RIETI Report August 25, 2023

Japan in the Middle: The geo-economic conflict between China and the United States

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Welcome to RIETI Report.
This bi-weekly newsletter will keep you updated with the recent columns, event information and research results by RIETI fellows and other leading economists in Japan and around the world.

In this edition, we are featuring topics related to the geo-economic conflict between China and the United States. Dr. Fred Bergsten, Director Emeritus of the Peterson Institute for International Economics claims that there are significant challenges in reordering the global economic system in which the U.S. can no longer adequately provide leadership and which China is not yet fully willing to fulfill. At the recent RIETI BBL seminar, Dr. Bergsten talked about how middle powers like Japan can play a crucial role in filling such gaps.

We hope you will enjoy it. If you have any feedback, we would love to hear from you (news-info@rieti.go.jp).
Editors of RIETI Report (Facebook: @en.RIETI / Twitter: @RIETIenglish / URL: https://www.rieti.go.jp/en/)

This month's featured article

Japan in the Middle: The geo-economic conflict between China and the United States

Speaker: C. Fred BergstenNonresident Senior Fellow and Director Emeritus, Peterson Institute for International Economics (PIIE)

Event summary

Propositions about the global economic order

There are three propositions concerning the future of the global economic order. The first proposition is that an open and cooperative international economic order has played a crucial role in fostering prosperity and peace during the entire postwar period. Japan has been the most remarkable example of that system’s success. In this context, China’s growth may be parallel to Japan’s, but Japan’s average income far surpasses China’s.

The second proposition is that the successful international economic order, though not perfect, has heavily relied on the global economic leadership of the U.S., collaborating with key allies. Political scientists have called the concept “hegemonic stability theory,” which posits that effective leadership from one country is essential for the system to work effectively. While the concept may be debatable, the U.S.’s effective leadership throughout the postwar period has been a critical factor contributing to the overall success of the international economic order.

The third premise is that the U.S. can no longer play its previous role to the same extent due to the rise of China as a significant global player. In the last 100 years, the U.S. held a dominant position as the world’s leading economy without any serious challengers. Japan came closest to challenging the U.S. during its period of rapid growth when its gross domestic product (GDP) reached around 80% of the U.S. GDP.

China’s global economic dominance

Nevertheless, the U.S. never faced a true rival for the top economy until China’s rise. China now provides that challenge as a formidable competitor which in many metrics is bigger than the U.S., in terms of trade and foreign exchange reserves.

Given this scenario, China’s participation is crucial in resolving global economic issues, such as climate change, open trade, financial and macroeconomic crises, and pandemics. Therefore, it is essential to integrate China into the global economic leadership matrix, enabling or encouraging it to take on responsibilities, cooperate with other nations, and work towards shared objectives. Thus, finding ways to incorporate China into this cooperative leadership position is vital for the global economic system, which requires collaboration between the U.S. and its allies, and China.

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