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The main reasons for dominance of the us in the 21st century

The share of international transactions in our national economy has more than tripled. It now exceeds 30 percent of total output. We are more dependent on external economic developments than the European Union as a group or Japan, the other large high-income parts of the world, which have traditionally been regarded as much more engaged in global competition than the United States.

Almost half the revenues of the top 500 companies based in the United States derive from their international operations. About half of publicly held US government debt is owned by foreign investors. Foreign capital finances much of the domestic investment required to maintain decent economic growth.

The United States has thus joined the world, in two critical senses. We are highly dependent on global developments for our own prosperity and stability. And we are now much more like other countries, for virtually all of whom such international engagement has been a given throughout their histories.

The United States has gained enormously from this globalization. Additional benefits accrue from the financial globalization that has accompanied increased trade flows. The trade gains occur through three distinct channels.

Increased imports hold down prices and thus help limit inflation and provide a greater variety of attractive products to consumers and industrial users. Increased exports enable us to do more of what we do best and enhance wages by 15 to 20 percent for workers in those industries. Increased international competition stimulates productivity improvement in our own economy and thus helps provide the foundation for higher incomes.

Like any dynamic economic change, globalization generates costs as well as benefits. About half a million workers of a total labor force of 150 million lose jobs annually, most for temporary periods, as a result of increased imports. Some have to accept lower paying jobs for the longer run, suffering lifetime earnings losses. Hence the United States has on balance gained enormously from our integration with the world economy.

These Are the 5 Reasons Why the U.S. Remains the World's Only Superpower

Substantial additional benefits, perhaps expanding the present totals by another 50 percent half a trillion dollars annuallyare available from further opening of global markets.

As already noted, however, this means that we have become heavily dependent on external developments for our own prosperity and stability. Unfortunately, we have failed to recognize that dependence and have behaved in ways that exacerbate our vulnerability. We have run large trade deficits for 30 years. The ongoing debate about our national debt and deficits must therefore proceed with a wary eye on the fact that much of it is owed to investors in other countries, some of the largest of which are institutions owned by governments e.

We have let down our guard in a number of ways. Our primary and secondary education system is no longer qualifying our people to succeed in a highly competitive global economy.

  • In particular, Chinese folk religion and Buddhism never really went away, they just went underground or, in some cases, not even underground;
  • Some have to accept lower paying jobs for the longer run, suffering lifetime earnings losses;
  • There are many other areas as well where other countries, largely emerging markets that are doing so well, violate the international rules of the game that the United States has labored so hard to erect since the Second World War;
  • How to Do It?
  • But our major target must be the half of the world that is growing rapidly, is flush with cash, and is widely running large trade surpluses.

Our infrastructure is falling behind world-class standards and, in many cases, is literally crumbling. Our governmental support for technological innovation, which has been critically important for some of the most important advances of the past half century, is lagging.

Our tax system encourages footloose multinational firms, based both here and abroad, to invest in countries other than the United States and rewards consumption including of energy and pollutants instead of saving. We have let the exchange rate of the dollar, by far the single most important determinant of our international competitiveness in the short run, remain substantially overvalued for prolonged periods.

The problems created for the United States by our increasing external dependence and the failures of our national policies to enable us to compete effectively are compounded by the sharp decline in our ability to influence let alone dictate the outcomes of international economic policy events and negotiations.

Our share of global output has dropped from 50 percent at the end of the Second World War to 20 percent today. Our share of world trade is even less; both China and Germany export more than we, though their overall economies are much smaller. China alone could become a dominant global economic player over the next decade or two. Hence the United States is caught in a classic scissors dilemma. On the one hand, our dependence on the world economy has risen enormously and will continue to do so.

On the other hand, our ability to determine global economic conditions has declined sharply. The dilemma is sharply exacerbated by the inadequacies of our own policies in response to these profound historical trends. What do they mean for our efforts to restore decent growth and create enough jobs to cut unemployment to acceptable levels? What are their implications for our strategies to rein in our national debt and deficits?

To answer these questions, we must first recognize that the world economy of the 21st century is very different than the world economy of the 20th century. The locus of globalized economic power and vitality has shifted drastically. Virtually all of the rich industrialized countries that have been the past drivers of the world economy—the United States itself, Western Europe, and Japan—are struggling.

Think Asia Will Dominate the 21st Century? Think Again.

Virtually all of the emerging market economies—especially China but also India, the rest of Asia, Latin America, and even Africa and the Middle East prior to its recent disruptions—are booming. We live in a bifurcated rather than synchronized world economy.

  • South-South trade and investment among these countries is exploding, further enabling them to avoid negative spillovers from the lagging rich nations;
  • It will take a substantial intellectual effort to identify these impediments and devise strategies to address them, and then a major political effort to persuade other countries to begin liberalizing and, hopefully, eventually abandon them;
  • We can only induce other countries to enhance our access to their services markets if we relax our own remaining impediments, such as agricultural subsidies which should be dismantled for budget reasons anyway , high tariffs on some textile products, and tight visa policies that limit entry to the United States for many foreign nationals even when they would strengthen our own economy;
  • On the one hand, our dependence on the world economy has risen enormously and will continue to do so;
  • Our infrastructure is falling behind world-class standards and, in many cases, is literally crumbling.

China and India regard themselves as re-emerging economies since they dominated world output for a long while until at least some time into the 18th century. Our chief traditional foreign partners, which are still the largest parts of the global economy outside the United States, are doing worse than we are.

Europe succeeded brilliantly in creating the euro, the first currency to rival the dollar in almost a century, over a decade ago. But its Economic and Monetary Union, as the project was formally called, was an unstable halfway house from its inception.

The monetary side was complete with a common currency and area-wide European Central Bank. But there was no economic union: The euro area was able to finesse this glaring discrepancy for a decade, abetted by the global boom of 2003-07. But the financial crisis and succeeding Great Recession of 2008-09 laid bare its problems and, as a result, posed both an existential threat to European integration itself and major risks to the entire world economy.

The crisis, of course, hit the weakest components of the euro area hardest: The rich and successful European economies, most notably by far, Germany, had to bail them out on an ad hoc basis because of the lack of fiscal transfer mechanisms and, for the medium to longer run, high labor mobility like we have in the United States.

The lenders, of course, seek to extract commitments from the borrowers that they will get their houses in order, mainly by trimming huge budget deficits and reforming unstable banking systems, which inevitably leads to sharp tensions both between the countries and within them as German taxpayers are "asked to pay Greek pensioners" and poor Greek workers are "asked to accept 20 percent pay cuts to satisfy rich Germans".

Europe has taken a number of far-reaching steps to remedy its structural shortcomings and resolve its problems. It is moving toward an inevitable fiscal union and creating a de facto European Monetary Fund to rescue and discipline the weak performers of the day, which will increasingly replicate the characteristics of the true economic union of the United States. I believe that a much stronger Europe and euro will emerge from the crisis. Getting there, however, will almost certainly require more debt restructuring which the media and the ratings agencies will call "defaults" and condemn Europe to very modest growth for a while as even its stronger economies tighten their belts to restore stability.

The United States, and the world economy as a whole, will not get much help from Europe for at least a few more years. Japan, which remains the second largest national economy with exchange rates calculated at market levelsis even worse.

The country inspired both worldwide admiration and fear as a result of its unprecedented economic growth and surge in international competitiveness through the 1980s, which brought it to per capita income levels above the United States.

But Japan imploded in the early 1990s. Its financial bubble burst and, exacerbated by several huge policy mistakes, ushered in two lost decades of stagnation and indeed deflation—the only example of such performance since the Great Depression of the main reasons for dominance of the us in the 21st century 1930s—from which it has not yet recovered. It faces the worst demographic profile of any country in the world, aging so rapidly that it will have barely one worker per retiree by the middle of this century.

So the United States and world economies will not get much help from Japan either, and we indeed now fear its weakness much more than we ever feared its strength.

The main reasons for dominance of the us in the 21st century, as already noted, most of the emerging market economies are booming. These developing countries now account for half the world economy using purchasing power parity exchange rates.

They have provided three quarters of all global growth over the past decade. They are growing three times as fast as the traditional leaders: Hence their global share is rising substantially every year and will reach at least two- thirds over the next decade. They, especially China, will play increasingly decisive world economic roles.

Moreover, their superior performance is likely to accelerate in the period ahead. They experienced some declines in growth during the recent Great Recession but their lead over the rich countries actually grew, indicating their ability to decouple from the West to a substantial extent.

Their fiscal positions are much stronger than ours: Projections to 2035 show their debt-to-GDP ratios will rise to only 50 percent, well within the danger thresholds of 60 to 100 percent, while the rich countries as a group are currently on totally unsustainable trajectories toward 200 percent.

Having suffered their own debt crises in previous decades, the emerging markets thoroughly reformed their banking systems and totally avoided the financial meltdown experienced by almost all rich countries over the past few years. South-South trade and investment among these countries is exploding, further enabling them to avoid negative spillovers from the lagging rich nations. Eight of these countries have now joined the "trillion dollar club" with national economic output exceeding that level: Perhaps most dramatic of all, the still poor South is largely financing the rich North.

But numerous other emerging markets have also piled up massive levels of foreign currency, much of which they then lend back to us: The world of finance has turned topsy-turvy on the back of the role reversal in global growth. These emerging and developing countries are in fact now growing so rapidly, despite the continuing sluggishness of the three rich economic zones, that their immediate policy priorities are virtually opposite to ours.

The United States in the World Economy

We desperately seek ways to accelerate growth and create employment while our excessive deficits and debt force us to pursue restrictive policies instead. By sharp contrast, they increasingly need to restrain their expansions to prevent excessive inflation the main reasons for dominance of the us in the 21st century the risk of new financial bubbles—but enjoy strong fiscal and monetary positions that will enable them to again step on the accelerators if need be.

In fact, a third risk to the current global economic outlook—in addition to the debt and deficit overhangs in the United States and Europe—is that these emerging markets will step on the brakes too hard to remain drivers of world growth.

China, by far the most important of the group, has been tightening its monetary policy for over a year and is sharply curtailing credit to its soaring property sector. India is unusual among developing countries in that it faces large budget deficits, and its efforts to trim them could pare its rapid growth.

I believe that most of these countries will be able to dial back their expansions without throwing themselves into recession, or even moderating their booms very sharply, but their newly dominant positions require us to watch them as closely as we have traditionally watched our allies and main partners across the North Atlantic and North Pacific. This is particularly true because, as we will shortly see, some of their growth derives from policies that adversely affect our own interests and dampen our growth prospects.

The institutional implications of these fundamental changes in international economic power positions have already been recognized to an important extent. The steering committee of the World Trade Organization WTOand thus the multilateral trading system, has been expanded to include Brazil, China, and India, as well as traditional leaders: America, Europe, Japan, and Australia with Canada pushed aside.

The International Monetary Fund IMF has twice though still inadequately raised the quotas and thus voting power of the emerging countries. Most importantly, the traditional G-7—comprised solely of high-income industrialized countries—has been supplanted by the G-20, half of which are developing countries, as the chief global steering committee. Within that broader construct, the United States and China are evolving into an informal and de facto G-2, modestly institutionalized in their bilateral Strategic and Economic Dialogue, because very little global economic progress can now be made unless these two superpowers can at least agree to disagree.

The United States faces a genuine dilemma fashioning an effective response to its current economic woes. On the one hand, growth is sluggish and unemployment is unacceptably high.