In the midst of a very high expectation, not exempt from a similar level of uncertainty, Donald Trump He has just assumed as president of the United States for the second time. Their decisions in political and economic matters in a country whose production of goods and services still represents the quarter of the world GDP will have very high impact over the next few years.
In the campaign, Trump promised to increase tariffs, reduce corporate taxes, strengthen energy independence, repatriate jobs, promote manufacturing production and limit immigration, just to mention some high -impact elements. A separate chapter is its intention to deregulate the economy and reduce the size of the state. The latter, in particular, is interesting. Between 2013 and 2019, the average public spending of the United States was 35.4% of GDP, a slightly higher number than the average of 2001 – 2007 (33.8%). Pandemia raised it to almost 45%, but in 2024 it was 37.5%. Higher than the averages cited above, but not much. This suggests that, according to Trump’s vision and his main advisors, the problem of the size of the American state is not a recent problem. Ultimately, all this seems to point to the intention of laying the foundations for the United States to grow quickly in the coming years and maintain (and, if possible, increase) its hegemony worldwide.
An important question is valid here: the United States has lost hegemony in recent years, promptly at the hands of China? The answer cannot be simple, because among other issues depends on the indicator with which it is intended to measure that hegemony. On the economic level, this hegemony is closely related to the international role of the dollar as a reference currency. But it is probably more appropriate to focus the response on what is happening in terms of economic growth (even if GDP limitations are increasingly evident).
According to IMF data, in 2000 China’s GDP, measured in current dollars, represented 12% of the United States. This proportion jumped at 40% in 2010 and reached a maximum of 75% in 2021. Since that last year the relationship fell slightly and in October last year, IMF projections indicate that in 2025 it would be around 64%. Beyond the fall (not despicable) of recent years, it is logical that for a country like the United States, which has maintained a world hegemony since the beginning of the last century, the threat of losing world leadership at the hands of China has a probability reasonable.
In case this really happened, it would not be the first time that a country loses preponderance at the hands of another. The 1st Industrial Revolution made Great Britain the world economic leader. Then, with the 2nd Industrial Revolution, the United States assumed that role. In the 3rd Industrial Revolution, the hegemony of the American economy was threatened by Japan, but finally resisted. Transiting the 4th Industrial Revolution, could China replace the United States in global leadership?
In principle, not necessarily. There is nothing predetermined in the trajectory of a long -term country. History is also resounding in this aspect. When Japan began its economic takeoff in the early 1950s, its per capita income represented only 10% in relation to that of the United States. Four decades later, it was above 80%. Everything seemed to indicate that, in a few years, the Japanese economy would be richer than the American, but the following decades surprised many: the United States continued to grow solidly while Japan grew very little. Today, Japanese per capita income is equivalent to 65% of the American. The Japanese threat did not materialize.
The fact that leadership changes originate in industrial revolutions suggests something obvious: that technological disruptions are key. Above all, those that give rise to what is called General purpose technologies (TPG). The differences in the ability of two countries to innovate creating new technologies and applying them to the productive system can lead to the growth rates of their economies to begin to differentiate substantially in favor of the most innovative country. With the passage of time, small differences in growth give rise to important gaps in per capita income levels. Historical estimates show that, before the 1st Industrial Revolution, the average income per person in China, Germany and France was very similar. But by 1850 the differences were already huge, even among the European countries themselves: British GDP per capita was 70% and 90% higher than French and German, respectively. Technology can trigger these processes because, unlike the accumulation of capital and labor, it is not subject to decreasing yields. Indeed, in relatively short periods of time, an additional capital unit increases production by a lower amount than the previous unit. But with technology this does not happen.
What makes TPG special? Fundamentally, its ability to function better and better, to apply transversely in all productive sectors and to achieve synergies with other technologies. Therefore, TPG radically transform economies and achieve great mass increases in productivity. Electricity, computers and the Internet, to mention a few cases, belong to this group of technologies. And at present, artificial intelligence (AI) has great possibilities of being. Perhaps even with more impact than the technologies mentioned above.
From this, does the United States really have to worry about China? This question can only admit an answer that you consider multiple dimensions. At the moment there is no serious indication that indicates that the American economy has growth problems. Between 2022 and 2024, GDP grew at 2.7% per year and this rate is even higher than the 2010 – 2019 period (2.4%). There is, therefore, deceleration signs. But, in addition, the values of other key indicators are, in general, very good. Inflation in 2024 was 3.0% (with the interannual below that value since June). This value is above the goal of the Federal Reserve, but the improvement with respect to 2023 (4.1%), 2022 (8.0%) and 2021 (4.7%) is remarkable and even the most recent values They are not far superior to the average for 2010 – 2020 (1.7%). And unemployment remains in historical minimums. In summary, the United States economy enjoys a significant bonanza. The most relevant data to verify it is that since 2021 GDP has been, on average, 0.75% above potential GDP (0.87% in 2024). Companies share this optimism. In fact, the IMF projects that in 2025 the investment rate will be equivalent to 22% of GDP; To find a similar value you have to go back until 2007.
However, the current good performance does not guarantee future success. In the short term, the performance of an economy obeys, to a large extent, to the successes or errors of economic policy and the good or bad “luck” associated with the world context. But in the long term growth depends crucially on what happens with productivity. And here the United States has had some alert signals that help to understand Trump’s vision about the need to advance with reforms (although those mentioned at the beginning of this column, or at least some of them, are not the most convenient) .
As clearly observed in the second graph, the performance of labor productivity in the United States in the decade that followed the 2009 financial crisis was not good (the variation refers to the production per hour for all sectors except agricultural and the source is the US Labor Statistics Office). In 2020 – 2023 the results were somewhat better, but there impacts high variation in 2020 (5.3%), which is mostly explained by the fall in employment associated with pandemia, especially in low productivity sectors. The numbers by 2021 (2.1%), 2022 (-1.5%) and 2023 (1.8%) were not too encouraging, although interannual variations for the first three quarters of 2024 (2.8%, 2, 2, 2 , 4% and 2.0%) suggest that the new average speed would be around 2% per year.
These latest data offer very important indications to respond to the central issue of this column. The United States will surely maintain its hegemony if it is able to achieve the growth of the productivity that it had during the 1990s and 2000s. For this competition with China for AI will be decisive. Stability and current growth numbers put it in a very good starting point. But Trump is right when he suggests reforms that guarantee long -term growth through productivity improvement. The next few weeks will be key to dimensioning if these reforms go in the right sense.
*Lucas Pussetto is an economy professor at IAE Business School.
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