Although the United States will be number two in 2050, its economy will be much smaller than China's. Goldman Sachs projects that China's GDP should match America's by 2027, and then steadily pull ahead. The collective GDP of the four leading developing countries (the BRICs--Brazil, Russia, India, and China) is likely to match that of today's leading Western nations by 2032. The World Bank predicts that the U.S. dollar will lose its global dominance by 2025 as the dollar, euro, and China's renminbi become co-equals in a "multi-currency" monetary system.
China has already surpassed Japan to become the world's second-largest economy. Although it will be well into the next decade before China overtakes the United States to become number one, the numbers already speak for themselves. The United States in 2010 posted a current account deficit of $470 billion, contributing to global imbalances that threaten future U.S. growth. Meanwhile, China in 2010 racked up a surplus of $305 billion. America's aver- age rate of consumption over the past decade was seventy percent of GDP and its savings rate roughly 3.5 percent. In contrast, China's average rate of consumption over the past decade was thirty-five percent of GDP and estimates of its savings rate range as high as forty percent.
China has funneled some of its accumulating surpluses into sovereign wealth funds, which the government invests strategically around the world. As of the spring of 2010, three of China's largest funds together had approximately $780 billion in assets -- a figure roughly equivalent to the GDP of the Netherlands. Meanwhile, public debt in the United States reached $14 trillion in early 2011 (over ninety percent of GDP), with annual deficits at their highest levels since the years following World War II. As American debt has piled up, China has become the leading foreign purchaser of American treasuries, holding some $1.2 trillion in U.S. debt by the end of 2010 -- over twenty-five percent of U.S. treasury securities held by foreign countries. Indeed, foreigners held over half of all U.S. government debt by 2010, exposing the United States to considerable financial vulnerability.
China's economy will cool off over time; growth rates, savings rates, and budget surpluses normally decline as national economies mature. But the impressive prospects for growth in China, India, and other developing countries are also grounded in immutable demographic realities. The West's population represents less than twenty percent of the globe's total--and is poised to experience both a relative and absolute decline in the years ahead. While the U.S. population and labor force will grow gradually over the coming decades due to both immigration and fertility rates higher than the Western norm, Europe's population is poised to shrink. The EU's aggregate fertility rate falls short of the replacement level and its immigration rate is below that of the United States. Japan's population is also aging rapidly. Meanwhile, although China's population begins to decline around 2025 (due to the one-child policy implemented in 1978), as the figure below shows, China and India both have impressive pools of labor on which to draw for years to come. Many other parts of the developing world will be experiencing significant increases in their labor forces in the years ahead.
Not only will labor pools outside the West be expanding dramatically while those within the West are shrinking, but intellectual capital will also be relocating from the core to the periphery of the global system. The United States still has the best university system in the world. But an increasing number of the students taking advantage of this system are foreigners--and they regularly bring their skills back home.
In 1978 approximately twelve percent of all doctorates awarded in the United States went to foreign students. By 2008, that figure had risen to thirty-three percent for all fields of study. In engineering, foreign students accounted for sixty percent of doctorates awarded, while the share of foreign students receiving doctorates in the physical sciences was forty-eight percent. In 2008, Chinese citizens studying in the United States accounted for nearly thirty percent of all doctorates awarded to foreign students. Students coming from China, India, and South Korea together received over fifty percent of all doctoral degrees awarded to foreigners. It should be no surprise that Asia's share of published scientific papers rose from sixteen percent in 1990 to twenty-five percent in 2004.
The economic primacy of the West has already begun to wane -- and the global diffusion of wealth will quicken over the course of this decade. America's military superiority will remain unquestioned well into the next decade. However, the influence that comes with such superiority is already diminishing.
Excerpted from No One's World, by Charles A. Kupchan, published by Oxford University Press, 2012.