In his landmark study, economic historian Joel Morkiel noted that “the most predictive factor of the standard of living a newborn can expect to enjoy is the chance factor of where he or she was born.” In the second half of the 20th century, babies born in North America and Western Europe were the equivalent of winning the lottery, while babies born in Latin America, Africa and Asia were a different fate.
But the rapid rise in China’s income levels over the past three decades is threatening that relative position, reshaping the distribution of consumption, energy flows, trade, investment, tourism and military spending.
China’s rapidly rising incomes and growing economy have raised anxiety in the United States and its Asian and European allies, just as Britain was anxious about its own decline.
In the U.S., per capita national income grew 56 percent in real terms between 1990 and 2018, while China’s per capita national income grew by 960 percent from a very low base.
In 1990, the U.S. national income per capita was 70 times higher than China’s in dollar terms, and after adjusting for differences in price levels between countries, the U.S. national income per capita was still nearly 25 times higher than China’s.
By 2019, U.S. GNI per capita will still be six times higher than China’s in dollar terms and four times higher in purchasing power parity terms.
But China’s rapid industrialization has profoundly altered the international balance of power because of its size and the fact that it is one of the very few major economies whose relative incomes have increased.
Income in the United States, Germany, France, Britain, Mexico and Brazil have remained relatively stable in relation to each other over the past 30 years, which means that the distribution of power has remained roughly the same. China and (much smaller) India are the only two large economies that have seen their relative incomes rise significantly since 1990.
In the 1980s, the United States and its European allies were concerned about Japan’s struggle for dominance in manufacturing, international trade, advanced technology and overseas investment. Today, China’s economy is much larger and, unlike Japan, it is not included in the U.S. military alliance system.
If China continues to close the gap with the West, competition and tensions are likely to increase. The challenge for the world is to use this competition constructively and prevent it from spilling over into destructive armed conflict.
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