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Multipolarity: The New Prevailing Reality for the Global Economy

by internationalbanker

By Alexander Jones, International Banker

 

The immediate post-Cold War world is not multipolar. It is unipolar. The centre of world power is the unchallenged superpower, the United States, attended by its Western allies,” US political columnist Charles Krauthammer wrote in a famous article titled “The Unipolar Moment”, published in 1990 in Foreign Affairs magazine. “No doubt, multipolarity will come in time. In perhaps another generation or so there will be great powers coequal with the United States, and the world will, in structure, resemble the pre-World War I era. But we are not there yet, nor will we be for decades. Now is the unipolar moment.”

With the economic rise of China over the last two decades, however, Krauthammer’s “unipolar moment” is now decisively over, and the multipolar moment has now arrived, one that positions the United States and China as economic superpowers and rivals, with the United States and Russia as military foes. And with the expected rise of several additional economies, such as India, Indonesia and Brazil, in the coming years, the diffusion of previously concentrated resources across a handful of poles is widely touted to usher in a global economic condition characterised by a more equal distribution of economic power throughout this multipolar world.

For China, this trend is very welcome. “An equal multipolar world means equal rights, equal opportunities, and equal rules for every nation. Certain or a few powers should not monopolise international affairs. Countries should not be categorised according to their ‘strength.’ Those with the bigger fist should not have the final say. And it is definitely unacceptable that certain countries must be at the table while some others can only be on the menu,” China’s foreign minister, Wang Yi, explained to reporters on March 7. “It must be ensured that all countries, regardless of their size and strength, are able to take part in decision-making, enjoy their rights, and play their role as equals in the process toward a multipolar world.”

By no means is this a new concept. Back in 1982, World Bank President Alden W. Clausen called for “the pursuit of pragmatic strategies to benefit all countries in a multipolar world”. The World Bank’s 2011 publication, “Multipolarity: The New Global Economy”, then made a prescient assessment of what a multipolar world would look like. “It is likely that, by 2025, emerging economies—such as Brazil, China, India, Indonesia, and the Russian Federation—will be major contributors to global growth, alongside the advanced economies,” the publication noted. “As they pursue growth opportunities abroad and encouraged by improved policies at home, corporations based in emerging markets are playing an increasingly prominent role in global business and cross-border investment.”

Indeed, many of these predictions seem to have already materialised. “In 1950, the United States and its major allies (NATO countries, Australia, and Japan) and the communist world (the Soviet Union, China, and the Eastern bloc) together accounted for 88 percent of global GDP. But today, these groups of countries combined account for only 57 percent of global GDP,” Mark Leonard, director of the European Council on Foreign Relations (ECFR), wrote in Foreign Affairs in June 2023. “Whereas nonaligned countries’ defence expenditures were negligible as late as the 1960s (about one percent of the global total), they are now at 15 percent and growing fast.”

As for now, bipolarity is very much a reality in the form of the US and China and will soon give way to multipolarity. Rather than seeking to collaborate under a unified, globalised economy, however, the world’s two largest economies are currently seeking to reduce their economic interdependencies amid heightened geopolitical tensions that have only intensified since the start of the war in Ukraine in February 2022.

“The shift towards a multipolar world has been developing over the past five years, and this regime is now entrenched,” Daniel Blake, Asia and emerging market equity strategist at Morgan Stanley, wrote in an April 13 piece for the Financial Times. “Security, rather than economic efficiency, is the new imperative for policymakers amid hegemonic US-China rivalry and the reverberations of Russia’s war in Ukraine. Stark lines of sovereignty are being drawn over technology that has been produced by highly globalised research and development programmes over recent decades.”

In practical terms, this shift is expected to be characterised by such trends as “nearshoring”—which involves the outsourcing of specific tasks along the supply chain to neighbouring countries rather than to ones on the other side of the world—and “friendshoring”—which focuses more on directing the supply chain towards geopolitical allies that are deemed low risk. “A lot of what I read about de-globalization is oversimplified, trying to turn gray into black and white. It certainly makes for a more incendiary narrative,” Richard Madigan, chief investment officer of J.P. Morgan Private Bank, wrote in September. “As we watch a multipolar world being built, strategic trade and security alliances are also being reconstructed. Onshoring and ‘friend-shoring’ are here to stay.”

 “Friend-shoring of critical materials is likely to prevail as policy incentives, investment restrictions and corporate strategies are shaped to reduce risk from trade and operations,” explained Michael Zezas, global head of fixed income and thematic research for Morgan Stanley. “Companies have been looking at chokepoints in their supply chains to determine the need for diversification or localization. We also expect competition around the innovation pipeline to escalate as countries look to build or maintain an advantage in certain industries.”

Perhaps the US’ most visible efforts in this regard can be found next door in Mexico, which is proving an increasingly desirable relocation destination for American companies and unleashing a wave of new opportunities for the local population in the process. Indeed, recent U.S. Census Bureau figures show that the country has become the US’ top trading partner, with $798 billion traded in 2023. The US also imported $475 billion worth of Mexican goods, more than the $427 billion from China (a 20-percent decline from 2022’s figures), as well as $421 billion from northern neighbour Canada—providing further evidence of nearshoring in action.

In its own versions of nearshoring and friendshoring, moreover, China has dramatically ramped up its trading activity with neighbour Russia, with total trade soaring by 64 percent over the last couple of years to $240 billion. With Russian hydrocarbon exports to the West having slumped following its invasion of Ukraine, China has done much to plug the gap, with the volume of Russian crude oil it imported last year jumping by 24 percent to 107.02 million metric tons, equivalent to 2.14 million barrels per day (bpd), which was comfortably more than it bought from other major oil exporters, such as Saudi Arabia and Iraq.

In the opposite direction, meanwhile, China’s export of cars to Russia in 2023 was reportedly seven times more than it was the previous year, equivalent to a $10-billion jump. “This is a systematic, mutually beneficial development of trade and economic cooperation,” Kremlin spokesperson Dmitry Peskov confirmed in March. “Hopefully this is not the peak yet, and we will continue to develop.”

Indeed, that “peak” is unlikely to have been achieved, particularly given the positive outlooks for trading volumes of key natural resources, consumer goods and services among members of BRICS (Brazil, Russia, India, China and South Africa). With the increasingly powerful economic group of emerging economies having doubled its permanent members to 10 with the addition of Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates (UAE) at the start of the year; with members seeking to conduct bilateral trade in local currencies instead of the US dollar; and with China very much the de facto economic leader of the group, BRICS’s economic activities over the coming years will only further accelerate the ongoing process of global multipolarity.

A distinctly hostile chip war that has seen the US expend considerable resources to prevent advanced semiconductors from reaching China has led to Beijing dramatically accelerating the development of its indigenous semiconductor industry as it seeks to achieve complete self-sufficiency across a number of industries. The most significant example of this was unveiled last September when Huawei announced its new smartphone device, the Huawei Mate 60 Pro, which contained a Kirin 9000S processor powered by a 7-nanometer (7nm) chip—almost on par with the advanced chips being produced by industry leaders such as Taiwan Semiconductor Manufacturing Company (TSMC) and Samsung—that had been manufactured domestically by local chip firm SMIC (Semiconductor Manufacturing International Corporation).

Few are betting against China achieving its goals in the face of aggressive and coercive economic measures being levied against Beijing by Washington, D.C. As such, questions continue to arise over whether the US is pursuing the most optimal economic strategy in a world that continues its inexorable march towards multipolarity.

“The United States no longer possesses the outsized economic might to convince countries to isolate China economically in return for promises of access to the U.S. market,” Emma Ashford and Evan Cooper from the Reimagining US Grand Strategy program at the Stimson Center wrote in an October 5 piece for Foreign Policy magazine. “Rather than cutting China off from the global economy, the neo-mercantilist approach of the Biden administration—which has been characterized by tariffs and export controls—has upset close allies such as South Korea and the Netherlands. Coercive measures such as sanctions and export controls may yield results now but risk diminishing US economic power in the long term as states seek alternatives.”

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