Will Biden strike a grand bargain with China?

Will the United States be number three in the new world order? In his forthcoming book, former journalist Hugh Peyman argues that it will: China’s economy has already surpassed that of the US by some measures, and India’s will do the same by mid-century. He also argues that «the Rest» more broadly will pose a growing challenge to the West, which in turn continues to underestimate the challengers.

Peyman is hardly the first to predict the rise of countries that are not included in the geopolitical West (a group that includes Japan). The British economist Angus Maddison knew back in 2007 that China’s GDP would soon overtake that of the US (in purchasing-power-parity terms at constant 1990 US dollar prices), with India at number three. And the OECD estimates that India will overtake the US in GDP by 2050, and that, by 2060, the combined GDP of China, India, and Indonesia will equal $116.7 trillion – 49% of GDP – making it three times larger than the US economy.

This should not be particularly surprising, not least because non-Western countries are home to far more people. As Peyman points out, China and India each have populations four times larger than the US, so their combined GDP would be twice that of the US, even with one-quarter America’s per-capita income. As he puts it, «Population numbers dictate that the West is only 10%, the Rest 90%.»

To be sure, when it comes to GDP, the West has often punched well above its demographic weight. In 1950, the West (including Japan) accounted for just 22.4% of the world’s population, but 59.9% of global GDP. Meanwhile, Asia (excluding Japan) accounted for just 15.4% of world GDP, despite being home to 51.4% of the world’s people.

The Industrial Revolution, which afforded the West major economic advantages, together with colonial exploitation, help explain this discrepancy. In 1820, the shares were far more balanced: Asia (excluding Japan) had accounted for 65.2% of the world’s population and 56.4% of global GDP.

By the middle of this century, however, the Rest’s population will be 3.8 times larger than that of the West (including Japan), and its GDP will be 1.7 times larger. As Peyman notes, rising investment in the Rest, not least in education, has played an important role in boosting productivity and rebalancing global output and income.

These investments will continue to pay off. The McKinsey Global Institute predicted last year that in the new multipolar world order, «technology may move to the forefront of geopolitical competition.» Given that human capital, together with governance, is essential to translate technological progress into productivity growth, Asia has an edge: by 2030, the region will be producing more than 70% of the STEM (science, technology, engineering, and math) graduates in the G20, with China alone accounting for 35%, and India for 27%.

Moreover, while the Rest may lag in terms of cutting-edge research, they have proved adept at applying Western innovations to consumer products and services. Drawing on his experiences living in Chinese cities and studying Chinese companies, Peyman describes China’s transition to modernity, which is being emulated, to varying extents, elsewhere among the Rest. For every warning that China will collapse under the weight of a rapidly aging population, overbearing authoritarianism, a massive debt overhang, and slowing growth, there is an example in Peyman’s book of China successfully leveraging scale, entrepreneurship, and innovation to advance its goals and interests.

Unfortunately, Peyman laments, the US remains «blinded by pre-eminence,» making it «slow to see its power ebb.» In fact, it appears that most Westerners take for granted that the Rest are such a diverse lot that they would not be able to pose a coherent, sustained challenge to countries that have long dominated the world order.

But countries like China, India, Indonesia, Singapore, and South Korea have proven that given the chance, the Rest are at least as competent as many of their Western counterparts in manufacturing, exports, infrastructure investment, and governance. Indian executives are running some of the top companies in the West. Meanwhile, many Western countries are failing to achieve «social harmony, broad prosperity, and public health at home.»

Even if the West does recognize its weakening position, Peyman notes, adjusting to it will not be easy. With the vast majority of the world’s population living outside the West, the Rest will no longer accept «exclusion from global decision-making.» The Rest are not seeking to exclude the West in kind, but they do want to play a leading role in reshaping the global rules of the game – formulated by the West – for the twenty-first century.

Peyman concludes by urging US President Joe Biden and Chinese President Xi Jinping – the leaders of the West and the Rest, respectively – to reach a grand bargain, much like the one Richard Nixon struck with Mao Zedong in the early 1970s. Such a bargain would support greater cooperation on the major challenges of our time – beginning with climate change – while reducing the likelihood of devastating conflict.

But a bargain must also be struck between the state, whose power is growing, and market forces, which are becoming increasingly weak. Sudden, unilateral policy changes, such as the imposition or tightening of sanctions, are disrupting private companies’ operations and undermining their profitability. To uphold economic dynamism amid geopolitical tensions, the rules governing private-sector trade and investment – including any national-security «red lines» – must be clarified and respected. The country that provides such rules will shape the new global order, even if it does not have the largest GDP or population.

Copyright: Project Syndicate, 2023. www.project-syndicate.org

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