The Global Economy: A Path of Divergence
The global economy is on the brink of a significant shift, with the West and the Global South moving towards two distinct paths. The West, led by the United States, is heavily subsidizing its green industries and implementing protectionist tariffs against cheaper products from the Global South, particularly from countries like China. This strategy, however, is fundamentally flawed and will ultimately lead to economic stagnation and financial instability in the West.
By propping up their green industries, Western economies are artificially inflating costs and undermining their competitiveness. This will lead to slower growth and higher indebtedness, as businesses and consumers struggle to keep up with the rising costs of goods and services. Meanwhile, the Global South, with its lower production costs, will benefit from faster growth and healthier finances. This divergence will create a widening gap between the haves and have-nots of the world economy.
The United States is particularly vulnerable to this economic divide because of its high levels of debt and deficit. Devaluing the dollar, as some have suggested, would exacerbate inflation and trigger a debt crisis. A revaluation of the Chinese yuan, on the other hand, would strengthen the Chinese economy and potentially make it larger than the US economy. Such a scenario would not be in America’s best interests.
Protectionism has also been shown to have negative consequences. Emerging economies that have adopted protectionist policies in the past, such as India and Brazil, have often experienced crony capitalism, inflation, and low growth. The same fate could befall the US and Europe if they continue down this path.
In the past, the West has tolerated China’s overcapacity because it benefited them. Chinese companies were primarily producing parts and products for global corporations, which allowed customers to drive down prices and increase profit margins. Now that Chinese companies are seeking to make and sell their own products, those easy margins are disappearing. This is leading to a clash of business cultures between the West and China.
Unlike the cutthroat competition of the past, Western capitalists tend to meet and collude to limit competition. They have enjoyed stable or rising profits and have become wealthy enough to join the global governing elite. In contrast, Chinese capitalists are more akin to their Western counterparts of a century ago, when overcapacity, price wars, and government support were common. These Chinese capitalists are determined to crush their competition rather than coexist peacefully.
The rise of China and the tensions between the West and the Global South are reshaping the global economy. The West must abandon its protectionist policies and embrace competition if it wants to maintain its economic dominance. The Global South, on the other hand, has an opportunity to capitalize on its lower costs and become a major player in the world economy.
