The two-day summit of the Shanghai Cooperation Organization (SCO) in Qingdao, which took place last weekend from an economic standpoint, truly outplayed the G7 soap drama that took place in Canada.
China and India appear to be in the driver’s seat of the global economy for the balance of this 21st century. They, along with supportive Southeast Asian countries and with Russia as their vast and friendly neighborhood energy and natural resources supplier.
China alone looks to contribute around 30% of the total increase in global GDP over the next decade, and India accounting for a further 10%. With a combined population of over 2.6 billion and a quickly expanding educated middle class, China and India, energized by Russia should realize their significant focused potential in the near future.
According to the IMF, the Asian Pacific’s slice of the world economic pie should see it reach 39% over the next 5 years as North America slumps to 25%.
While the Russian economy is much smaller and its population far less, it maintains a growing key role as one of the world’s biggest energy producers with powerful influence over oil and gas markets. It is also the closest, cooperative, most cost effective and accessible producer in the Asia region.
When looking at the G7 economies today, even though large and developed over time they in fact together contribute less and less to global growth. The United States is growing at 2.3%, while the EU that includes four of the G7 grew by 2.5%, and Japan, a modest 1.6% in 2017 and all expect to slow a bit further in 2018. At the same time, India and China are growing at 7.7% and 6.8% respectively.
The economic as well as the international political winds are changing. Neither Russia, nor China nor India (two of whom are permanent members of the UN Security Council, and all three are BRICS members) see any positive future in the US insisting on maintaining its unilaterally assumed role in world economic and political affairs.
It does look like the recent rash of US sanctions and trade tariffs are a step too far and are leading to a consensus of rejection to US-led unipolarity in global affairs. This view was reinforced at the SCO Summit just held in China and has recently been described by some as the propensity of the US to keep racking “own goals” (to use the football term) one after another.
It also became clearer that the role of the US Dollar as the mechanism for world trade, and thereby the arbiter of “our one form of business conduct must fit all” is increasingly seen as undemocratically intrusive by many of the participating sovereign nations in attendance.
A slow but inevitable shift away from the US Dollar is gathering support, although it may be years, even decades before any significant difference is seen or felt.
Nonetheless small steps have already been taken, this past April Russia sold off half (50%) of its total 96.2 billion dollars in US Treasury debt securities to the tune of 47.5 billion dollars. This leaves a balance of US debt obligations remaining on the books at 48.7 billion according to the US Treasury website.
Among countries, which hold US debt securities, Russia dropped from 16th to 22nd place. The leaders holding US debt at this time are still China (1.18 trillion dollars) and Japan (1.03 trillion). Just yesterday (June 15) President Donald Trump officially raised the curtain to a trade war with China, imposing a 25% import duty on Chinese goods worth 50 billion dollars a year. Beijing immediately answered with mirror measures.
Recall that in mid-March of this year the US national debt reached a new record, exceeding $ 21 trillion. The share of domestic debt is $ 5.6 trillion. One of Donald Trump’s pre-election promises was the liquidation of state debt, but during this first year of the Presidency, this figure grew by more than a trillion dollars.
Trade wars may in fact lead to active debt and currency wars as well – it is the rule that presages unintended consequences. We may be in for a wild ride, perhaps even on the back of a bucking black swan.