It was the former US President Donald Trump who initiated a big change and shook the centre of global economic order. His emphasis on 'America First' principle made the world wonder about the future of the global economy. Leadership in global economy requires patience and compassion for others. Any nation, wishing to be a leader, must be compassionate with its followers and be diplomatic with its rivals. A leader who does not follow these norms will gradually become isolated and alienated from its friends and that is what Trump began when he came into power. His 'America First' policy was rude and disrespectful for the rest of the world and so it raised many questions about US leadership in the free world.
When Donald Trump distanced the US from the Paris Agreement, the developing world received a strong message that US was unwilling to make any sacrifice to uplift others. As such, the developing countries understood that their dependence on US might be a risky one. Trump led an unfair trade war with China which warned everyone that the US was ready to take on its adversaries and will create a global hegemony to maintain its supremacy in the world. The order that was there since 1945, began to stumble apart right in front of many nations who were thinking that the free world will help them to rise up defeating poverty and hunger.
After Trump, it was the Brits who also signalled a change. They voted for BREXIT - an exit that was quite unexpected for the rest of the world. Europe, in particular, was taken aback by the rapid developments in UK after the BREXIT vote. They became worried about the possibility of other countries leaving the EU given the changes in global order. However, it was Trump who helped them get together. His approach to ridicule Europe and to favour UK in their struggle for negotiating a BREXIT deal was a bliss. Europe, understood that they have to stand together and promote a European value for economic changes. Their strong support for the Paris Agreement gave the rest of the world a hope that the leadership in Washington can be replaced. The German Chancellor, Angela Markel could be trusted and many countries in the world began to rally around Europe. It was at this time that the BREXIT looked like a positive event to both the Europe and the developing world. Europe, for the first time, since 1945, could have a unified stand on many issues which, perhaps, would have been impossible if UK was still an active member of the EU. The survival of the Paris Agreement was an important agenda for Europe which was working hard to get this agreement succeed since the signing of the Kyoto protocol. EU realised that they are not alone. Despite all the differences, Russia, China and India began to support EU's bid to keep the Paris Agreement alive. The world began to drift out of Anglo-American grip and, of course, out of their hegemony.
Meanwhile, the US broke off from the Iran deal and this was unexpected in a global order. A powerful country creating hegemony on a deal that was agreed upon after months of negotiation was not expected. It signalled the end of any further global agreements. Fortunately, it was the UK and the Europe who understood the consequences of such a move. They held together to ensure that Iran still is obliged to the commitment it made in the agreement. This was rather a pleasant surprise because the world expected UK to be siding with the US. Perhaps, it was BREXIT that alerted UK about its alienation from the 'civilised' world. However, hats-off to Angela Markel who upheld a civilised view of global order. No agreement is perfect and an agreement is an agreement and must be respected. This provided some hope for the developing countries to look at Europe with respect and probably as a new global leader.
Around the same time, two parallel events were taking place. The Chinese President Xi Jinping was pushing for a global connectivity race. His Belt Road Initiative (BRI) was strategically designed to create an alternative path to access resources from Africa and the Middle East to feed the domestic economy and to access markets in Europe and Russia. The game was a challenging one. US and NATO were already struggling with a long war in Afghanistan, and a set of failed revolutions in Libya, Iraq, and Syria. The rest of the world, once against the the-then Soviet involvement in Kabul, began to see the US and its allies as similar to the Soviets. The long war that has already cost a trillion dollar to the US, weakened US's ability to mobilise resources for other humane causes in the world.
Meanwhile, the two most powerful economies of the world - US and China - began to collide. A Europe without UK is clearly a different power. Trump wanted the support of EU against China on economic front, EU wanted support of China on climate front, and China wanted support from EU on its trade front. The game became too complicated for the US to play. Allegations against China on stealing the technology or even allegation of spying against the free world did not find a strong foothold in Europe. This is largely because China has changed. It has acquired demonstrated ability to challenge the world in terms of its technological innovations. Chinese bid to land on the Moon, its ability to create a parallel world using its own satellites, imaging techniques, mapping ability and also its independent GPS capacity has already convinced many in the world that China is on the rise. However, Trump failed to understand this, or he wanted to ignore it and picked up a fight on the trade front. He failed to understand that China did not become the 'factory of the world' without its own internal strength. It was the cheapest supplier of many industrial products, and it has successfully replaced its backward agriculture and its economy is now a new epicentre of the global economic activities. It has become the largest economy of the world if we exclude the military expenditure of the US.
However, it was Covid pandemic that stalled the move forward. Once again, Trump blamed China for the global catastrophe. Its Wuhan lab, which was partly financed by US research grants was blamed for the pandemic. China vehemently denied it. Trump, being equally stubborn, began to mobilise global efforts against China. Unfortunately, the pandemic affected everyone in the world. The global economy began a free fall. No one could see the end to it. On the other hand, US pressure on China became a headache for the Chinese government which realised the risk of holding US dollars as its foreign currency reserve. At the same time, the pandemic forced the US to print dollars to protect its economy and so it increased further risk for countries to hold US dollars as reserve. China and Russia began to dump US dollars in the global markets as their international investments. The BRI was financed by the Chinese as a strategy to dump US dollars and so it has effectively reduced the currency risk for them while at the same time, it increased the reach of the Chinese economy in Asia, Africa and Europe.
Last week, Chinese economy has shown a sign of growth as high as 18 per cent in one quarter. The demand for goods and services in China will probably put it back at the centre of the world. While many other economies are struggling to come out of pandemic-led recession, China has already done it. This will be a major driver for the global economies.
China has been pushing for a non-US dollar-based transaction with its trading partners. Asian countries, which are dependent on Chinese exports and imports are likely to accept Yuan as a new currency for trade. The Middle East will also do so because holding dollars will be risky for them too. They were under different sanction threats from the Congress for many years. Europe, on the other hand, will probably use Euro to replace dollar-based exchanges with China and others. They also understood the risk of keeping dollar-based exchange in trade as countries, organisations, and companies are being regularly sanctioned by the US. However, US is still a big economy and so it will be difficult for others to ignore it. The best approach for the world is to accept a parallel world with two super-powers for the time being. Only time will tell who the world shall trust as its new global economic powerhouse. Xi Jinping has already pledged that China will never sponsor a global hegemony while we are waiting for the US leadership to clarify its role play in a new economic order.
Dr A K Enamul Haque is Professor of Economics, East West University and Director, Asian Center for Development.