The G20 summit in Argentina is taking place at a moment when the United States still stands at the centre of the world. The US economy is booming, the dollar is almighty, US technology companies continue to dominate the new digital economy, and the US military remains the unrivalled master of land, sky and sea. But there are forces, both short-term and long-term, that are working to erode this hegemony.
As Indian investor Ruchir Sharma has pointed out, the global economy looks as if it’s at “peak America.” US stocks have outperformed the rest of the world this decade, and that sort of trend rarely lasts. The current recovery is now the second longest in history, and it is due for a downturn.
Interest rates are rising, corporate profit growth is slowing, and budget deficits are surging. Even President Trump seems aware of the likelihood of a dip, which is why he has been preparing the ground for it—blaming the Federal Reserve.
But there are broader structural realities at work as well. While the US continues to outperform other advanced economies, the “rise of the rest” also continues, with China, the world’s second-largest economy, growing at three times the pace of the US.
A quarter-century ago, China accounted for less than two per cent of the global economy. Today, it is 15 per cent and rising. China boasts nine of the world’s 20 most valuable tech companies.
This economic reality is having a geopolitical effect. China is the largest trading partner of major economies in Latin America, Africa and Asia. That gives it clout.
Its “Belt and Road Initiative” is designed to extend Beijing’s influence across Asia and beyond. It has expanded its control over the South China Sea in ways neither the Obama administration nor the Trump administration has been able to block or counter.
Anywhere one goes in the world these days, leaders talk about the US’s retreat from the world stage. And while the Trump administration is bellicose in its policies, especially on trade, they are all in service of a Fortress America mentality that seeks less engagement with the world, politically and economically.
Foreign leaders also note that the US is increasingly constrained by its mounting budget woes. As interest rates rise and more Americans reach the age of collecting social security and medicare, the government will be unable to fund much else.
American retreat will not produce a better world. It will be messier and uglier. To get a glimpse of it, look at the Middle East today. As the US has withdrawn from its traditional role as the region’s power-broker — maintaining relations with all sides and striving to achieve some degree of stability — Iran, Turkey and Saudi Arabia are all jockeying for influence.
The US has simply subcontracted its policy to Riyadh, encouraging the Saudis’ reckless behavior and resulting in the world’s gravest humanitarian crisis in Yemen.
The smartest path to constraining China comes not from a head-on policy of containment but rather from a subtle one that forces Beijing to remain enmeshed and interdependent with the international community. China recognises this and tries hard to free itself from multilateral groups, preferring to deal one-on-one with countries where it will always tower over its negotiating partner.
And yet, nothing animates the Trump administration more than its opposition to multilateralism of any kind. And so, as the world gets more chaotic. And as is so often the case, China simply watches quietly and pockets the gains. – The article fist appeared on The Washington Post