The global financial crisis reignited the debate of continued US hegemony, particularly when countries like China are experiencing long periods of strong economic growth. Interestingly, the Global Language Monitor found that the “Rise of China” is the “most read-about news story of the 21st century,” even surpassing the September 11 terrorist attacks, the Iraq War, the election of Barack Obama, and the British royal wedding. After all, China’s economy is growing at 9%, while the US “reels from economic recession, costly wars in Iraq and Afghanistan, and massive budget deficits.” (Beckley, 2011)
Let’s delve into the economic reality a little further. A 2012 IMF study showed that the US economy was the biggest contributor to the $71,702 billion world GDP, producing just under 22%. China, on the other hand, contributed to only 11.4% of world GDP. China’s high annual growth rate proves its market is much larger than it used to be. However, it has actually shrunk relative to the U.S. market over the 20 years, with over 90% of China’s high-technology exports produced by foreign firms and consisting of imported components that are merely assembled in China, a practice known as “export processing.”
And US dominance extends well beyond mere GDP growth differentials. Since 1945, the US has demonstrated its ability and willingness to provide international public goods including a convertible currency, a world trade system, global defence, international bank/s and finance, and international security.
Let’s start with the role of the US currency. Under the Bretton Woods (BW) system, the US dollar was considered the de facto world currency, with other nations pegging their currency to the US dollar. The US dollar was backed by gold reserves, with the US guaranteeing the value of the dollar by committing to exchange dollars for gold at a set price of $35 per ounce.
Today, even after the demise of the BW system in 1971, the US is still the de facto reserve currency held by almost two thirds of international central banks. The US dollar continues to dominate global currency reserves, with 63.9% held in dollars as compared to 26.5% held in euros. 17 currencies are pegged against the dollar. Some countries, such as Ecuador, El Salvador, and Panama, have gone even further and eliminated their own currency. This status as the reserve currency means that most commodities are priced and traded in US dollars. In order to make the transaction, US dollars must be used. According to some estimates, recent US seigniorage amounts to $16 – $22 billion per year (Cohen, 2008).
The US has also provided for a world trade system, through the General Agreement on Tariffs and Trade (GATT) and now World Trade Organisation (WTO), aimed at constructively handling disputes and promoting freer (and fair) trade. Furthermore, there has been provision of global defence and international security, through the United Nations and Security Council.
International public goods have also come in the form of international bank/s and finance, through the World Bank, International Monetary Fund (IMF) and Bank of International Settlements (BIS). In the IMF, for example, the US has the largest minority share of votes (17.1%) with the G5 holding 41%. It is thus impossible to achieve anything out US and G5 assent, and this reaffirms the US status on the global stage.
On a different note, it could be argued that the GFC has demonstrated the strength of US hegemony in two distinct ways. The first, is through the significant world-wide consequences of the US sub-prime mortgage crisis in 2007. At 2012 levels, Japanese public debt levels reached 238% of GDP and France’s debt amounted to approximately $1.8 trillion. From 2008 to 2012, German debt increased 65% to 2.2 trillion and the volume of world trade fell 6.6%.
The second, and most contentious observation, is that if there was a crisis that was going to bring the US down, it should have been this one. That’s not to say that the US has not been left in a state of economic detriment in a post-GFC world, as we know this isn’t the case. The US is still powerful, and still willing and able to provide international public goods given their political, economic and military capabilities.
Declinists such as Arthur Stein argue that “hegemons do not impose openness, they bear its costs”. They believe that weaker states tend to free-ride, rising from the free provision of international public goods while the US bears the cost. For example, states such as China, Japan and South Korea adopt existing technologies without needing to spend the time and money inventing them themselves.
Are these costs of free-riding significant? The World Bank recently calculated that approximately 80% of US wealth comprises intangible assets, that is, its “system of property rights, efficient judicial system, and the skills, knowledge, and trust embedded within its society”. This suggests that a significant proportion of what separates China from the US cannot be copied.
Despite globalisation, the GFC and the substantial cost of hegemonic burdens, the US is in fact wealthier, more militarily powerful and more innovative compared to China than it was in 1991. It can be reasonably expected that the US technological, military and economic lead over China will continue well into the 21st century.
– Michael Beckley, ‘China’s century? Why America’s edge will endure’, International Security, vol. 36, no. 3, (Winter 2011/2012), pp. 41–78.
– B. Russett, ‘The Mysterious Case of Vanishing Hegemony’, International Organization, Vol. 39 (1985).
– T. Cohn, Global Political Economy, 6th ed., Chapter 4.