Bridging the Economic Gap: A Deep Dive into China, India, and the United States

Examining the economic effects of the changing world order

The US-led world order is changing rapidly, and this is becoming an undeniable fact. One big reason for this is that the world is transitioning from the unipolar order, which was largely dominated by the US and its allies, towards a multipolar order, with countries like China and India taking the spotlight. In particular, China is threatening to surpass the dominance of the US economic order, with its previously unseen economic growth.

This will leave a long-lasting mark on all world economies and their citizens. Therefore, it is necessary to understand these economic trends, to fully grasp how they will influence the development of the global economy. The special focus of this post will be on the major nations such as the US, China, and India, and how they have developed in the period over the last 60 years.

Photo by Adam Nir on Unsplash

The Economies of China, India, and the United States 60 Years Ago

About 60 years ago, in 1961 the average income in China was $1.51 per day, the average in India was $2.22 per day, and the average in the United States was $47.02 per day (based on terms adjusted for inflation and purchasing power). This has meant that the average income in the United States was approximately 31.13 times bigger than in China, and 21.18 times bigger than in India.

Both India and China didn’t see much economic growth for the next two decades, up until the 1980s. By 1981, China had doubled the size of its economy, which was still very small compared to the US and other world economies. In comparison, India has only seen a 29% growth, a change that was hardly perceivable by the vast majority of its citizens, who lived in conditions of extreme poverty.

The United States on the other hand had a relatively good economic performance in both the 1960s and 1970s: the US recorded per capita incomes slightly below $30,000 per person, which amounted to approximately two-thirds of the levels reached in 2011. During the same timeframe, specifically in 1981, the economies of both China and India had incomes that did not exceed 4% of the levels seen in the United States.

It was between 1981 and 1991 when real economic growth started to emerge in China. During that time, incomes in China grew by 6% per year, which resulted in a whopping 77% growth from the beginning of the decade until the end of it. This meant that the average Chinese had an income of $3 per day in 1981 and 5$ in 1991. Although this doesn’t mean much in today’s terms, for the average Chinese this was a great increase in disposable income.

In the same period, India’s incomes grew by a total of about 25%, and U.S. incomes grew by about 17.42%. Although this wasn’t bad for India, it was only one-third of the growth seen by the Chinese economy. In 1991, Indians were living on $4 per day, the Chinese on 5$ and the Americans on 94$. This was a clear indication of the economic supremacy that the US has exhibited over China and India. The 90s are also widely regarded as the period when the US was at the peak of its power.

This was also evident over the next decade, as the US saw its average incomes grow by about 21%. By the end of 2001, the U.S. per capita gross domestic product was about 2.5 times its level in 1961. However, China has experienced a remarkable growth of 6.7% per year, which has resulted in 91% growth over the decade. In 1961, the average American income was 31 times larger than the Chinese, whereas in 2001 it was 11 times bigger. Although the difference was still great, the change that has occurred over the four decades is nothing short of remarkable.

India on the other hand had a growth of about 4.14% per year and has finally started to catch up economically with the rest of the world. Although income levels in India were only 1/20th of those in the United States, these were all good indicators, taking into consideration that India only began really to grow 10-15 years after China.

The 21st Century and the Chinese Miracle

The first 10 years of the 21st century saw real tectonic shifts in the world economic order. Between 2001 and 2010, available data suggest that the average income in China grew by more than 125% in inflation-adjusted terms. This represents the fastest period of economic growth over a single decade for any nation in recorded history. In these short 9 years, average incomes more than doubled. They were nearly 5 times what they were in 1991.

If the United States had grown at the Chinese rate between 1991 and 2010, the average American incomes in 2010 would have been nearly $150,000 per person. That would be like giving every single American an extra $105,000 to spend each year.

India can’t boast quite as much growth but the first decade of the 21st century was by far the best since its independence in the late 1940s. Between 2001 and 2010, incomes in India grew by a total of 37.44%--that’s a growth rate of 4.8% per year a full 4 times as fast as during the 1970s. This was great news, the Indian miracle was underway and it seemed for the first time that they might be able to pull a Chinese miracle of their own.

On the other side, the beginning of the 21st century is one of the worst in the history of the US. The growth of China and India is even more accentuated when we understand that the growth of the US economy has come to a halt. The tech bust at the end of the 1990s has resulted in a painful recession, one which had profound effects on the overall economic progress of the US. Although the recession was mild, its consequences came about because of the slow and painful recovery that the US economy has endured. After the recession, the US had some robust years of economic growth, before entering one of the worst recessions in the last 8 decades.

These 3 periods—the recession at the end of the century, the few years of growth in the middle, and the so-called Great Recession— resulted in the worst decade of economic performance in generations. Although its growth wasn’t that awful, it was still very weak, especially in comparison with China.

China's influence on the global economy is derived not just from its remarkable growth rate but also from its staggering size. While average incomes in China may not be comparable to those in the United States, the rapidly increasing average is magnified by the largest population on Earth. Consequently, the overall surge in purchasing power and economic strength is substantial.

The same rationale extends to India, a country whose population is expected to surpass China's in the coming decades. The economic growth of both nations has played a pivotal role in lifting hundreds of millions of people out of extreme poverty.

Over the past decade, China's economic expansion has exceeded the entire Gross Domestic Product (GDP) of France and closely matches that of Germany. In essence, it's akin to integrating the economic output of Germany into the global economy. Consequently, population dynamics have played and continue to play a crucial role in positioning China not only as an astonishing growth story but also as a significant player on the world economic stage.

Similar rates of growth were seen in countries such as Japan and South Korea, but what makes the Chinese and Indian examples so amazing is the size of their populations, and consequently their effects on the global economy. Although the post-Covid recession and the housing crisis have both left their marks on the Chinese economy, bringing its growth to a temporary halt, the projections show that the Chinese economy will completely overtake the US economy by the 2030s. These transformations are already having their effects on the global economy and are changing the outlines of the economic order. In the following weeks, we will examine in-depth the particular cases of China, India, and the US. If you haven’t done so yet, subscribe to the newsletter so you don’t miss out on any posts.