This competition reached its peak in mid-2015, at a point when China’s economy was declining while that of the US boomed. This seemed to be a reverse of what had occurred in the 2008-09 period. A strategic “war” began with the US plan to taper off (a gradual reduction in the purchase of securities by the Fed), also known as “Quantitative Easing” (QE), following the recovery of the US economy from the global financial crisis. Against this, the policy posed a risk to China’s economic stability. In order to avert a crisis, the Chinese government, through the People’s Bank of China (PBOC) sharply devalued the Yuan, in a bid to make Chinese exports more competitive, boosting demand for Chinese-made goods.
China’s policy infuriated the US, as it would naturally result in more Chinese goods flooding the US market and exerting pressure on domestic prices and producers. Another strategy adopted by China was to improve its real sector, coupled with an interest rate cut policy. China hoped to produce virtually all its goods at lower prices, in order to gain an absolute competitive advantage over the US.
The making of an alliance
In the context of a global economy, countries also exert their influence and pursue their interests by forming economic coalitions, significantly affecting the dynamics of international trade policies. Two prominent trading blocs in this respect are the BRICS and G7. BRICS is a grouping of emerging national economies, comprised of Brazil, Russia, India, China and South Africa. On the other hand, the G7 is an alliance of seven advanced economies, made up of the US, Canada, Japan, Germany, France, Italy and the UK.
In recent years, BRICS has undergone significant development. Countries such as Bangladesh, Egypt and the UAE have recently joined the New Development Bank, a multilateral development bank established by the BRICS states. This is a sign of change in the dynamics of the global economy. In fact, in coming days, Mexico is expected to join BRICS, a move which could potentially impose strains on the country’s relationship with the US, and cast doubt on America’s commitment to the core principles of fairness, equality and justice in the global trade.
This will usher in a seismic shift in global economic order. BRICS, on the one hand, will become increasingly dominant, while G7 and other groups linked to the United States are gradually losing their influence. This was triggered by various problems, such as doubts about US foreign policy, efforts to create alternative trading blocs, EU policies that were deemed excessive and the historically fraught relations between Europe and it former colonies.
This also indicates a shift from a US-led global economic order to a multipolar world, more influenced by major developing economies. BRICS has also undergone a change in their global scope and importance, with China and Russia seeking to solidify their a counterbalance to the Western-dominated order. It could also lead to greater pressure from BRICS to reform global institutions in which they feel they are underrepresented.
Vying for influence
BRICS and G7 have been vying for influence in the global economic space. Through the 1990s, G7 was preeminent in the global economy. It accounted for 46.05 percent of global gross domestic product (GDP) at purchasing power parity (PPP). By comparison, during the same period, the combined PPP GDP of BRICS countries was only 15.66 percent. GDP PPP measures a country’s economic level by equalizing the purchasing power of different currencies, eliminating the differences in price levels between countries.
In 2022, the proportion was inversely proportional, where the proportion of GDP PPP of BRICS countries accounted for 31.87 percent, compared to 30 percent for G7. This dominance was partly due to the increasing proportion of GDP PPP from the PRC, which increased from 3 percent in 1990 to 18 percent in 2022. China’s success cannot be separated from its growing production and strong influence over other developing countries.