The U.S. has the largest Gross Domestic Product (GDP) in the world when measuring the economies by using nominal prices. china is next in line, according to a report by ABC News. However, if we want to make a fair comparison we have to eliminate the difference in the living cost. After making these adjustments, we can see that China has the biggest economy on the planet. The Asian economy is almost one fifth bigger than the American one. There are also other key factors such as the underground economy, but let's focus on the size of the economy when using nominal and real prices.

The GDP in nominal prices

According to a report by the International Monetary Fund, the American economy is more than $19.4 trillion in nominal prices while the Chinese GDP is almost $11.8 trillion. The American GDP is about 64 percent bigger than the Chinese economy. The United States has a considerable advantage over the Asian country, but we have to adjust the price gap to get more accurate information.

The economy in real prices

The United States is more expensive than China, so, $1 in the Asian country has more purchasing power than the same amount of money in America. We have to use international dollars to make a fair comparison. The international prices are equal to the American prices, so, the size of the American economy will be the same.

On the other hand, the Chinese GDP will increase to almost $23.2 trillion according to a report by the International Monetary Fund. This means that the Chinese economy is about 19 percent bigger than the American one.

The Chinese currency

We have seen that the Chinese economy is bigger than the American one, so, I think that the currency of the Asian country is undervalued.

It's not reflecting the real size of its economy, so, it needs a correction. I think that the price of the Chinese currency should increase at least 60 percent or more. It would help correct the huge trade deficit with America and other nations. It would also improve the political relationships with the United States and a lot of countries that complain about unfair competition.

Should America devalue its currency?

If Beijing doesn't want to increase the value of its currency, I think that the United States should devalue the dollar. I believe that other Western countries should do the same to close the trade gap with China. The U.S. President, Donald Trump, has promised since the election that he wants to close the trade gap according to a report by Inside Sources. The currency must have a real price, it can't become part of a dumping policy to invade foreign markets. China has to stop its policy of undervalued currency if it wants to be respected worldwide.

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