News: The US is witnessing decline in the global economic. Therefore, it is argued that the US economy is not going to comeback in the coming decade. In fact, it will be an era of the emerging world. For example, 7 out of 10 emerging stock markets are outperforming the US market.
What are the past trends of rise and fall of the US economy?
The US boom of the 1960s ended in the 1970s. The US boom of the 1990s ended in the dotcom bust. In the 2010s the US came back. In the 2010s almost all the emerging markets (except China) lost shares of both global GDP and global market. However, the US boom of the 2010s is showing signs of decline & it is unlikely that the US will revive once again.
Why is it difficult for the US to regain its pre-eminence in the coming decade?
The US pre-eminence is being threatened by the pandemic and the Russian invasion of Ukraine. American declinists argue that the US is losing ground to China.
Inflation is running well above the global average in the US.
In response to the financial sanctions imposed by the US on Russia, many nations have started looking for ways to reduce dependence on the dollar, which is the foundation of the US financial power.
The US debt has risen faster than most other countries. Th US debts rose from 17% to well over 50% of its GDP between 2010-2020. The debt has further risen to new heights due to the most generous stimulus package rolled out in the US in response to the coronavirus. Such heavy debts have often taken down the financial empires in the past.
The US Federal Reserve’s move to push easy money in the economy has fuelled the rise of monopolies and a new generation of “zombie” companies. These firms do not boost the economy but dampen it.
In the 2000s, almost every developing nation witnessed accelerated growth. It led to forecasts that the coming century will be an “Emerging Market Century”. Various economics in regions from Southeast Asia to Eastern Europe (other than Taiwan, South Korea, or China) have gained strength.
The factories are seeking cheaper labour or shorter shipping routes. The factories want to move out of China. They are looking for other countries like Vietnam, Bangladesh and Cambodia.
There is a demand to build a greener global economy. It has resulted into greenflation (a rise in commodity prices driven by environmental pressures). This will lead to demand for new supplies into the global market. This will create new opportunities for major exporters such as Brazil, South Africa and Saudi Arabia.
At present, the war between Ukraine and Russia will also increase the demand for materials from other commodity-producing nations.
Every crisis creates compulsions for the emerging nations to adopt reforms to boost productivity and growth. For example, India has been privatising some of its state-owned enterprises, Indonesia has cut taxes and eased labour laws, and Saudi Arabia is loosening immigration barriers.
The pandemic has accelerated the digital revolution in emerging economies than developed ones. The share of the digital economy has been increasing in the GDP in emerging economies. For instance, India is home to as many new technology companies today as is France or Germany.
Today’s growth rates in the developing world are like the much higher growth rates that were recorded during the early post-World War II decades.
At present, the developed economies are witnessing slowdown driven by declining population and productivity growth.
China’s rising share of global GDP has come largely at the expense of Europe and Japan, not at the expense of the US.
China is facing its own huge debt problem. It is also facing the challenge of an ageing population. Therefore, new winners may well be emerging economies outside of China.
Source: The post is based on an article “Decade of Emerging Economies” published in the Times of India on 30th April 2022.