What’s the most powerful country in the world? There’s a good case to be made that it’s China.
There are many kinds of power – diplomatic, cultural, military and economic. So an easier question to ask is: What’s the world’s largest economy? That’s almost certainly China.
Many might protest when hearing this. After all, the U.S. still produces the most when measured at market exchange rates:
But this comparison is misleading, because things cost different amounts in different countries. Gross domestic product is supposed to measure the amount of real stuff – cars, phones, financial services, back massages, etc. – that a country produces. If the same phone costs $400 in the U.S. but only $200 in China, China’s GDP is getting undercounted by 50 percent when we measure at market exchange rates. In general, less developed countries have lower prices, which means their GDP gets systematically undercounted.
Economists try to correct for this with an adjustment called purchasing power parity (PPP), which controls for relative prices. It’s not perfect, since it has to account for things like product quality, which can be hard to measure. But it probably gives a more accurate picture of how much a country really produces. And here, China has already surpassed the U.S.
If you don’t trust the murky PPP adjustments, a simple alternative is just to look at the price of a Big Mac. The same burger costs 1.8 times more in the U.S. than in China. Adjusting the market-exchange-rate GDP numbers by that ratio would put China even farther ahead.
In some dimensions, China’s lead is even larger. The country’s manufacturing output overtook that of the U.S. almost a decade ago. Its exports are more than a third larger as well.
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Two things that dont work together
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