what we are doing. China had a 1000 year head start on us and it’s about time they showed up to the party and provided some competition! (How come we don’t hear about this on the news every night!)
And this talk of a trade war and tariff’s is overblown. In my opinion, it won’t affect the USA much. We’ve had tariffs before. We’ve had trade wars before. We survived because we are so resilient and the rest of the world relies on our productivity. A trade war and tariff’s will hurt the Chinese economy much greater and my guess is they will come to the table and negotiate.
PS: FUND YOUR TRADITIONAL AND ROTH IRAs. IF YOU ARE PLANNING TO SEND US A CHECK, WE MUST HAVE IT PROCESSED BY 3PM ON TUESDAY. BUT PLEASE DON’T WAIT UNTIL THE LAST MINUTE! TRY TO GET THOSE TO US ON MONDAY.
Bryan A. Sarff, CFP.
As the author of this blog, I accept full responsibility for any errors or misstatements. The opinions are mine and are not ghost written by another person. If we include material from someone else, it will be clearly sourced and credited to the author.