In the 1950s and 1960s, professor Paul Samuelson was arguably America’s preeminent economist. His textbook for introductory economics was used at colleges and universities across the United States. He was a close adviser to President John F. Kennedy.
In 1961, Samuelson predicted that the then Soviet Union would overtake the United States in economic size somewhere between 1984 and 1997. By 1980, he continued to suggest that the Soviet Union would become the world’s largest economy within a few decades.
Obviously, Samuelson was wrong. He did not understand that extreme authoritarianism and the rejection of free market capitalism would consign the Soviet Union to the dustbin of history.
Today, however, other respected academics are making Samuelson’s mistake in their assessments of Communist China. They opine that in the current century, China will become the dominant global economic power. One researcher from Princeton University wrote recently in the New York Times that the battle for global economic superiority is being “decisively” won by China and that the U.S. is becoming economically irrelevant.
Let’s be clear, researchers who predict the ascendancy of China are wrong.
Yes, some of President Donald Trump’s economic policies are misguided and, in the short run, will impede economic growth. But over the coming decades, economic history and current data say the U.S. will continue to be the world’s largest economy.
Financial markets have a way of sorting out political nonsense. Over the past 10 years, the S&P 500, the U.S. benchmark equity index, is up 170% or so. In stark contrast, a broad index of Chinese equities is flat. U.S. equities have soared on optimism about the future of the U.S. economy. Chinese equities have done nothing, reflecting the enormous buildup of debt in China, its demographic decline, and the deep real estate recession that continues to plague the country.
Yes, China has enjoyed many years of rapid economic growth. The problem is that much of that growth was fueled by debt and building infrastructure that sits idle today. China has built cities where few live. It has constructed roads to nowhere. Its vaunted high-speed rail trains are underused. China destroys capital by investing in underused infrastructure projects. China allocates scarce capital to state-owned enterprises, or SOEs, where returns are in the low single digits. At the same time, China starves capital investment in the more economically vibrant private sector. It is almost as if China chooses economic stagnation.
It is true that China is a world leader in a number of industries. But China’s domestic economy cannot absorb the output of those industries. In China, domestic consumption accounts for about 40% of GDP. In most other countries, internal consumption makes up 60% to 70% of national production. In the U.S., private consumption accounts for almost 70% of GDP.
Domestic consumption is also too low in China because there is no social safety net. This plainly evident connection between fear of future impoverishment and low personal spending is something the supposedly beneficent Communist Party doesn’t like to think about. Instead, Chinese households have high savings rates. Xi Jinping, the all-powerful chairman of the Chinese Communist Party, does not believe in a social safety net. He says it encourages laziness.
But Xi’s intellectual laziness is also coming home to roost.
After all, because China produces a lot but consumes less than it produces, it must export its excess production. China often exports goods at an economic loss. China “dumps” excess production on the global market. But this isn’t going down so well around the world.
One academic brags that by 2030, China will account for 45% of global manufacturing. I doubt it. Which countries will absorb China’s excess production and destroy their own domestic manufacturing sectors? Few, I think. Certainly, few nations have democratic sovereignty outside of the debt-dagger loitering power of the Chinese Communist Party. And the U.S. is far from the only country that is saying “no” to importing China’s surplus production. The world sees that China is destroying the German car industry. Consequently, the European Union is erecting trade barriers against China. Countries will protect their industries and their workers.
China faces a cruel choice. It exports, or its economy withers. Already, manufacturing plants are closing in China. The global market is not buying what China’s factories produce. Economists are lowering long-run economic forecasts in China. In fact, respected research institutions say that China is falling behind the U.S. economically.
The U.S. economy is about 40% larger than the Chinese economy. American investment in emerging technologies dwarfs that of China. To illustrate, a few months ago, with much fanfare, China announced a $138 billion venture capital fund — not a big deal compared to U.S. venture capital. In 2024, U.S. venture capital investment exceeded $228 billion, about 60% higher than Chinese VC funding. Moreover, in the U.S., capital is invested with the expectation of very high returns. In China, investment is often made for political reasons. Capital is destroyed in China.
Yes, China has made rapid advances in high technology. Again, however, the strings attached here are suffocating. Consider that China continues to lag the U.S. in the most important high-technology sectors. Artificial intelligence will be the foundation of economic growth for the balance of this century. Superiority in AI is a central policy of the U.S. AI is also at the center of China’s economic ambitions. And while China did shock the world with its DeepSeek AI large language model, that model used semiconductors designed by Nvidia and fabricated by Taiwan Semiconductor, or TSMC. It is well known that China goes to extreme lengths to obtain possession of chips designed by Nvidia. Regardless, U.S. AI models are superior to those of China.
The U.S. is also the world leader in designing semiconductors. Chips are the critical industry of this century. AI is built with chips. Moreover, the U.S. has open access to the semiconductor fabrication technology of TSMC, the world leader. China is shut off from TSMC by U.S. restrictions. Why is that a problem for China? Well, for one example as to why, observe that TSMC is manufacturing 2-nanometer chips and is testing 1-nanometer semiconductors. China’s best fabrication plants are stuck at producing 5-7 nanometer chips. In this case, smaller is better. China wants to change this situation but faces yet another problem in that regard. Namely, that it will be difficult for China to advance to 1-2 nanometer technology because China is denied access to the semiconductor lithography technology of ASML, a Dutch company. ASML’s lithography technology is essential for manufacturing the most advanced chips. The U.S. has access to the semiconductor fabrication technology of TSMC, and the U.S. is able to purchase ASML’s lithography technology. This is a crucial advantage.
Basic economic data points also bear close attention. Note that the U.S. is home to the world’s largest technology companies. This year, Amazon, Alphabet-Google, Meta, and Microsoft will invest almost $330 billion in data centers and AI technology more generally. By contrast, in 2025, China will invest about $55 billion in AI, including data centers. It will be hard for China to be No. 1 in AI when it invests 70% less than the U.S.
In addition to falling behind the U.S. in AI, data centers, and semiconductor technology, China faces myriad additional economic and social challenges. The country is entering the demographic doom loop in which its declining population will weigh heavily on economic growth. Total debt in China equals about 300% of GDP. Arguably, the banking system in China is bankrupt. China’s real estate sector, which had been the growth and investment engine of the economy, remains in a deep depression. For a typical worker, owning a home in a major city is only a dream, unaffordable today and for many tomorrows.
Unemployment is rising in China. Youth unemployment is especially high. As many as 16% of China’s young men and women are unemployed. To make matters worse, recent college graduates in China can’t find work. China’s consumer sector is experiencing deflation because efforts to raise consumption growth are almost impossible when prices are falling. Chinese consumers keep waiting for lower prices before buying.
THE SENATE SHOULD PASS THE STABLECOIN GENIUS ACT
Put simply, if the future belongs to China, then China would be highlighting economic statistics that point to a bright picture. Instead, China has stopped releasing important economic data. Clearly, something is rotten in the state of Xi.
The truth is that the U.S. is pulling away from China economically and in the cutting-edge technologies of this century. Trump is making mistakes by alienating allies and driving down investment with his unpredictable tariff wars. Nevertheless, his time in office is limited. All-knowing Xi Jinping will probably rule for the rest of his life.
James Rogan is a former U.S. foreign service officer who has worked in finance and law for 30 years. He writes a daily note on the markets, politics, and society. He can be followed on X here. He can be reached at [email protected]