China’s crime is that in the next few years, perhaps as soon as 2035, it will be the world’s largest economy. Its Gross Domestic Product (GDP) will be larger at that point than that of the United States, if the average growth rates of both nations over the last 15 years hold.
This is unacceptable to the US, because it has been the dominant global power for the last century. This power has come mostly because of its economy, which is poised to go from number one to number two. That is China’s offence and that is the reason for the tariff tantrum President Donald Trump is throwing.
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What is called ‘the West,’ meaning Europe and its settler colonies in North America, Australia, and Israel, has no memory of a world where it has not been the ruler and the rest of us the ruled. What they refer to as the ‘international rules-based order’ is the manner in which what was once direct rule through colonialism and its forms has been replaced by institutions such as the UN Security Council, the International Monetary Fund, and the World Bank. Informal groupings such as the G7 are used to further coordinate action.
In the 18th century, the two largest global economies were China and India. This was a function of a world without many machines, in which national productivity and output depended on population and most people were occupied in agriculture. The more people a nation had, the larger its economy. The Industrial Revolution changed that, and productivity began to separate itself from physical human input. From the 1800s to the present, ‘the West’ has been at the forefront of this technological change. China has caught up. China will soon surpass. Citigroup published a paper in January 2023 titled ‘When Will China’s GDP Surpass the US? And What Will It Mean?’ which concluded:
“Across a range of parameters, catch-up is likely to occur sometime during the 2030s, probably during the middle of the decade. When it eventually does occur, it will be widely noted in the press and, likely, in political discourse. It may be largely symbolic, but there may also be some geopolitical heft and prestige that accrues to the largest country in terms of GDP. For example, an economy’s overall size enters the IMF’s quota formula and helps determine voting shares. Also, certain activities—Olympic teams, space programs, and (most importantly) the military—are funded at the national level, and a larger economy means increased resources. In each of these endeavours, the world’s largest economy may reap non-linear influence, strength, and other benefits.”
Much of this has already happened. The Chinese navy has more ships than the US Navy. China built and operates an independent space station that rivals the International Space Station, led by the US and Russia. China, including Hong Kong, won more gold medals (42) than the US (40) in the Paris Olympics last year. Even before its ascension as the largest economy, China has, for the last decade, rolled out the biggest infrastructure project in the world, the Belt and Road Initiative, and it is the largest trading partner for 120 nations, as opposed to 70 for the US.
A series of internal reports resembling Citigroup’s have crossed the desks of Presidents Obama, Trump in his first term, and then Biden. Their response has been to try and handicap China, first by restricting its access to Taiwanese-made semiconductor chips designed in the US. The aim was to preserve the US lead in artificial intelligence, seen by many as a technology that will be as transformational as electricity.
This has not worked, as DeepSeek, the elegant AI produced by an obscure Chinese firm, showed. For good measure, the Chinese firm made DeepSeek open-source, meaning free, stymieing US efforts to monopolise the technology.
Huawei was banned by the West in 2019, denied access to markets and hardware, but it went into manufacturing and is, by some estimates, only a few years behind the two leaders in the semiconductor field, Taiwan’s TSMC and Dutch firm ASML, in making the most advanced chips. What is required here is industrial design and manufacturing, and these are the two things Chinese companies have shown themselves to be superior at, so we should not be surprised if they catch up soon.
The tariff war, trying to totally decouple the West and its economies from China, is the latest and perhaps last attempt to try and stop the East. If this fails, the only option will be to use military power, and many in Washington are talking about this casually.
Chinese ships have begun to turn away from US ports after the raising of tariffs to an absurd 145 percent. In less than two weeks’ time, on May 2, the duty-free exemption granted to packages from China under $800 ends. At that point, with trade at a standstill, the impact of few intermediate and finished goods arriving from China will be felt throughout the US economy. Yes, China will be hurt by this, but not much: exports to the US are 2% of its GDP. The US will be hurt more. Say’s Law of Markets tells us that supply creates its own demand. Meaning that an economy focused on producing goods will ultimately find some market for sale, including an internal market, because the workers producing the goods can buy them. That is China, the world’s largest producer of goods and the sole manufacturing superpower. The US is a consumer. It has the hard task of now beginning to produce what it wants to consume, and going through economic pain and uncertainty in doing so, all because it cannot bear to see someone else as number one.
By Aakar Patel
