China, GDP and military conflict

In George Orwell’s book 1984, the main character’s country was at war with one country for many years and then one day, seemingly out of the blue, his country had a new enemy. Recent history seems to be following Orwell’s script. In the 1980s, Russia was clearly the U.S.’s main foe. Now, all of a sudden, we have a new military rival in China. Russia is barely mentioned in the news.

Gross Domestic Product (GDP) often determines which countries are military rivals and also which one will win out in military contest. GDP is simply a measure of the value of a country’s output. Countries with large GDPs can afford to build large militaries and become great powers. This production capacity determines the winner of long military struggles. For example, in World War II, during its peak year of production, the U.S. was producing about three times the number of large aircraft carriers that Japan was producing. Japan was doomed. No matter how the battles turned out, Japan was going to get swamped by America’s awesome production capacity.

The table below shows China’s GDP expressed as a fraction of the U.S.’s GDP. The data used to calculate these numbers comes from data available from the St. Louis Federal Reserve Board.

Year China’s GDP as a fraction of U.S. GDP:

1990 – 6.1%

2000 – 12.0%

2010 – 41.0%

2018 – 67.2%

In 1990, the value of China’s output was only 6% of the value of the output produced in the U.S. Quite simply, China did not have the production capacity to challenge the United States. Even if China had devoted all of its resources to its military, its forces would have seemed feeble next to the military that the U.S. could outfit.

Since 1990, China’s economy has grown rapidly compared to the U.S. economy. In just 10 years (from 1990 to 2000), China’s GDP moved up to start producing 12% of the GDP produced in the U.S. In 2018, China’s GDP was over two thirds of the U.S. GDP. This is an awesome and rapid change. In just 28 years, China went from producing just 6% of the output the U.S. generated to over 2/3 of the U.S. output. In 2018, the Chinese GDP was $13.6 trillion, while the U.S. GDP was $20.2 trillion.

Now that China is producing a level of output that is more comparable to the output produced in the U.S., China has the ability to challenge the U.S. military. It can build enough ships and military equipment to avoid being swamped by U.S. production capacity like Japan was during World War II.

If China’s economy continues to grow more quickly than the U.S. economy, China will find it easier to successfully challenge the United States militarily. Unfortunately, history suggests that wars often break out when one great power expands its economy rapidly and comes close to catching up with its previously much more powerful rival country. World War I occurred when Germany grew quickly and gained so much economic ground on Great Britain.

Joe McGarrity

While this is only speculation on my part, I always suspected that if Germany had just avoided wars and waited 60 or 70 years, they would have achieved most of their military goals by peaceful means, simply because their economy would have become so powerful that their opponents would not have bothered resisting. China’s former leader Deng Xiaoping adopted a policy of avoiding confrontation and promoting economic growth. His policy allowed China to reach its current state of economic and military might. We will see if the present and future leaders of China have the restraint that Deng preached and that the German leaders never exhibited.

Joe McGarrity is a professor of economics at UCA. He can be reached at joem@uca.edu.