China Economy Soon Predicted to Equal Size of U.S.

As economies around the world grapple with coronavirus, only one global player managed to post growth in 2020; China.

China logged 2.3% growth, while every other major economy saw an economic decline amid the global pandemic.

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Critics of China worry the country is growing too fast–relative to the U.S.–and could overtake the U.S. as the largest economy in the world in less than a decade.

The result would mean Chinese domination in world trade, thereby making U.S. economic and business interests around the globe less relevant.

China’s Growth Spurt

When China first joined the World Trade Organization in 2001, its gross domestic product was valued at $1.8 trillion and represented just a fraction of the size of the U.S. economy, which was then worth $14.3 trillion.

Today, however, the size of China’s economy is almost as large as the U.S.’s. By 2028, many economists believe China’s economy will rival the U.S. in size.

Could the U.S. Dollar Be Replaced by the Yuan?

If so, there are new questions that will be asked…including the question of whether the U.S. dollar will remain the world’s reserve currency.

Part of the U.S.’s economic success is rooted in its role as the world’s dominant currency. After all, when investors worry about coronavirus or the world economy as a whole, then where do they put their money?

In U.S. assets. After all, the dollar is still viewed as the safest vehicle and, as such, the U.S. enjoys certain benefits.

But, if the U.S. were to lose its status as the world’s largest economy? Then, the U.S. dollar could also be at risk for losing its place as the reserve currency of the world.

Indeed, Greylock Capital’s Hans Humes, told me in September that there is an “active effort to bypass the U.S. as a reserve currency. If another clearing mechanism gets put together by the ESM, the European Stabilization Mechanism, in cooperation with China, where they start denominating some of their trade-in other currencies,” said Humes, “we’ll start to have a problem.”

A problem indeed.

In the meantime…

Digital Currency Wars Grow Real

China has shown its willingness to move forward on a digital currency and thus far, is ahead of the rest of the world in its efforts, including the U.S. This is a concern considering that there’s a growing appetite to transact cheaply and digitally. The rise of bitcoin has most certainly given a reason for some investors to seek alternatives to traditional, central bank backed currencies.

As for China, it’s clear this is a country that’s growing at a rapid pace. The question remains, at what cost to the United States?

 

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