What China's Rise Really Means

Current economic predictions, with few if any dissenters, say that in the next 30 years, China's GDP will grow to a total far larger than that of the United States. The total world GDP in 2010 was more than $60 trillion. Of that total, the United States has about $15 trillion, or what I will call a current global economic market share of about 25%. And China currently has a GDP of nearly $6 trillion, or a market share of about 10%.

You might be wondering how India and Russia will do. They might do OK, but they're starting too far back. India and Russia have GDPs approaching $1.5 trillion apiece. Almost nobody knows this because India and China are so often discussed in the same conversation, under the assumption that their GDPs are of similar size. Those who have been saying for 10 years that India is the one to watch, not China, are at least temporarily wrong. India might do well, but the country is getting routed by the Middle Kingdom.

Right now, China's GDP is more than four times bigger than India's. And it's more than three times bigger than Russia's and more than double Brazil's. Japan is close to China at slightly more than $5 trillion, but Japan's economy is even more stalled than America's. Germany is next at $3.3 trillion. The United Kingdom is just over $2 trillion, and France is just over $2.5 trillion -- and they are both stalled. And to review, the United States of America's GDP is leading the world at about $15 trillion, but stalled, while China's nearly $6 trillion GDP is on a historic, world-order-changing run of nearly 10% growth per year.

Over the next 30 years, with total global GDP growth of approximately 4% annually, GDP will likely grow to a total of $200 trillion. Virtually all economists I've read predict that China's GDP will bounce to about $70 trillion by 2040 -- a 35% market share of the entire world's economy. Those economists predict that the U.S. GDP will be growing at an average of 2.5% to about $30 trillion, or 15% global market share in 2040.

When and if that happens, America loses. The world changes; everything changes. China may dominate the world. But it won't have to use its military. When its GDP surpasses America's, it will dominate the world economically by a margin far more than the United States currently has. At that point, China will be the new leader of the world. All decisions between countries on the subjects of peace, trade, environment, borders, laws, and human rights would defer to China. Because more than ever, the new golden rule applies: He who has the gold, rules. And the country with the dominant GDP has the gold and the good jobs.

It's vital to understand all those GDP numbers because almighty jobs live in combination with GDP growth. Everything you just read will come true unless America gets its economic engine restarted and roaring. If not, it will slide into a new economic hell that few can imagine.

It might be hard to imagine, but there has been a preview of it in Detroit. If GDP and jobs continue to falter, a thousand big and little American cities will suddenly morph into a condition much like Detroit's. They will have declining city GDP growth. Small and medium-sized businesses will close. Big companies will have to be taken over by Washington or foreign owners. Any company that can afford to will leave. There will be massive layoffs and no jobs to replace them, huge unaffordable city debt, a decreasing tax base for the government jobs that support the community, and devastating brain drain. Houses will be bulldozed. There will be increased corruption among government leaders -- a citywide economic hell.

Just a few decades ago, Detroit was one of the richest cities -- and arguably the best city -- in the world. It was a fantastic place to live and to run a wide variety of great businesses. But because of lousy local leadership and the rise of foreign competition, Detroit's businesses, government, and all its community support systems, including schools -- everything came off the rails. And lousy top leadership creates lousy leadership further down the chain. America lost one of the best cities in the world because Detroit lost in the competition for jobs to Japan and Germany.

What went wrong with the macroeconomics of Detroit?

Most of the blame probably could be assigned to the car companies' short-sighted leadership, management, and vision; they managed as if the United States was going to be the undisputed world economic champion forever. They could make lousy cars because who cares? Everyone in the postwar world had to buy American anyway. Consumers had no choice.

The rest of the blame should be laid at the door of overly aggressive unions that knew they could have their way with the Big Three's weak leadership. Unions make the wrong people the customers. They create organizations almost solely for the benefit of employees, not the marketplace. Neither management nor unions had the vision to see how they were making their home city noncompetitive in the new war for GDP and jobs. That's the simplest summary.

$123,000,000,000,000

The idea of America turning into one big Detroit is not far-fetched when considering the prediction of the 1993 winner of the Nobel Prize for Economics, Robert Fogel. He said that by 2040, the Chinese economy will be right at $123 trillion. That's more than three times the global economic output of 2000. China's share will be 40%, America's will be 14%, and the European Union's will be 5%. "This is what economic hegemony will look like," Fogel wrote in his article in Foreign Policy.

My own review of many economic calculations would say that Fogel was over-caffeinated as he ran his math, but he is a renowned and highly admired economist. In any case, virtually all the world's most credible economists have China as a prohibitive favorite by huge spreads to beat the United States over the next 30 years. Literally no economist I could find thinks the United States will win the upcoming economic battle of its life.

So even if Fogel is close to right, even if his prediction comes almost true, it will be jobs Armageddon in America. Its unemployment plus underemployment will rise to more than 40%. Leadership of the free world will not be just lost, but overwhelmed.

And that's the end for the American experiment in democracy. The history books will say it worked from 1776 to 2040 and then was overwhelmed by Chinese market-based communism.

Please take note: The United States will be overwhelmed by China unless there is an economic miracle. Americans are betting their entire country and the future of their children and their grandchildren on one big "unless."