WillChina Surpass the U.S. Soon? No, And It’s Not Even Close.
Most readers are familiar with the basic equation forcalculating gross domestic product (GDP). It’s consumption (C) plus investment(I) plus government spending (G) plus net exports (X – M). The short version isGDP = C + I + G + (X – M). Of course, there are many technical issues behindthose elements. For example, I include inventory build-up even if inventoriesare not reflected in final sales. (Many analysts substitute final sales forthat reason). Net exports are usually negative for the U.S. (X < M), so asmaller negative compared to the prior quarter actually adds to GDP. And itgets more complicated from there. There’s an even easier way to think aboutGDP. You can just calculate working population (W) times productivity perworker (P) or W x P. In that equation, you’re asking how many people are actuallyworking and how productive they are on average. That equals total output. Andthis brings us to the little-known reason why China will never pass the U.S. inGDP. Productivity is on the decline worldwide for reasons economists do notfully understand. That means the only way to grow your output is to grow yourworkforce. Some developing economies are doing that with rapid populationgrowth, but that growth is starting to slow down due to better educationalopportunities for women and increased urbanization. Developed economies fromJapan to Germany and France are watching their populations decline steeply andtheir GDP has been stagnant as a result. A few developed economies such as theU.S. and Canada have been able to maintain population growth, not withbirthrates but with immigration (legal and illegal). But that may be hittinglimits in the U.S. as illegal immigrants overwhelm the social safety net.Nowhere is the population situation more dangerous than in China. Its one-child policy from 1980 to 2016 wiped out millions of Chinese births and skewed the population toward men (who cannot give birth to a new generation) as 35 million baby girls were killed at birth. China is expected to lose half its population or 700 million citizens by 2100. This near-extinction level trend has already begun. What’s left of the population will be heavily skewed toward older generations, who will require elder care that will further drain the productivity of those relatively few who are working age. The demographic collapse equals an economic collapse and will mark the end of China’s dream of economic and military dominance. In truth, it may mark the end of the Chinese Communist Party and the collapse of China as a centralized political entity. This will be the most momentous population collapse in the history of the world.
