The U.S. and our place in the world

Thaddeus Mast

The United States economy is slowly growing. We may be out of our recession soon, but Europe is not looking as good. China’s economy, however, is growing quickly, which could either hurt or help our economy.

Right now, the United States has the world’s largest economy. China holds the second largest economy, based on gross national product. “China’s been growing very quickly. Their economic growth has been in double digits for quite a while now,” said Mack Shelley, a political science professor. “But China’s growth can’t last forever. It’s already starting to slow down.”

E. Kwan Choi, an economics professor, believes that China is already larger than the U.S. “China is already larger than the United States. We are just mistakenly believing that China’s GDP is $10 trillion and ours is $14 trillion. But if you change the equilibrium and exchange rate to create balance between China and the United States, China’s GDP would be about $20 trillion. We are entering a new phase where we are not number one anymore.”

This large economy means that China can spend more money on their military, which can make military advisors nervous. “You kind of need a robust to maintain and expand a global reach military arm. The United States spends more dollars on defense than most of the other nations of the world combined. China’s military has been growing because their economy allows them to do that,” Shelley said.

Our debt is also playing into our cautiousness of China. “One reason why the United States debt has become a bigger problem is because China owns a lot of that debt. Several trillion dollars of our debt is in Chinese investors,” Shelley said. “To a large extent, China is keeping the U.S. economy afloat.”

Choi agrees that China is helping the United States’ debt situation. “If China grows, hopefully they will buy more from the United States. Without them, our property values would be going down. But because they are buying a lot of assets, they are propping up the real estate value.”

Europe, however, is worse off than China or the U.S. “You have what some call the PIGS countries, Portugal, Italy, Greece, and Spain,” Shelley said. “Those are the economies that are struggling the most right now. Greece is at Depression Era levels. Unemployment in Greece is at 25 to 30 percent, and it’s only going to go higher.”

Choi believes that one of two situations will happen, possibly within the decade. “Eventually, Germany cannot keep bailing out these poor economies. My opinion may be different from others, but I think eventually Germany and France will quit and create their own currency or they will bail them out one more time and make them leave the Union.”

Eventually, the U.S. may not even be a key player in the world economy. “There have been some simulations and some experts say that by the year 2050 there will be a so-called BRIC economy: Brazil, Russia, India, and China will be larger than G5,” Choi said. G5 are five current economic leaders, such as France, Germany, Japan, the United Kingdom, and the United States.