Covid-19 Narrowed the Gap Between the Chinese and US Economies by a Trillion Dollars

In 2020, the difference between the United States and China’s economic size was reduced by about a trillion dollars. It happened after the American GDP registered its worst growth figure last year. It was the worst decline since World War II when the US economy contracted a 3,5% to $20.9 trillion.

On the contrary, the Asian giant reached a 2.3% increase in its economy. It reached approximately 14.7 trillion dollars if we assume an average change of 6.9 yuan per dollar.

In 2019, both countries registered 7.1 trillion dollars. By then, the difference between the world’s largest and second-largest economies was around 6.2 trillion dollars. 

Even though the US is still in the advantaged position, we are about to see Chinese surprise as soon as the next five years.

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China could become the world’s largest economy by 2026

Nomura Holdings, a Japanese financial holding company, had already estimated that China’s economy would surpass that of the US in 2030. However, last year’s progress has caused this bank to shorten this term until 2028. Thus, acting as a reference to the projections of the International Monetary Fund. If the Chinese currency’s appreciation continues, and the dollar loses steam, the advance could occur as soon as 2026.

According to Nomura’s report, the pandemic dealt a much more significant blow to the US economy than the Chinese one. They believe there is a high probability that in 2026 China will re-emerge as the world’s largest economy.

Last year, the divergent growth rates also led other economists to project that China could surpass the US as the world’s largest economy in less than a decade. According to Beijing’s projections, this will happen in 2032.

Whether and when such an advance will occur will depend on US President Joe Biden’s economic plans. The Democrat seeks to add a new stimulus of 1.9 trillion dollars to the more than 3 trillion dollars already implemented last year. If the White House’s tenant wants to reach an agreement with the Republicans, the bill will have to be reduced significantly. The ten Republicans open to negotiation presented a plan of 618,000 million dollars. Thus, leaving aside many of the president’s objectives.

That is why on Tuesday, the Senate Majority Leader, Democrat Chuck Schumer, began to lay the groundwork to pass the so-called American Rescue Plan with only a simple majority through budget reconciliation.