From the Indo-Pacific to the Mediterranean, a diplomatic transformation is underway. The winds of change are blowing not from Beijing, but from Delhi. President Donald Trump has an opportunity to harness some of that power to help fill the sails of America’s global leadership.
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When Li Keqiang, China’s premier, took 16 European leaders on a high-speed train ride in 2015, the trip revealed more than an enthusiasm for rolling stock. It was also Beijing’s big sell for an engineering technology that it hoped would spearhead the launch of a grand geo-strategic ambition.
The new central bank network created since 2008 is of a piece with the new networks for stress testing and regulating the world’s systemically important banks. The international economy they regulate is not one made up of a jigsaw puzzle of national economies, each with its gross national product and national trade flows. Instead they oversee, regulate and act on the interlocking, transnational matrix of bank balance sheets. This system was put in place without fanfare. It was essential to containing the crisis, and so far it has operated effectively. But to make this technical financial network into the foundation for a new global order is a gamble.
The past decade has witnessed significant changes in the global economy as many nations around the world have struggled with the Great Recession and its aftereffects. While the United States and other relatively wealthy Western nations have slowly bounced back from the crisis, economic growth rates have been low compared with those of China, India and other emerging economies. Still, the prevailing view among publics around the world is that the U.S. is the top global economic power.
Indian Prime Minister Narendra Modi with Chinese President Xi Jinping during the G20 Summit, in Hangzhou, China in 2016. Photo: Press Information Bureau
As China continues to travel toward its goal of becoming the second superpower, it sees India as a challenger that should not be ignored for at least two reasons. First, India has managed to develop close strategic ties with the United States through the purchase of military weapons, the planning of joint military exercises, and the transfer of technology. India also aspires to become a member of the Nuclear Supply Group, after which it would likely become a serious competitor of China in the area of nuclear weapons development.
It’s a story about the tail that wagged the dog that didn’t bark that isn’t in Kansas anymore. The dog that didn’t bark is commodity prices, and the tail that wagged is the Chinese yuan.
Reform is always easier when a crisis leaves policy makers no other options. But without further change, Asia will continue to rely too much on debt instead of productivity gains for growth. In poorer nations, improvements in household welfare will lag. As in the years before 1997, economic irregularities could build up to the point where the region faces another crisis. Will the next Kim Dae-jungs be there when you need them?
The VIP list at Beijing’s glittering launch party for its massive Silk Road trade plan was worth scrutinising not for the luminaries who were on it, but those who weren’t. Singapore Prime Minister Lee Hsien Loong, who irritates Beijing by standing up to its bullying in the South China Sea, was notably missing; he didn’t get an invitation. European government heads were welcome, but mostly stayed away, as did leaders from India and Japan. The no-shows reflect a broad disquiet: To skeptics, what President Xi Jinping calls the “Project of the Century” is, at heart, an imperial venture.
Under President Trump, it is possible, for the first time in a generation, to imagine a concerted attack on the central bank. Conceivably, the United States could repeat the story of the mid-1960s and ’70s, when a 15-year period of central-bank independence was brought to an end by presidential bullying. Back then, Lyndon B. Johnson summoned the Fed chairman, William McChesney Martin Jr., to his Texas ranch and shoved him around the living room while proclaiming that low interest rates were imperative in a time of war.
