Index

Adams, John Quincy, 169, 170 bond issuance, 109f Administrative Measures on Renminbi convergence, 70, 70n, 76f, 77–78, 83 Bank Settlement Accounts Opened demographics, 92–94, 93t by Overseas Entities, 113 GDP projections, 81, 82b–83b agriculture, 20–21, 22 , 17–18, 20, 35, 58 Anglo-American agreement (1945), 34 BRICs (Brazil, Russia, India, China), 70n, 81, Argentina, 78n, 109f 82b–83b Asian Development Bank, 140 Asian economies. See also specific country Camdessus, Michel, 3 gravity shift to, 90, 146 Canada, 21 newly industrialized, 69 capital mobility, 173n regionalism, 177–78 catch-up. See convergence renminbi links, 111 Chile, 109f Asian financial crisis, 34 “Chimerica,” demise of, 155–56 Asia-Pacific Economic Cooperation (APEC) China forum, 177–78 convergence of, 70, 70n, 76f, 77–78, Association of Southeast Asian Nations 81–90, 87t–89t (ASEAN), 178 as creditor, 42n, 100, 125, 130 currency dominance (See currency Balassa-Samuelson effect, 85b, 95 dominance) bank settlement accounts, 113 current account surplus, 42n, 100, 125 beggar-thy-neighbor policies, 154, 157 demographics, 92–94, 93t, 139n, 195 Bhagwati, Jagdish, 175 economic cooperation with, 10–11, BIICs (Brazil, India, Indonesia, China), 70, 149–68 70n, 76f, 77 economic dominance (See Chinese bilateralism, 11–12, 21, 113 economic dominance) avoidance of, 174–75, 180 exchange rate policy, 23–24, 85b, 111, hostile, 175, 177 157–60, 196 promiscuous, 175–77 export controls, 32 Blinder, Alan, 172, 173n FDI inflows, 170 Blustein, Paul, 22, 129n GDP per capita, 120, 120t, 140–43, 141t, Brazil 143t bilateral trade agreements, 113, 180 gravity shift to, 90

Index 209

© Peterson Institute for International Economics | www.piie.com China­—continued country groupings, historical parallels, growth projections, 80–90, 82b–86b, 150–54, 151t–152t 83b–85b, 88t, 101, 102t creditors, 17, 33–35, 41–42 growth strategy, 111, 112n China as, 42n, 100, 125, 130 index of economic dominance, 9, 49, 106, currency dominance and, 61, 64, 65t, 68f, 106f, 107f, 109–11, 117, 117f 100n living standards, 9, 104–105, 119–21, mercantilism and, 125, 129 140–43, 141t, 143t Cuba, 36, 55 mercantilism, 9, 22, 124–33, 125t, 157–58 currency dominance, 35–36. See also reserve open economy, 10, 21–22, 112–13, 133, currency 144–46, 159–60 benefits of, 54–55, 158n opium war, 19, 19n, 124, 124n, 130 Chinese renminbi political transformation, 138, 138n forecasts for, 5, 8–9, 68, 99, 110f, as solitary power, 114–15, 149 110–11, 196 trade projections, 101, 103t, 111 political economy of, 157–58 trade-to-GDP ratio, 121–24, 123t, 144–45, prerequisites for, 57, 111–14 145f, 159 costs of, 56–57 WTO accession, 21–22, 31, 129, 129n, 160 determinants of, 5, 7–9, 54, 60–61, 63–67, “China Round,” 184–86 65t, 108, 111, 114 Chinese economic dominance European Union, 52, 59, 68 balance of power with US and, 22–25 as expression of economic dominance, 8, distinct aspects of, 9–10, 187 39, 51 factors that could derail, 138–39, 147, 192 forecasts of, 8–9 growth-collapse scenario, 192–93, 193f history of, 57–59, 58f, 107–108, 109f 2021 “handover” scenario, 1–3, 7, 197 index of economic dominance based on, 7, historical perspective, 119–33 39, 45, 45n, 47f, 100–101, 102f imminent transition to, 99, 101–104, projections of, 67–68, 99, 106–14, 110f 114–15 quantification of, 51–68 resurgency scenario, 193, 194f regression analysis of, 63–68, 65t trade reciprocity and, 166–67, 171–75 special drawing rights, 52, 59, 162b–163b Citigroup, 81, 82b–83b UK sterling, 8, 51, 51n, 54, 55–59, 58n, 68, climate change, 156 108–11 comparative advantage, 21 US dollar conditional convergence, 74–76 end of, 5, 8–9, 68, 110f, 110–11 Connally, John, 18, 18n history of, 54, 57–58, 68, 108–109, 109f consumers, effects of mercantilism on, 130, instrumental use of, 35–36, 55 131b–133b interest rates and, 2 consumption growth, 130, 131b–133b past challenges to, 52 convergence seigniorage gains, 55, 55n conditional versus unconditional, 74–76 sterling transition to, 8–9 definition of, 5, 69–70 US self-perception and, 4 demographics and, 92–94, 93t currency swap agreements, 113 dominance forecasts based on, 8, 84b–86b, 100–106, 101f–102f debtors, 17, 33–35, 41–42 history of, 70–75, 71t, 72f, 73f de Gaulle, Charles, 17, 51, 55 of populous poor, 76f, 76–78 de Larosiere, Jacques, 34n projections of, 78–81 demographics baseline scenario, 79–81, 80t convergence and, 92–94, 93t bases for, 78–79 dominance projections and, 139n, 195 caveats, 90–92 developing countries. See emerging-market GDP level, 81, 140–43, 141t countries results, 81–90, 87t–89t development policy, 31 technological dynamism and, 194–95 Dillon Round, 20

210 eclipse: living in the shadow of china’s economic dominance

© Peterson Institute for International Economics | www.piie.com discrimination, 19n, 19–20 impact of OECD growth on, 91f, dispute settlement, WTO, 164–65, 167–68, 91–92 176n, 186 trade-to-GDP ratio, 122 Disraeli, Benjamin, 14 entrepreneurship, 190 Doha Round, 22, 24, 129n, 160, 178–79 European Economic Community (EEC) “dollar GDP,” 81n, 82b–83b, 83, 88t, 96 agricultural sector, 22 Dulles, John Foster, 1, 13, 20n formation of, 20, 20n European Payments Union, 20n Economic Coal and Steel Community, European Union 20n currency dominance, 52, 59, 68 economic convergence. See convergence economic dominance, 105–106, 106f, 107f economic cooperation, 10–11, 149–68. effects of global financial crisis on, 69 See also multilateralism Everything But Arms initiative, 31, 31n monetary versus trade, 160–66 GDP per capita, 120, 120t prospects for, 155–68 growth projections, 101, 102t success of, 186 role of, 12 economic dominance trade projections, 101, 103t China (See Chinese economic dominance) Everything But Arms initiative (EU), 31, 31n definition of, 25–26, 27 exceptionalism, 3–4, 4n, 6, 193 determinants of, 8, 29–36 exchange rates European Union, 105–106, 106f Chinese policy, 23–24, 85b, 111, 157–60, forces driving, 69–98 (See also convergence; 196 gravity) fixed, 17–18, 18n, 20, 35, 58 forecasts of, 8–10 floating, 18 history of, 13–26 market, GDP growth projected by, 95–96 instrumental value of, 13, 15–16, 27, 29, exorbitant privilege, 54–56 31, 34, 156 exports, 31–32 motives for exercising, 15–16, 170–71 convergence and, 86, 89t projections of, 99–100 projections, 101, 103t caveats, 135–47 external financial relations, 33–35 quantification of (See index of economic external financial strength, measurement dominance) of, 41–42 role of prosperity in, 104–105 UK, 1, 6, 99, 150, 151t, 197 Ferguson, Niall, 6, 25, 30, 33, 155 US (See US economic dominance) financial crises economic growth. See also GDP currency dominance during, 55–56 in convergence scenario, 79–80, 80t, global (2008-09), 1, 23, 25, 32, 35, 52, 56, 140–43, 141t 69, 162b “growth begetting growth” dynamic, financial relations, external, 33–35 75, 75n financial strength, external, measurement macroeconomic stability and, 75, 75n of, 41–42 mercantilism and, 131b financial system, US influence on, 16–19, projections of, 79–90, 146 35n economic resources, 29–30 first-difference reciprocity, 173 measurement of, 39–40 fiscal strength, 30, 36–39, 38f Eisenhower, Dwight, 13, 14 currency dominance and, 61, 64, 65t, 68f emergency financing, 1–3, 15, 15n economic cooperation and, 160–66 emerging-market countries, 69. See also measurement of, 41–42 specific country fixed exchange rates, 17–18, 18n, 20, 35, 58 economic convergence of floating exchange rates, 18 (See convergence) foreign direct investment (FDI), 23, 170 GATT special status, 183 foreign policy goals, economic dominance growth projections, 81–90 used for, 13, 15–16, 27, 29, 31, 34, 156

Index 211

© Peterson Institute for International Economics | www.piie.com foreign reserves, vulnerability of, 41 trade projections based on, 78–79, 86–90, France 89t, 97–98, 101, 103t, 144–46 fiscal strength, 38, 38n The Great Illusion (Angell), 169 mercantilism, 128b “growth begetting growth” dynamic, 75, 75n free trade agreements, 21 growth theory, 137 Free Trade Area of the Asia-Pacific (FTAAP), The Guns of August (Tuchman), 197 178 Friedman, Thomas, 54, 120 “handover” scenario (2021), 1–3, 7, 197 Fukuyama, Francis, 153 hard power, 26 Hobbes, Thomas, 29, 70 G-0, 150, 151t, 154 Hong Kong, 112–13 G-1, 114–15, 149–50, 151t–152t hostile bilateralism, 175, 177 G-2, 114, 151t–152t, 153 hostile regionalism, 12 G-7, 152t Hull, Cordell, 159 G-20, 152t, 154 GDP. See also economic growth index of economic dominance (IED), 7, convergence and, 76f, 77–78, 83–90, 88t 27–49 currency dominance and, 61, 64, 65t, China, 9, 49, 106, 106f, 107f, 109–11, 117, 66f, 68 117f measurement of, 39–40, 40n, 81, 95–96 currency dominance and, 7, 39, 45, 45n, mercantilism and, 131b 47f, 101, 102f per capita, 120, 120t, 131f, 131b, 140–43, definition of, 44n 141t, 143t determinants, 29–36 projections of, 8–9, 78–90, 95–96, 101, economic dominance projections, 100– 102t, 146 106, 101f–102f trade ratios by, 122–24, 123t, 144–45, European Union, 105–106, 106f, 107f 145f, 159 Germany, 48 General Agreement on Tariffs and Trade Japan, 49 (GATT), 18, 20. See also multilateralism; measurement, 39–42 specific trade round principles of, 28 “China Round,” 184–86 results, 46–49 exchange rate policy, 157n robustness of, 117, 117f history of, 161, 166 UK, 47–48 mercantilism and, 129 US, 48–49, 106, 106f, 107f, 109–11, 117, special status for developing countries, 117f 183 usefulness of, 27n, 27–28 UK imperial preferences, 33 validation of, 42–44 Generalized System of Preferences, 31 weighting schemes, 44–46, 46f, 47f, 104, Germany 117 economic strength, 31–32 India index of economic dominance, 48 convergence of, 70, 70n, 76f, 77–78, 83 military strength, 37 demographics, 92–94, 93t public debt, 38, 38f growth projections, 81, 82b–84b, 88t Global Entrepreneurship Monitor, 190 protectionism, 182–84 global financial crisis (2008-09), 1, 23, 25, Indonesia 32, 35, 52, 56, 69, 162b bilateral agreements, 176 globalization, 11, 170, 172 convergence of, 70, 70n, 76f, 77, 83 global safety net, 162b–163b demographics, 92–94, 93t Goldman Sachs, 81, 82b–83b Industrial Revolution, 70, 74 standard, 48, 48n, 128b institutional structures, anachronistic, gold tranche, 15n 180–82 gravity instrumental value, of economic dominance, definition of, 8 13, 15–16, 27, 29, 31, 34, 156

212 eclipse: living in the shadow of china’s economic dominance

© Peterson Institute for International Economics | www.piie.com intellectual property, 21, 22 Long Term Agreement Regarding interest rates, 2 International Trade in Cotton Textiles International Clearing Union, 43n (LTA), 21 International Comparison Program (ICP), Luce, Edward, 189 84b, 95 international currency. See currency Macmillan, Harold, 1, 12 dominance; reserve currency macroeconomic stability international financial system, US influence economic cooperation and, 160–66 on, 16–19, 35n growth dependent upon, 75, 75n International Monetary Fund (IMF) Malaysia, 34, 56, 113n creation of, 16–19, 33, 35n, 43, 43n, 161 Mao Zedong, 26 current account projections, 100 mercantilism, 30, 33 Direction of Trade Statistics, 97 China, 9, 22, 124–33, 125t, 157–58 emergency financing, 1–3, 15, 15n consumption growth and, 130, 131b–133b legitimacy of, 165–66 demise of, 157–58 quota formula, 17, 42–44, 43n history of, 125t, 125–30 index of economic dominance based instruments used to achieve, 126b–128b on, 45, 45n, 46f, 100–101, 101f Mexico, 21 role in financial crises, 162b middle-income countries, economic special drawing rights, 52, 59, 162b–163b dominance of, 9, 104–105, 119–21, US political control over, 17n, 17–18, 35n 142n, 143, 195 World Economic Outlook, 84b, 137 military strength, 29–30, 36–37, 37f International Stabilization Fund (ISF), 43n Mill, John Stuart, 32n mobile telephones, 75n Jackson-Vanik Amendment (1974), 31 monetary cooperation, 160–66 Japan limits to, 162b–164b dominance forecasts for, 135–36, 138 most favored nation (MFN) principle, 19n, economic challenge from, 5, 20, 30, 49, 19–20, 32, 150n, 166, 185 192 Multi-Fiber Arrangement (MFA), 21 index of economic dominance, 49 multilateralism, 169–87 unfair trade accusations against, 2n, 19, alternatives to, 175–77 23 “China Round,” 184–86 Japan as Number One (Vogel), 136 history of, 19–24, 161–66 Joyce, James, 4 impediments to, 178–84 as insurance, 5, 11–12, 129, 173–74, Kennedy, John F., 20 186–87 Kennedy Round, 20, 185 requirements for, 174–75 Keynes, John Maynard, 16–17, 17n, 41, 43n, 59, 94, 135, 162b, 197 Nasser, Gamal Abdel, 14 Khruschev, Nikita, 135 National Intelligence Council, 104 Kindleberger, Charles, 99, 150, 171n national objectives, economic dominance Kissinger, Henry, 6, 105 used for, 13, 15–16, 27, 29, 31, 34, 156 Korea, 34 National Science Foundation (NSF), 195 Krugman, Paul, 51, 53, 60–61, 107, 135, newly industrialized economies (NIEs), 69 136n, 172, 172n Newton, Sir Isaac, 48n Nixon, Richard, 18n, 31 Lamy, Pascal, 22 Noriega, Manuel, 35–36 lend-lease credits, 14–15, 15n, 33 North American Free Trade Agreement level reciprocity, 173 (NAFTA), 21, 31, 176 living standards Nye, Joseph, 4, 25, 26, 104 convergence and, 70, 140–43, 141t economic dominance and, 9, 104–105, Obama, Barack, 3, 24, 197 119–21, 143t, 143–44 Occam razorization, 28, 28n, 36–39, 60

Index 213

© Peterson Institute for International Economics | www.piie.com oil exports dominance forecasts for, 135–36 as driver of growth, 78n export controls, 32 as weapon, 32, 34 GDP projections, 81, 82b–83b oil price shocks, 20, 34, 34n military strength, 30, 36–37 opium war, 19, 19n, 124, 124n, 133 Organization of Petroleum Exporting Samuelson, Paul, 172, 172n Countries (OPEC), 32 Saudi Arabia, 32, 34, 34n Ottawa Conference, 108 Section 301, 21, 31, 182 seigniorage, 54–55, 158n Panama, 35–36, 55 self-interest, pursuit of, 10–11, 155–56 Penelope effect, 129, 159 services sector, 21, 22 Penn effect, 95 Shanghai, 112 Penn World Tables, 71t, 72n, 84b, 91, 91n, Short Term Agreement on Cotton Textiles 91f, 140 (STA), 21 per capita consumption, 130, 131b–133b silver, 128b Plaza Accord, 19, 30 Singapore, 34, 113 political conditions Smith, Adam, 126b–127b, 130, 131b currency dominance and, 114, 120 Smithsonian Agreement (1971), 18 economic dominance and, 138, 138n Smoot-Harley tariffs, 150n, 181 political economy, 157–58 social peace, 120 political power, from currency dominance, soft power, 26, 121 55 Solow, Robert, 149, 167 populous poor countries. See also specific Soviet Union, 135–37, 136n, 151t–152t, 153. country See also Russia convergence of, 76f, 76–78 special drawing rights (SDRs), 52, 59, demographics, 92–94, 93t 162b–163b power, economic determinants of, 25–26 special economic zones (SEZs), 112–13 price distortions, 138–39 Stalin, Josef, 26 promiscuous bilateralism, 175–77 Stiglitz, Joseph, 52 prosperity, role in determining dominance, stock measures, 41 104–105 Suez Canal crisis, 1, 7, 13–16, 33–34, 56–57, protectionism, 154 195–97 India, 182–84 Suharto, President, 3 versus mercantilism, 126b–128b Summers, Larry, 3–4, 34, 172, 173n US, 19, 180–82 swap agreements, 113 public debt, 37–39, 38f, 190 (PPP), 39–40, 40n, tax revenues, 121 81, 82b–84b, 83, 95–96, 102t technological dynamism convergence and, 74–75, 194–95 real exchange rate indices, 85b prosperity and, 121 Reciprocal Trade Agreements Act (RTAA), trade projections and, 97n 181–82 US, 6, 104n, 190 reciprocity, 166–67, 171–75 technology protectionism, 156 regionalism, 12, 176–78 telecommunication revolution, 75n reserve currency. See also currency Tennyson, Alfred Lord, 189 dominance textiles, 20–21, 22 definition of, 53–54 Round, 20, 22, 185 roles of, 53t, 53–54 trade resources, 29–30 convergence and, 86–90, 89t measurement of, 39–40 currency dominance and, 61, 64, 65t, 66, Roosevelt, Franklin D., 17, 181 67f, 68, 111 Russia dominance in, 30–32, 111 convergence of, 70n, 78n GDP ratios, 122–24, 123t, 144–45, 145f, 159

214 eclipse: living in the shadow of china’s economic dominance

© Peterson Institute for International Economics | www.piie.com historical patterns, 121–24, 123t export controls, 32 liberalization, 112–13 fiscal problems, 189–90, 197 measurement of, 40–41 GDP per capita, 120, 120t, 140–43, 141t, versus monetary cooperation, 160–66 143t projections, 8–9, 144–46, 145f growth projections, 101, 102t, 190 gravity model, 78–79, 86–90, 89t, index of economic dominance, 48–49, 97–98, 101, 103t, 144–46 106, 106f, 107f, 109–11, 117, 117f realism of, 144–46, 145f mercantilism, 124–30, 125t trade openness in multilateral trading system, 19–24 China, 10, 21–22, 112–13, 133, 144–46, open economy, 10, 112–13 159–60 protectionism, 19, 180–82 US, 10, 112–13 public debt, 38, 38f, 190 trade preferences, 19, 19n, 31, 33 self-perception, 3–4, 4n, 6, 193 trade reciprocity, 166–67, 171–75 structural problems, 189–90, 192, 197 trade sanctions, as foreign policy tool, 31, 156 Suez Canal crisis, 1, 7, 13–16, 33–34, trade vulnerability, 32 56–57, 195–97 trading system trade projections, 101, 103t bilateral agreements (See bilateralism) trade-to-GDP ratio, 122–24, 123t, 144–45, multilateral (See multilateralism) 145f open, Chinese stake in, 159–60 US African Growth and Opportunity Act, 31 Trading with the Enemy Act of 1918, 18n US economic dominance Trans-Pacific Partnership (TPP), 177–78 beginning of, 1, 6, 99, 195–97 end of, 99, 197 Ulysses (Joyce), 4 2021 “handover” scenario, 1–3, 7, 197 unconditional convergence, 74–76 history of, 151t–152t, 153 United Kingdom versus current scenario, 22–25 as creditor, 33 motives for exercising, 15–16 currency dominance, 8, 51, 51n, 54, resurgency scenario, 191f, 191–92 55–59, 58n, 68, 100n, 108–11, 109f systemic manifestations of, 16–25 economic dominance, 1, 6, 99, 150, 151t, US Export-Import Bank, 14–15 197 UN Security Council, 161 GDP per capita, 120, 120t Uruguay Round, 21, 22, 166–67, 167n, 182, growth projections, 101, 102t 185 imperial preferences, 19, 19n, 33 index of economic dominance, 47–48 Venezuela, 78 Malaysian challenge to, 34, 56 Voltaire, 30 mercantilism, 124–30, 125t voluntary export restraints, 21 military supremacy, 30, 38 opium war, 19, 19n, 124, 124n, 130 wealth, 29–30 public debt, 36–39, 38n, 38f measurement of, 39–40 self-perception, 4, 4n projections of, 78–79 Suez Canal crisis, 1, 7, 13–16, 33–34, The Wealth of Nations (Smith), 126b–127b 56–57, 195–97 weighting schemes, 44–46, 45n, 46f, 47f, trade dominance, 30 104, 117 trade projections, 101, 103t White, Harry Dexter, 16–17, 43n trade-to-GDP ratio, 122–24, 123t Wilson, Woodrow, 32 United States World Bank, 161 currency dominance (See currency US political control over, 17, 17n dominance) World Development Indicators, 71t, 72n, 91, as debtor, 34–35 91n, 91f economic dominance (See US economic World Economic Outlook (IMF), 84b, 137 dominance) World Trade Organization (WTO). See also effects of global financial crisis on, 69 specific trade round

Index 215

© Peterson Institute for International Economics | www.piie.com “China Round,” 184–86 history of, 161 China’s accession to, 21–22, 31, 129, multilateralism and, 11 129n, 160 dispute settlement, 164–65, 167–68, 176n, Zapatero, José Luis Rodríguez, 24 186 Zhu Rhongji, 21 efficacy of, 166–68 Zoellick, Robert, 175

216 eclipse: living in the shadow of china’s economic dominance

© Peterson Institute for International Economics | www.piie.com