The world has recovered remarkably quickly from the financial crisis. But growth is now on two tracks: Developed economies still struggling with fiscal, financial and structural problems, while emerging economies, especially in Asia, are growing robustly.
The resulting global imbalances have created international tensions.
The Group of 20 has emerged as a forum to tackle these issues. It was especially effective during the crisis, and remains valuable as it is more inclusive than the Group of Eight.
The most consequential relationship in the world today is between the United States and China. There has been significant friction, notably over exchange rates.
The yuan issue is politically hard — the United States sees an undervalued Chinese currency as unfair competition, while China fears that sharp revaluation will disrupt its economy, causing unemployment and unrest.
But from an economic point of view, this needn’t be a win-lose battle.
A gradually appreciating yuan will encourage Chinese export industries to restructure and upgrade, help distribute the gains from growth more broadly beyond exports to the rest of the economy and mitigate inflation, which is a growing problem in China.
It will also help ease political pressures in the United States and tensions in the relationship.
The United States and China need to build mutual trust in order to cooperate on a range of tough international issues, including Iran’s nuclear program and North Korea.
Otherwise, each side will doubt the other’s motives, especially when problems arise, such as over competing claims in the South China Sea.
The world is witnessing a gradual shift in the relative balance of influence and economic power.
The United States will remain the pre-eminent superpower for decades.
But Asian countries see and sense China’s growing influence and are adjusting their stances to benefit from that nation’s growth.
Yet almost all of them wish the United States to stay engaged in Asia.
They want to be friends with both the United States and China, and not be forced to choose sides.
The Chinese are aware of foreign perceptions that with growing strength, it has become more assertive.
China’s leaders have emphasized that the country is committed to peaceful development and has no aggressive intentions.
China’s domestic challenges are numerous and daunting. Its government must uplift hundreds of millions who remain in poverty, create social safety nets for its people and maintain social and political stability so progress can continue.
China has its own domestic politics that it can’t ignore. China’s leaders need to explain this reality, and their basic thinking, convincingly to international audiences, who see Beijing and Shanghai and think that is China.
But countries will also watch China’s actions — how it conducts itself on international issues such as climate change and what its leaders say to their own people about China’s role in the world.
As world economies recover, governments must continue promoting global trade. The win-win results of freer trade will boost demand and growth.
During the crisis, protectionist pressures were a real worry. Fortunately, governments took fewer protectionist and retaliatory actions than many feared.
In the United States, there is little political appetite for free trade; hence the slow progress of its bilateral free-trade agreements and the World Trade Organization’s Doha Round.
But there are some recent positive developments.
The renegotiated FTA between South Korea and the United States was settled recently, though not yet ratified.
The United States is also negotiating a Trans-Pacific Partnership, which will be a pathway toward the Asia-Pacific Economic Cooperation’s vision of a free-trade area in the region.
Countries shouldn’t rest there.
Leaders need to persuade electorates worried about unemployment and apprehensive about the future that free trade will benefit them in the long term.
Globalization poses significant challenges to countries.
Competition is intense, change is continuous and the fruits of prosperity are unevenly distributed.
But trying to shut out competition or freeze the status quo will fail; nor will currency realignments create real, sustainable prosperity.
The only reliable strategy for improving the lives of citizens is for countries to upgrade the skills of their people and the capabilities of their economies.
This means educating people to enhance their earning power, investing in technology and boosting infrastructure to raise productivity.
Beyond promoting growth, governments must build political support for free markets and economic integration.
Growth has to benefit the many, not just a few.
Lee Hsien Loong is the prime minister of Singapore.
(Jakarta Glove) Bloomberg
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