As the world tries to game out the economic impact of US president-elect Donald Trump’s return to the White House, a top-draw panel in Singapore was posed a confronting question: What would a world without the US look like?
Not great, and one for which there are no easy answers.
That it was a field of inquiry at all was arresting. US firms are the biggest investors in Southeast Asia, several nations have close defense ties with Washington and the region enjoyed strong growth on the back of a global trading system anchored by the US. Central bankers in Asia seem to spend as much time worrying about the US dollar and US indicators than they do growth and inflation at home. Despite its enormous progress in the past few decades, China just does not yet pack the same punch.
The challenge, raised at a conference convened by the Peterson Institute for International Economics and the Lee Kuan Yew School of Public Policy, was in some respects a sign of the times. The prospect of tariffs, even on exports from close partners, has unnerved investors. Currencies have been pushed lower against the US dollar and policymakers are bracing for weaker growth. There is also a broader fear that Washington is losing interest in commercial and financial leadership, that it has gone from being a guarantor of stability to a source of instability. These concerns did not just come along with Trump’s victory last month, but they have become magnified.
An array of solutions were canvassed, including getting in Trump’s ear quickly and presenting solo deals to take the pressure off or have it directed to other nations. The risk with this approach is that nations get picked off and, after debasing themselves, might attract Trump’s ire anyway. More concerted efforts at regional integration were floated, and make sense at a theoretical level, while also possessing shortcomings. Southeast Asian nations, for instance, are not remotely close to the same kind of intimacy with each other as EU members. Pooled sovereignty of trade policy, antitrust and monetary affairs remains a pipe dream.
Days before the conference, Trump raised eyebrows by attacking the idea of a BRICS currency, something that is years away from reality, if it ever does eventuate. What set the president-elect off is a bit of a mystery, but it did underscore a contradiction in how Trump views the greenback: He threatens to punish nations that try to shift away from the US dollar, yet also complains that a muscular greenback harms domestic industry.
A concerted effort to weaken the US dollar in a manner that recalls the Plaza Accord of 1985 is unlikely, Maurice Obstfeld, a former chief economist at the IMF, told the Singapore conference. Markets have become so much bigger in the intervening years and would dwarf state efforts, plus back then the Cold War was still raging, and Germany and Japan were strategic clients of the US.
Markets might also act as a broader check on Trump’s impulses. The idea that tantrums on Wall Street can rein in the most senior of officials was popularized by James Carville, who masterminded former US president Bill Clinton’s triumph in 1992. Marveling at how fear of markets was driving a conservative shift in Clinton’s approach, the Democratic strategist said he wanted to be reincarnated as the bond market because of its power. Today, the S&P 500 Index could be the arbiter of policy.
Large-scale deportations of undocumented workers, combined with tariffs, would have a detrimental effect on the economy, argued Warwick McKibbin, a professor at Australian National University who served on the board of the nation’s central bank for a decade.
“Once the policies hit the road, once we see what happens to key parts of the US macroeconomy and sectors, we are going to get a pricing in those markets that will give us an indicator whether he is going to change course,” McKibbin said.
Exercises in imagination, and the threat of vacuums in global leadership, are not especially new, but they do serve a purpose and tend to define the anxieties of the time. When China’s businesses were constrained by its “zero COVID-19” policy, it was not crazy to sketch what a world with a less powerful Chinese economy would look like. In early 1947, as the UK teetered on the brink of insolvency in the aftermath of World War II, the New York Times raised the specter of a world without London’s influence.
The scenario was distressing and indicative of the large-scale US aid that western Europe required, Benn Steil recounted in The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order.
China’s economy is not going away, despite its disappointing post-COVID-19 pandemic performance. Nor is the US in anything like the parlous condition of the UK then, but it is worthwhile to look at alternatives, if only to remind us how pivotal great powers remain despite their ups and downs. The US is not about to desert Asia. Too much of its own interests are at stake, and China shows little desire for true world leadership. The difficulty of filling any hole left by the US, in the end, only serves to demonstrate the nation’s indispensable nature.
Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously, he was executive editor for economics at Bloomberg News. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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