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Powerful America Not Weakened by Global Financial Crisis

Feb 14 , 2011
  • Song Wei

    Associate Professor, Peking University

The concept of power status is often used to emphasize the relative distribution of national capabilities across single countries. Under the anarchical international system, the absolute size of national power does not have much significance for deciding international outcomes. If we want to evaluate the impact of the global financial crisis on today’s international relations, it is important to measure the relative damages which great powers have suffered. Here I would like to examine the comprehensive national power gap and other major economic indexes before and after the financial crisis.

How big was the gap between the United States and other great powers with respect to comprehensive national power before the crisis? Based on data from the Institute of World Economics and Politics of the Chinese Academy of Social Sciences in 2006, the US got a score of 90.60 against the full marks of 100, and ranked first in the aspects of technology, human resource, capital, information, military, economy and diplomacy. The United Kingdom came out second in this list, but with only 65.04. The comprehensive power gap can usually maintain its influence for a relatively long term, for it will be more and more difficult for great powers to shorten this gap after losing their late-developing advantages. Except the economic index, other major indexes, including human resource and military, are less likely to change radically in the short run. What is more, for those countries which ranked in the top ten in the list, most are pretty mature economies such as Britain and France, the comprehensive power of which are not expected to have a surge in the near future. The rankings of China, Russia and India are indeed close to the top but their development structures are not balanced and comprehensive. Their major advantages are in natural resources and labor force. Generally speaking, the leading status of the US is more comprehensive and thus solid compared to the lead of the British hegemony which was limited in the naval and financial sectors.

If we pay attention to the economic index, it is widely recognized that both the American economy and other great power economies have been hurt during the global financial crisis. But in the short term and from a relative perspective, the power status of the US might be enhanced to some extent after measuring a series of basic economic indicators.

First let’s examine the basic economic indicators of the US, the European Union and Japan. The condition of the US has been far from worst among these three great economies, with regards to the GDP growth rate, the revival of physical economic sectors (mainly referring to the manufacturing sector) or the unemployment rate. A research report from the NABE (National Association for Business Economics) advanced the American real GDP growth rate of 2010 from 2.9% to 3.2% on Nov. 23, 2009.

Economists from this association predicted that the unemployment rate in the US in 2010 would stay at the level of 10%, ending at 9.6%. The data from the US Department of Commerce showed that retail sales rose 0.3% in February 2010, and this was the fifth month for this growth tendency. If the motor sector was excluded, the growth rate for February would be 0.8%. In 2009, retail sales increased 3.9%. More recently, economists from the Conference Board issued a report about the Leading Economy Index (LEI) and Coincident Economic Index (ECI). The report argued that the LEI of the US increased 9.8% last year based on the improvement of the financial market and manufacturing sector, and it predicted that this recovering trend would continue at least through this spring.

According to newest data from the statistics organ of the EU, the GDP growth rate was evaluated as about -4.1% in 2009, a 0.7% increase for this year. Germany was the strongest economy in Western Europe, but its economy was deeply dependent on commodity exports and thus greatly hurt by the financial crisis. In Sept. 2009, the total unemployment rate of the Euro Zone had risen to 9.7%, with Germany at 13%, and France 10%. But the unemployment situation has been much more troublesome compared to that of the US on account of the high unemployment rate of young people in the EU, which was surprisingly at 18%. Although the economy of the Euro Zone is undergoing a slow recovery since the late 2009, most Middle and Eastern European countries are still in a deep recession. Japan is not an exception. The Japanese government in Dec. 2009 issued a report saying that the economic growth rate for the 2008 fiscal year from March 2008 to March 2009 was -3.5%. According to latest information from the Japanese government, from March 2009 to March 2010, economic growth rate was evaluated as 0%. Some economists analyzed that this was because of the high dependence of the Japanese economy on the world market.

Second, the basic economic indicators for Russia and China look like no better than those for the US, if not much worse than the latter. It has been widely recognized that the Russian economy was severely damaged by the oil price decrease after the financial crisis. According to data from the International Monetary Fund, Russia and other eleven members of the Commonwealth of Independent States (CIS) might be encountering the biggest economic recession than any other region in the world. The economic growth rate was 8.6% in 2007, and 5.5% in 2008, but it was evaluated as -5.1% in 2009. One report issued by the IMF predicted that there would be a 1.2% economic growth in this region in 2010, but warned that the road would not be flat.

Chinese economic indicators have seemed much better for its financial market has been relatively closed and the export structure is mainly composed of low-end consumer goods. But Chinese exports have suffered a great loss of about 20% in 2009, and more severely, the value of American national bonds in various forms has decreased about US$700 billion to US$1,143 billion. The real loss to China in this global financial crisis needs further research.

Third, the American advantage in the budget, capital and human resource aspects might be further reinforced after the crisis. It bears noting that in the global financial rescue actions, it was the European Central Bank which launched the biggest bailout plan rather than the US Federal Reserve. Until June 2009, the European Union had approved various financial rescue plans which amounted to 3,300 billion euros. Thus, the budgetary risks of deficit and inflation are very severe in Europe compared to the limited assistance action of the US government. More surprisingly, after the emergence of the financial crisis, the FDI flowing to the US has increased against the general descending tendency in developed countries. The US has continued to be the first place for global FDI destination. The global financial crisis might also deteriorate the impact of aging tendency while there is high unemployment among young people. The birth rate in the US has been at a high level and the population structure is much healthier than that of the EU, Japan, and Russia. China is also facing the potential risk of aging tendency. The social instabilities brought by the new immigrants in European countries might also increase in the face of economic recession. This is also different from the social situation in the US, which has a much better incorporating capability. Technical and intellectual elites are still making efforts to get green cards or American citizenship.

In the end, the competing capability of the US in the global economy still ranks first among great powers. According to the Global Competition Capability Report (2009-2010) issued by the World Economic Forum, the US came out second (behind Switzerland) compared to its top status in 2008-2009, but in the great power list, the US continues to be far ahead of Germany (7th), Japan (8th), and Canada (9th). Because Switzerland is too small a country, its first place has not much meaning in predicting the international power structure. The US tops the ranks in the first two of three basic competition capability aspects: efficiency, innovation, and infrastructure.

Thus, this article concludes that at least until now American power status has not been weakened by the global financial crisis.

Song Wei is associate professor of School of International Studies, Peking University.

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