The economic gap between China and the United States seems to be becoming more and more pronounced on the surface, but the underlying problems behind this are worthy of our in-depth consideration. From 2021 to 2022, the GDP gap between the United States and China has widened year by year, which has attracted widespread attention. However, the truth of this phenomenon may not be what it seems.
One of the core reasons for the seemingly widening economic gap between China and the United States is the inflation problem in the United States. Inflation has led to an inflated nominal GDP rate, so let's first clarify the difference between nominal and real growth. The nominal growth rate refers to the increase in the quantity of money corresponding to the products produced, while the real growth rate refers to the increase in the quantity of products actually produced.
Countries around the world usually use nominal GDP data when calculating GDP, but because the ** factor is not removed, this data often contains many uncertainties. For example, U.S. air conditioners have seen their nominal GDP increase due to rising inflation prices, even though the actual number of air conditioners produced has not changed.
The GDP of the United States in 2022 is 25$46 trillion, GDP in the first three quarters of this year was close to $21 trillion, which is largely due to prices, the so-called "growth is not enough, inflation to make up". In contrast, China's CPI data has remained flat, making the widening gap between the US and China's GDP data actually fail to reflect the true economic gap between the two countries.
In addition to inflation, the exchange rate also plays a role in the comparison of GDP between China and the United States. Countries around the world usually count their GDP in dollars, but in the context of the pandemic in the United States, the US dollar continues to strengthen, causing other countries to experience a certain decline in the conversion of GDP into US dollars.
Last year and for a long time this year, the renminbi has been under pressure, so this depreciation in the exchange rate has become one of the "culprits" of the widening economic gap between China and the United States. As the US dollar rate hike cycle is coming to an end, the market's expectations for the Fed's interest rate hike have decreased, and the trend of weakening the dollar index has become more apparent. In the future, the strengthening of the RMB exchange rate will lead to a further narrowing of the GDP gap between China and the United States.
According to the CME's "Fed Watch Tool", the probability of the Fed continuing to raise interest rates in December has dropped to 0%, and the probability of a rate hike in January next year has also fallen from nearly 30% to 2%. In addition, Christopher Waller, an important Fed official, published an article saying that the Fed could decide to cut its benchmark interest rate as early as the spring if inflation declines steadily.
Waller, as a "hawkish" Fed**, has released a signal of bias towards interest rate cuts, which indicates that the Fed's end of interest rate hikes has almost become a sure thing. In contrast, the United States is facing a deepening fiscal crisis, and there is no room for further interest rate hikes. The fiscal deficit is widening and the pressure on interest repayments is rising, which further complicates the fiscal problem.
Although GDP data is an important indicator of a country's economic development, relying solely on GDP data often has certain limitations. More critically, we need to improve people's living standards, not just pursue inflated GDP figures. Solving practical problems and achieving substantial economic development is the key to ensuring the long-term prosperity of the country.
The widening economic gap between China and the United States is not due to a single cause, but a combination of factors such as inflation and exchange rates. However, the understanding of the U.S.-China relationship cannot be superficial. As the US dollar's rate hike cycle comes to an end, we may see a gradual narrowing of the GDP gap between China and the United States, but more importantly, we need to focus on the real issues to enable people to live a better life. While pursuing economic growth, we should pay more attention to sustainable and equitable development to achieve a sustainable foundation for national prosperity.