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<\/p>\nChina's rapid economic and military rise is creating a new \u2018pole\u2019, while other emerging nations are charting their own independent courses. The implications of this power shift are far-reaching and will impact financial markets.<\/p>\n
The Cold War era (1947-1991) was dominated by two superpowers, the US and the Soviet Union, which maintained distinct but separate spheres of influence. This bipolar world order was surprisingly stable as the threat of a nuclear conflict between the two superpowers kept war at bay. With the collapse of the Soviet Union in 1991, the world gradually transitioned to a unipolar power structure within which the US emerged as the dominant force in markets, finance, technology, and military affairs.<\/p>\n
As the sole hegemon, the US has been a leading architect of a rules-based system of global governance administered through multilateral institutions like the UN, NATO, WTO and the IMF. These institutions are embedded within both the western cultural values of democracy and human rights, and economic values such as co-operation and open markets. This became the platform for an increasingly efficient and interconnected global economy that raised living standards across the world. US allies benefited from a 'peace dividend' as fears around major conflicts ebbed; the US in turn reaped a 'power dividend', expressed most obviously through the dominance of the US dollar and the US financial system in international capital flows.<\/p>\n
Over the past two decades, China has strategically capitalised on open trading markets to propel itself to the forefront of economic and military power, and is keen to gain a correspondingly bigger say in global governance. At the same time, there is a growing consensus within the US that the rules-based international order has contributed to negative domestic impacts like deindustrialisation and growing inequality, and should be reformed.<\/p>\n
As China, India and other emerging markets continue to grow, the global power balance is drifting away from the US. China\u2019s tacit support for Russia\u2019s war in Ukraine, its belligerence in the South China Sea, and the One Belt One Road initiative, are all efforts to chip away at US dominance and challenge its status as a sole hegemon.<\/p>\n
At the same time, growing emerging powers, such as India, Turkey, Brazil, Vietnam, Saudi Arabia, and the UAE, are resisting calls to align with either the emergent Chinese pole or the incumbent US pole. Instead, they are pursuing their own national interests and forming flexible alliances depending on the issue at hand. As a result, the global power structure is likely to be much more decentralised than during the Cold War era: we expect two opposing poles accompanied by a multitude of alliances leading to a more complex, dispersed geopolitical structure.<\/p>\n
China has assembled a loose coalition of mostly authoritarian allies \u2013 Iran, Russia and North Korea \u2013 which are seeking to subvert US dominance. Hostile rhetoric and tit-for-tat sanctions reveal hardening positions. At the current trajectory, the likelihood of a confrontation, with Taiwan emerging as a potential flashpoint, is increasing. An end game where China establishes indirect control over Taiwan, with the US potentially backing down to avoid direct conflict, has gone from unthinkable to plausible.<\/p>\n
A gradual retreat by the US from its role as a global policeman is likely to make the geopolitical environment much more uncertain and insecure. Progress on nuclear non-proliferation has started to reverse and technologies, such as AI and cheap missile and drone swarms, are injecting huge uncertainty into outcomes of potential conflicts.<\/p>\n
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In an increasingly rivalrous global economy, countries are adopting protectionist measures to bolster their strategic advantage. Motivations include safeguarding critical supply chains, shielding domestic industries from foreign competition and addressing trade imbalances. Since 2012, advanced economies have led the way by increasing their use of trade barriers and industrial policy tools.<\/p>\n
Over the next decade, we expect the globalised marketplace for goods and services to fragment further as tariffs, subsidies, import licensing requirements, anti-dumping duties, and trade sanctions, all aimed at protecting domestic industries and reducing reliance on foreign supply chains, become more common place.<\/p>\n
As global power shifts away from the US, the integrated global financial system it supported is also likely to splinter. Financial integration under US hegemony has been accompanied by \u2018dollar dominance\u2019 where the currency\u2019s role in global payments and settlements (circa 80%) is substantially larger than its share of Global GDP (circa 25%) and US Treasuries have become the de facto global 'safe asset'.<\/p>\n
Escalating US-China rivalry is making investors wary of cross-border operations. Many financial institutions have begun to scale back operations in jurisdictions that could one day be exposed to sanctions from western governments. Global banks and investment firms, which had poured hundreds of billions into China over the past decade, have been scaling back future investment plans. Chinese companies are revisiting US listing plans over fears of heightened scrutiny from both the China Securities Regulatory Commission (CSRC) and the Public Company Accounting Oversight Board (PCAOB) in the US.<\/p>\n","protected":false},"excerpt":{"rendered":"
The geopolitical landscape is undergoing a profound transformation. US hegemony, which followed the end of the Cold War, is giving way to an unbalanced multipolar world. China's rapid economic and military rise is creating a new \u2018pole\u2019, while other emerging nations are charting their own independent courses. The implications of this power shift are far-reaching...<\/p>\n","protected":false},"author":39,"featured_media":15401,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[140,142],"tags":[],"coauthors":[89],"class_list":["post-10330","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economicview","category-house"],"yoast_head":"\n