Chart of the Week #56
I recently read Ray Dalio’s Principles for Dealing with the Changing World Order. While I take issue with many of Dalio’s views, his method for measuring national power is worth paying attention to. He breaks it down into eight key pillars—education, innovation, competitiveness, military strength, trade influence, economic output, financial center dominance, and reserve currency status—and then uses something called z-scores to compare countries across each one.
Having recently written to you about the ongoing U.S.–China trade war (see here and here), I was curious how this framework would stack up when applied to the two major powers today. So I went digging—and sure enough, I found a recent dataset that applies the same methodology using updated numbers. I’ve plotted it in this week’s chart below.
Again, what you’re seeing here are z-scores—basically, a way to show how far above or below the global average a country sits in each category. A score of 0 means you’re at the global average. Scores below 0 mean you’re trailing it. Anything above 1 means you’re solidly ahead. Above 2? You’re in rare company—top-tier status.
Now, the U.S. still dominates in the areas you’d expect—finance and military power. For example, America’s financial center strength (2.7) dwarfs China’s (0.2). Same goes for reserve currency status: 1.9 for the U.S., versus -0.6 for China.
Naturally, I’m not exactly sold on that financial dominance narrative. A bit hard to claim that with nearly $37 trillion in debt, deficits that would make a drunken sailor blush, and a global reserve status that’s losing altitude fast.
Either way, here’s where things get interesting…
Data shows that while, yes, the U.S. still leads in finance and military power, China’s catching up fast in the areas that matter most for the future.
Take trade: China (1.7) now leads the U.S. (1.3). No surprise there—they’re the top trading partner for over 120 countries now.
Mind you, that’s a seismic shift from about twenty years ago, when America ruled global commerce. China’s tentacles now stretch well beyond Asia—deep into Africa, Latin America, and even chunks of Europe. Just take a look at the image below.
And here’s the thing about trade relationships—when countries depend on you for their economic survival, they tend to see things your way.
China’s also eating our lunch on competitiveness. They score above average (1.0), while America actually falls below the line (-0.4). This covers the nuts and bolts stuff—supply chains, manufacturing efficiency, how easy it is to actually get things done.
The irony is almost too perfect. A country that still calls itself “communist” has somehow become more free-market than the supposed land of the free.
Then there’s innovation and tech. A decade ago, the U.S. was way out front. Today? The gap has nearly vanished: 1.9 for the U.S., 1.8 for China.
That’s wild when you think about it.
Not long ago, China was the world’s knockoff factory—churning out cheap imitations of Western tech. Today, they’re going toe-to-toe with us in electric vehicles, battery technology, 5G infrastructure—and yes, even AI. When was the last time you heard about a breakthrough American battery company versus yet another Chinese EV manufacturer eating Tesla’s market share?
Now, you can see how both countries score on the other metrics in the graph above, but when you’re done looking I bet you’ll probably come away thinking the same thing I did: the U.S. is riding on legacy strengths, clinging to an aging empire that’s cracking at the edges, while China’s methodically laying the groundwork for what comes next.
This doesn’t mean China’s about to overtake America tomorrow morning. But the writing’s on the wall. In the areas that will define who runs the show in the 21st century—industrial capacity, tech innovation, and who countries actually want to do business with—China is either already winning or getting into position to.
Regards,
Lau Vegys
P.S. As I told you in a recent issue of Crisis Investing, another area where China leads the U.S. is rare earths. Now that Beijing’s tightening the screws on exports, the U.S.—and frankly, much of the world—is starting to feel the pinch. Our recent rare earths pick is already up more than 50% since the recommendation went out—clear evidence that smart money is moving early on the looming supply chain disruption.
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