Economic Rise of the East


In its latest report entitled Global Trends 2025: A Transformed World, the National Intelligence Council has made various predictions about the continuing and changing influence of globalization around the world. It is argued that “as some countries become more invested in their economic well-being, incentives toward geopolitical stability could increase.” This is positive.

 Indeed one of the goals of economic interconnectedness is to disincentive military conflict; in addition it has created an unprecedented increase in prosperity worldwide.  The assertions of the report are generally positive about globalization, however also identified are troubles looming that could affect this economic progress; these include competition for resources, aging populations, global economic imbalances and popular backlash against a more open international system, and resulting fragmentation and regionalism.  

The continued dominance of the United States (albeit relatively weakened) is a key idea of the report. Whether it wants it or not, the US must continue in its global economic leadership role – if not us- who? There appear to be no other widely acceptable alternatives. However, trends in globalization, already underway, are predicted to change the nature of the global economy to one that is more multipolar and where economic growth is more diffuse. The executive summary states:

In terms of size, speed, and directional flow, the transfer of global wealth and economic power now under way – roughly from West to East – is without precedent in modern history. This shift derives from two sources. First, increases in oil and commodity prices have generated windfall profits for the Gulf States and Russia. Second, lower costs combined with government policies have shifted the locus of manufacturing and some service industries to Asia.

Growth projections for Brazil, Russia, India and China (the BRICs) indicate they will collectively match the original G-7’s share of global GDP by 2040-2050. China is poised to have more impact on the world economy over the next 20 years than any other country. If current trends persist, by 2025 China will have the world’s second largest economy and will be a leading military power.

This may provoke fear for some; in the body of the report however, it is clarified that this is a “global shift in relative wealth and economic power.” The key word here is relative. The implication being that emerging markets are experiencing rapid increases in wealth, wealth that is bringing them more into line with the industrialized world; however, this does not imply that the rest of the world will become poorer as a result. The development of the global economy is not a zero-sum game. Emerging countries are getting a bigger slice of the pie, that is certain, but at the same time, the pie itself is getting bigger. China’s economic rise does not necessarily entail a poorer west. In fact, the opposite is true. As the middle class grows globally, in particular in the BRIC countries, it adds greatly to economic growth everywhere and opportunities for companies to expand their markets.  

According to the report, “Over the next several decades the number of people considered to be in the ‘global middle class’ is projected to swell from 440 million to 1.2 billion or from 7.6 percent of the world’s population to 16.1 percent.”  Almost 1 billion new consumers with disposable income is an opportunity – no question. Although emerging markets will generate new globally competitive corporations to serve these consumers, in many ways U.S. and European companies with their longer experience of designing marketable products and adapting quickly to consumer tastes will likewise benefit from this enormous expansion of business.  At the same time, new globally competitive corporations from emerging countries will bring lower prices and benefits to consumers in industrialized countries creating a more competitive and thus more robust companies and a truly global economic system –a benefit for all.  The key will be maintaining open markets for the flow of goods, capital and services. This may prove difficult in the current climate.

In the report the idea is put forth that global corporations from the emerging economies will help “to further solidify their positions in the global marketplace; from Brazil in agribusiness and offshore energy exploration; Russia in energy and metals; India in IT services, pharmaceuticals, and auto parts; and China in steel, home appliances, and telecommunications equipment.” It is a natural development of globalization that strong companies will emerge from all corners of the globe. However, these newly global companies will undoubtedly bring greater competition to established multinationals in the west as each seeks to expand its global reach. Protectionism in developed countries may be an (unwelcome) result of this competition, particularly with expansion by state-owned enterprises that, “will raise political tensions, potentially creating a public backlash in countries against foreign trade and investment.” In fact, the current financial crisis and the economic recession that is to follow may exacerbate this trend towards protectionism. Resistance to change is inevitable, but so is the change itself, hopefully coordinated agreements to fight protectionism at the international level can help to mitigate this resistance. 

One of the Key Uncertainties mentioned is “whether mercantilism stages a comeback and global markets recede.” Some of these tendencies are already underway with some countries introducing new export subsidies and competitive currency devaluation. Furthermore, support for this type of “mercantilist”policy may become more ubiquitous with competition for resources, cited as a major dark cloud on the horizon by the report. The positive effects of the emergence of millions from poverty into a consumer middle class will also bring about potential conflict for increasingly scare resources. In one possible scenario of the report, A World Without the West¸this type of development is outlined.

 “Anti-China antagonism in the US and Europe reaches a crescendo; protectionist trade barriers are put in place. Russia and China enter a marriage of convenience; other countries – India and Iran – rally around them. The lack of any stable bloc – whether in the West or the non-Western world – adds to growing instability and disorder, potentially threatening globalization.” Scary indeed.   The time to act to counter these trends is now, reinvigorating the WTO and concluding Doha- important not only for the trade it liberalizes, but for the reductions in tariffs agreed that then become more difficult to raise in times of protectionist pressure. 

The report’s conclusions clearly show that we have moved to a new, global economic reality – one that has multiple poles of economic power. As we move forward, countries will surely have to adapt, Europe and Japan in particular are facing potential problems due to aging populations, the US will have to accommodate new economic powers in the world. We have to address the issues that this shift raises, but what we don’t want is a world economy that becomes more antagonistic, fragmented and regional. The time to address this is now.

James O’Connor is assistant director of the Atlantic Council’s Global Business Program. His views are his own. Photo Photo by Flickr user ToastyKen modified under Creative Commons license.


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