December 5, 2014
America Is No Longer The No. 1 Economy In The World – Guess Which Country Snatched Away That Title?

For the first time since Ulysses S. Grant was president, America is not the leading economic power on the planet. China has officially snatched away the title and for now America has to be satisfied with being No. 2.

The Chinese economy has just overtaken the United States economy to become the largest in the world. The International Monetary Fund (IMF) recently released the latest numbers for the world economy and things do not look so good for America and its citizens.

While America may still be considered the leader of the free world, when one considers actual output, the real, bleaker picture begins to surface. Considering national economic output in "real" terms of goods and services, China will produce $17.6 trillion this year. In comparison, America will be able to produce $17.4 trillion worth of goods and services, reported Financial Times.

China Has Been Steadily Scaling Up Its Goods And Services
China Has Been Steadily Scaling Up Its Goods And Services

In terms of percentages, China now accounts for 16.5 percent of the global economy when measured in real purchasing-power terms, compared with 16.3 percent for the U.S. Interestingly; the takeover by China had begun last year itself when the country surpassed America for the first time in terms of global trade.

What's shocking about the statistic is that as recent as the year 2000, America produced three times more as compared to the Chinese, but within a span of just 14 years, China has not just shortened the gap, but has been able to surpass America.

Such a colossal change in the output is the result of China not releasing a complete and comprehensive report about its commercial and manufacturing domain. China's recent decision to bring gross domestic product calculations in line with international standards has revealed activity that had previously gone uncounted.

While it may still be easy to refute these substantial developments claiming they bear no long term severe implications, the calculations are based on a well-established and widely used economic measure known as Purchasing-Power Parity (PPP). This scale is much more realistic because it measures the actual output as opposed to fluctuations in exchange rates.

Considering just the international exchange rates, the U.S. economy remains much larger than that of China – allegedly by almost 70 percent. Moreover, China may be overstating or even understating the numbers to mislead the world. However in its defense, so could America. As a solace, the U.S. is still ahead by some other metrics, most notably patents, which can be an indicator of innovation. China, however, is gaining ground in this area as well.

Hence, dismissing such factors won't offer much solace to the Americans, especially, when history offers ample proof that economic decline is a surefire indicator and predecessor of collapse of power. Does the history of Briton ring a bell?

We have lived in a world dominated by the U.S. since at least 1945 and, in many ways, since the late 19th century. One could even consider Great Britain to be a reasonably democratic and constitutional economic forerunner. However, with China, a largely Communist and unfettered Capitalist country owning the crown of world economy, many things might change soon.

[Image Credit | Kevin Lamarque / Reuters, IMF]