Filenews 13 December 2024 - by Daniel Moss
As the world tries to weigh the economic impact of Donald Trump's return to the White House, a summit in Singapore asked a difficult question: What would a world be like without the US? There are no easy answers to this question.
The fact that it was the subject of research was impressive in itself. U.S. firms are the largest investors in Southeast Asia, several countries have close defense ties with Washington, and the region has enjoyed strong growth benefiting from a U.S.-based global trading system. The region's central bankers appear to be spending just as much time worrying about the dollar and U.S. indices as they are about growth and inflation at home. Despite its enormous progress in recent decades, China still does not have the same momentum.
But the challenge, raised at the conference convened by the Peterson Institute for International Economics and the Lee Kuan Yew School of Public Administration, is – to some extent – a sign of the times. The prospect of tariffs, even on exports from close partners, has worried investors. Currencies have fallen against the dollar and policymakers are bracing for weaker growth. There is also a broader concern that Washington is losing interest in trade and financial primacy and that it has gone from being a guarantor of stability to a source of instability. These concerns are not only due to Trump's victory last month, but have been magnified.
A number of solutions were discussed, including contacting Trump directly and presenting unilateral agreements to limit pressure or direct it to other countries. The danger with this approach is that countries may "fall one after the other" and may attract Trump's wrath anyway. More concerted regional integration efforts have been highlighted, which make sense in theory but have weaknesses. The countries of Southeast Asia, for example, do not have the same intimacy with each other as the members of the European Union. Collective dominance in trade policy-making, antitrust and monetary issues is far from reality.
A few days before the conference, Trump provoked strong reactions with his opposition to the idea of a BRICS currency, a very distant prospect, if it ever materializes. What exactly triggered this reaction from the president-elect is a mystery, but it highlighted a contradiction in Trump's view of the dollar: He threatens to punish nations that try to move away from the dollar, but he also states that a strong dollar hurts domestic industry. A concerted effort to weaken the dollar in a way reminiscent of the 1985 Plaza agreement is unlikely, Maurice Obstfeld, former chief economist of the International Monetary Fund, told the Singapore conference. Markets have grown in the intervening years and would overshadow government efforts, while at the time the Cold War raged even Germany and Japan were America's strategic customers.
Markets may also dampen Trump's impulses. The idea that sharp swings, "outbursts," on Wall Street can rein in top officials belongs to James Carville, the architect of Bill Clinton's victory in 1992. Impressed by the way Clinton took a conservative turn in his approach amid market fear, the Democratic strategist had said he would like to reincarnate as a bond market because of their power. Today, the S&P 500 could be a policy arbiter. Mass evictions of uninsured workers, combined with tariffs, will have a harmful effect on the economy, said Warwick McKibbin, a professor at Australian National University who served on the central bank's board of governors for a decade. "Once the policies are implemented, as soon as we see what happens in macroeconomic fundamentals and sectors of the U.S. economy, that's going to be priced in the markets and give us an indication of whether it's going to change course," he said.
"Fantasy exercises" and the threat of a global leadership vacuum are nothing new. But they serve a purpose and tend to define the concerns of the time. When China's businesses were constrained by the Zero Covid policy, it wasn't unreasonable to think about what a world would look like with a less powerful Chinese economy. In early 1947, as the United Kingdom teetered on the brink of bankruptcy after World War II, the New York Times raised the possibility of a world without London's influence. The scenario was dismal and indicative of the large-scale American aid Western Europe needed, recounted Ben Steele in his book The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White and the Creation of a New World Order.
China's economy is not set to disappear, despite its disappointing post-pandemic performance. Nor is the US in the dire situation in which the UK found itself at the time. But it's worth looking at the alternatives, not least to remind us how pivotal the great powers remain despite the turbulence. The U.S. is not going to give up on Asia. Very big interests are at stake, and China shows little desire to take the reins of real global leadership. The difficulty of filling any vacuum left by America, in the end, only serves to demonstrate the irreplaceable character of the country.
Editing-Performance: Lydia Roumpopoulou
