Description
The Biden administration recently made a flawed claim that an expanding US economic lead over China demonstrates the success of US policy.
The calculation is based on nominal GDP growth rates in both countries. After adjusting for inflation in each country, China's economy continues to grow faster. The supposed expanding gap between US GDP and China's since Biden came into office is almost entirely due to elevated US inflation and the high US interest rates. Prices (measured by the GDP deflator) in the US have risen almost three times as fast as in China, boosting the nominal US GDP growth rate relative to that of China. As the US Federal Reserve sharply raised interest rates starting in March 2022, the Chinese currency depreciated vis-à-vis the dollar as global investors sold renminbi-denominated financial assets. When China's nominal GDP in renminbi is converted into dollars at a depreciated exchange rate to make the comparison with US GDP, China's GDP is reduced.
Both these factors are transitory—US inflation has declined in recent quarters and the Fed has begun reducing interest rates. In any case, as shown in the chart, measuring growth in the constant prices of each country, China's GDP growth rate continues to surpass that of the United States.
