I don't mean to eye-roll, but Sam on economics tends to be, well, meh. The thing I always remind people when they say that China will take over the world is that everyone said the same thing about Japan in the 1980s (remember the movie/novel Rising Sun?). What happened?
Well, the mercantilist economic toolkit has an endgame. Neither Sam nor I knows when it's going to let them down, but building an entire economy on cheap labor and radical amounts of investment is hard to sustain. Eventually you need things like domestic demand and that requires wages, which short-circuits the export machine. Japan got caught in that trap, and China will eventually too.
Not to mention that it's not just the U.S. and China competing in a vacuum. China's real economic threat is on the low-end. As they've boomed and their labor has become more expensive, many foreign companies are re-offshoring elsewhere.
Also let's keep in mind that we have yet to see all the effects of the unprecendented demographic experiment of the one-child policy. They will be dealing with an aging population on a scale never seen before.
Finally, the U.S. has a lot going for it when compared with its developed peers - growing population, attractive to immigrants, and a culture of entrepreneurialism and risk-taking (which Sam seems to think is in decline...not sure I see the same thing).
When China's elites stop wanting to send their children to U.S. universities and find ways to get their capital off the mainland, then I'll worry.
It's the straight line fallacy: the belief that a trend that's operating today will continue to operate in the same way in the future. History doesn't work like that. It is much more like the biological model of punctuated equilibrium (http://en.wikipedia.org/wiki/Punctuated_equilibrium), where things don't change until suddenly they all do.
China over the next 50 years has a lot of promise, but it has a lot of challenges to face too: environmental degradation, systemic corruption, authoritarian politics that increasingly clash with the needs of a more educated populace, the temptation to flex its new muscles by knocking over some of its more annoying neighbors. There's no guarantees that China in 2065 will look anything like China does today.
An important difference is that Japan is a considerably smaller country, and to surpass the US they'd have to pull off something really remarkable and raise their per-capita GDP 2-3x above that of the US to surpass it absolutely.
China is more interesting and realistic because all they have to do is achieve a per-capita GDP somewhat similar to the US, and their vastly larger population makes their economy (and power) much bigger too. Japan didn't eat the world, but they did achieve a per-capita GDP about 2/3rds that of the US. If China just gets that far it'll already change the game beyond imagining.
Japan's economic demise in the 1990's is actually attributed to foreign investment and a massive, speculative asset price bubble - caused by the land lease laws, property taxes, and poor policy on interest rates.
China is not perfectly communist, but their planned economy is a bit more robust than most other capitalist markets when it comes to reacting to negative market forces.
China has the population for domestic demand, and their rising middle class is filling that with their wages, so don't write of China for Japan's faults just yet.
There's a population difference. While the US is more than twice as populous as Japan, it is less than a fourth as populous as China. It would be crazy if Japan became wealthier than the US; it would be only natural if China did.
There are also many other differences: differences in resource/energy availability, differences in the global environment, differences in policy options available to the government, differences in internal structure and diversity, etc. The Japan-China comparison is popular these days but it misses a lot of the things that distinguish China from the old Japan.
Well, the mercantilist economic toolkit has an endgame. Neither Sam nor I knows when it's going to let them down, but building an entire economy on cheap labor and radical amounts of investment is hard to sustain. Eventually you need things like domestic demand and that requires wages, which short-circuits the export machine. Japan got caught in that trap, and China will eventually too.