Can democracy survive in the wake of China rising to great power status on the back of an economy, consumer, production and trading machine that is far bigger than America’s and every other nation’s? The current trade deadlock between America and China does not indicate success through a unilateral effort on America’s part. Indeed, with the economic setbacks America and the West have suffered during the pandemic, China has had a “free run”, unimpeded by real competition, to continue to grow its economy, in 2020 China’s economy is projected to grow 1.9% in 2020, while America’s will decline by 4.3%.1 Given the underlying message and the reactions of its allies, it is no surprise that ‘America First’ has not managed to galvanise an effective response to China overtaking the US in terms of absolute GDP in the coming years.
The cost of failure will be high for democracies around the world, should they not find a way to balance China and ensure democratic values prevail across trade, business and human rights. Such a balancing will not be an easy task given the pessimism even America’s allies feel about it with America’s international standing currently is at its lowest in modern times, with only 16% of the world having confidence in the American president and only 34% having a favourable view on the US.2 The task of building a coalition of democratic allies to maintain democratic values will be a difficult one.
In parallel to these challenges, the global order that has defined the world for over 70 years is in transition, the alliances, frameworks, institutions and values that have underwritten the world’s peace, prosperity and freedom have proven to be struggling to address many of today’s biggest challenges today. The issues of climate change, increasing political division and national populism, global income inequality, technological disruption to economies and societies, sustainability and challenges to public health are creating global instability and speeding calls for change in the current system. The ongoing global coronavirus pandemic has further highlighted many of the gaps in the current order and is in many many cases acting as a catalyst for change, highlighting inadequacies on the one hand but in some cases also pointing to potential solutions.3
The demise of the current order is being accompanied by a series of global power shifts, as the power of regions and nations rises and falls in response to the challenges presented, with the preeminent position of the US as the leader of the order under threat. A recent Sign of the Times4 looked at the past rise, current decline, and potential recovery of American power through a quantitative lens, primarily base on economic power. But while national wealth ultimately must underpin all national power, a country’s power manifests itself in multiple ways: economically, militarily, political, socially, and technologically.
Looking at the key metrics that capture these components, there are today four major power blocs that on account of their scale and/or their growth have the potential to set the rules of engagement for the coming world order: the US, China, the EU and India. These power blocs will have an outsized role in shaping the institutions and rules of the next world order. As history has shown repeatedly, who leads matters, since the leader stamps their values on the world, and we are not yet in a post-superpower era. The last global order was underwritten by a democracy, the US, and since the end of the Second World War the number of democracies in the world has increased from 12 to currently 99. America’s biggest competitor for leadership, China, is clearly not one of these and has firmly rejected political liberalism in favour of firm authoritarianism.
Across many of the key traditional metrics determining power, gross domestic product being the foremost, China is growing at a rate where it will potentially overtake America a decade or so from now. The imprint on the world that China would make, as the dominant force of the 21st Century, would lead to a very different world than one that is shaped by the other three blocs who embrace democracy, even with their different cultures and models. This month’s Sign of the Time looks at these four blocs in terms of the key metrics that are driving their power and influence in the world. With China on course to be largest economic power, the choices of the other three in term of where to compete and where to collaborate may well determine who shapes the values of the next world order, whether democracy will prevail or whether the next decade will see a handover to a world framed by authoritarianism and national self-interest. What is clear is that given the speed at which China is closing the power gap, this coming decade will be the critical one.
The Numbers Tell the Story
The numbers that are critical to understand how profound the challenge is and how obvious the answer is are in four parts: (1) The Head on Battle: The US vs. China; (2) The Biggest Emerging Super-Power Blocs: EU and India; (3) The Allied Position: The US, EU and India together, and; (4)Allies United and China: The US, EU and India vs. China.
The Quadrilateral Power Blocs in Data
Combined Scale of Four Power Blocs Determines the Future World Order
These four power blocs already effectively control the world in terms of the key economic, demographic, security and political parameters.
- 68% of the world’s market capitalisation across their major stock exchanges.
- 67% of global defence spending, with the cumulative budgets of the five largest countries outside of the four blocs (Russia, Saudi Arabia, Brazil, Japan and South Korea together representing less than 13% of global spend.
- 63% of global GDP currently generated by the four blocs a share of global output.
- 45% of the world’s population, expected to decline slightly to 40% by 2050, with India overtaking China as the world’s most populous country.
- 39% of the world’s arable land, and 31% of the land in current agricultural use globally.33
- 37% of global trade, with over US$2 trillion in trade between the four power blocs pointing to significant economic integration across the group.
The United States’ Powerful Position
Among these four blocs the United States is today the leading power given its dominant position along key economic, military, markets, technology, and innovation metrics.
- c.40% of global defence spending means that America’s advantage in terms of existing assets is even more significant, both tactically (with 50% of the world’s aircraft carriers) and strategically (with 45% of the world’s nuclear warheads). The US also exported four times more arms around the globe than the next nine countries combined, something that may clearly provide for conflict elsewhere and at home too but makes it an important ally of buyers.
- 39% of global market cap captured by US equity markets, pointing to both the depth of its financial markets (supported by the ‘privilege’ of the dollars status as the global reserve currency) and the financial dominance of US companies competing across a wide range of industries.
- US$40bn in net food exports the world’s largest exporter of food, near 8x that of China, the world’s largest producer of food in absolute terms, providing the US with both substantial food security as well as geopolitical food power, with significant influence over key global commodities.
- 39 of the world’s 100 largest digital companies are American, providing the country with a leading position in the technologies that are defining the transition to the Information Age.
- 30x lead in Nobel prizes won by the US over Chinese scientists, and ahead of Europe too, pointing to the strength of its academia and its fundamental research and science.
- 25% of current global GDP, and c.40% of the total among the four power blocs, a position it is expected to hold through the middle of the next decade at the least.
- 7x greater average wealth in the US compared to China, and nearly 3x that of Europe, albeit with substantial income and wealth inequality, with the richest 10% of American’s owning 69.4% of total wealth (the richest 10% owning 62% in China and 52% in Europe)34
- 7x the household consumption in the US compared to China, and 2x Europe’s, pointing to America’s continuing position as the world’s largest consumer.
- 7% Energy dependency, with 93% of all energy consumption produced domestically, indicating that total energy independence is in striking distance for the US, while the other blocs will need to race to tie up secure and long-term third-party sources or by develop and implement renewables and alternative energy sources at scale.
America however also has a number of important vulnerabilities that have been further highlighted during the past four years and in some cases during the global coronavirus pandemic in particular: the country’s debt at 301% of GDP is at its highest post-war levels, it continues to run a substantial trade deficit with the world at 2.8% of GDP, key quality of life metrics lag behind other industrialised nations (e.g. health adjusted life expectancy at 66.6 years) and in some cases are actually falling, and its environmental footprint at 5.4bn metric tonnes of annual greenhouse gas emissions is significant, particularly on a per capita basis, where it leads the world.
China Set to Close the Gap in a Decade
However, despite America’s continued dominance across so many metrics, China is quickly closing the gap across a number of dimensions with the potential to overtake the US in absolute terms given its sheer scale and the momentum of its ‘economic miracle’. Key metrics include:
- 15% GDP gap between China and US in 2025 is not large and is expected to close by the end of the decade.
- 10% R&D gap between China and US based on total annual spending. China is investing significantly in technology and innovation and is closing the gap in terms of R&D spending. This has already manifested itself in China taking the lead in annual patent filings (8.7m vs. 6.3m in the US).
- c.US$40 trillion less debt in China vs the US. With total US indebtedness at over 300% of GDP (vs 217% in China) the US is carrying record levels of debt, making it increasingly dependent on both low interest rates and continued economic growth to fund borrowing costs.
- 124 Global 500 companies in China in 2020, overtaking the US with 121 companies, which as recently as three years ago had a 24 company lead over China on the list. Chinese companies are more likely to set the rules of how industries work than American ones as they drive growth, valuation and financing, and other key drivers of value creation.
- 8% increase in state stability in China against a decline in the US. China under Xi Jinping has become a less free place, but also a more stable one based on increasing government control, while the country has improved its position on the Fragile State Index every year since 2013. The US has on the other hand dropped on the same index since 2016 based on political gridlock and partisanship, increasing inequality, and racial and political division.
- 1.6 years higher life expectancy in China based on health adjusted life expectancy. Despite America being the richest country in the world and having advanced medical capabilities, China’s health adjusted life expectancy at 68.2 years is higher than America’s at 66.6 years, due to the uneven access to healthcare in the US, the lack of universal healthcare coverage and significant underinsurance for 45% of Americans.35
China continues to display important vulnerabilities, despite these important and in many cases growing strengths, and lags behind advanced industrialised economies across major metrics. It is still significantly dependent on energy imports, which account for 15% of its total needs, its tertiary education enrolment rate at 53% is far below that of the US or the EU, its massive spending in terms of R&D has not yet crystallised into fundamental breakthroughs considered worthy of Nobel Prizes, and it remains the world’s largest polluter through greenhouse gases by a large margin, contributing to 24% of the world’s total emissions.
Allied Unity Provides for Democratic Leadership of the World Going Forward
Given the scale, strength and speed of China’s rise to become a major power, the world faces a potential change in world power leadership from a democratic US to an autocratic China within a decade. While it is uncertain that the US will take similar actions as it did against the Soviet Union during the Cold War in order to materially impact China’s trajectory, it seems quite certain that it will be overtaken as a standalone entity if it does nothing at all.36 By allying with the other blocs the US can materially shift the balance of power.
The EU and India provide highly complementary strengths as well as scale to both the US and to each other, pointing to the potential and to the imperative of being unified partners and allies. The power of this triple bloc of democracies acting in concert far outstrips China’s, and potentially secures democratic leadership for the world for decades to come, if not longer. Together, this triple bloc has primacy on multiple fronts that create clear water with China:
- 60% of Nobel Prizes and nearly 50% of global R&D spend (by PPP) by the US and EU, indicating a globally dominant position in R&D and technological innovation.
- 53% of global defence spending, with the three power blocs spending more on defence that China and the remaining 165 countries of the world combined, pointing to an enduring security advantage.
- >50% of Global GDP, with total economic output 2.2x that of China’s.
- 6x the number of leading tech companies in the bloc vs China, pointing to a significant lead across key digital technologies and the scale required to set standards for the world.
- c.3x the market cap of its domestic companies vs. China, or over half of the total global market capitalisation.
- 4.7x the arable land vs China, with net food exports as a bloc of US$17.5 billion annually, 3x those of China.
- 4.0x the consumption vs China, and 2.2x the consumption per capita.
- 2.2x the Number of Global 500 Companies vs China or 49% of the total group of 500 companies, representing leadership positions across nearly every economic sector.
- 1.5x the total population as China’s, with the median age of the bloc at 32.8, nearly six years younger than China’s today.
Any combined alliance of these three blocs, particularly one built on shared values, would by definition be a multi-lateral and open one which attracts other countries to participate. Such an alliance could likely count on the support of other major democracies around the world such as Japan, much of Asia, Australia and Canada, all of which have important assets and voice to bring to the table.
Ten Key Points for America’s Next President on America, China and its Allies
US leadership still matters in the world of course, but history clearly suggests that it has a time limit, and more likely and in the absence of strategic endeavours, that this limit is fast approaching.37 The scale and speed of China’s rise suggests that the US and its allies, traditionally the “West” have approximately a decade to determine whether a set of democracies set the rules of engagement for the world or whether the reins of global leadership will be held by an authoritarian regime of potentially overwhelming power. In this potential struggle the two power blocs that make up the West can look to the emerging power bloc of India, the world’s largest democracy, as a potential ally to shape the new world order to be developed.
The Rise and Fall of US Power Vs. Competitors and Usurpers in the 21st Century38
Despite the success of the previous world order and its leaders efforts to promote democracy to varying degrees over the past decades, authoritarian regimes today rule 45% of the world’s countries, indicating that it would not require much of a reversal for democracies to find themselves in the minority in the global community. Democratic reversal has always been a risk in failing or less developed states in which the institutions that underpin democratic governance have not yet been able to take root deeply. So, in a fundamental sense it cannot matter to democracies that China has risen peacefully, is a participant in major global institutions and calls regularly for international harmony; it is a role model for the success of authoritarian rule and its values as such differ substantially from democracies. These differences may well be resolved over time, but for now they matter.
However, the powerful political phenomenon of populism represents a risk to established and stable democracies as well: a poison from the inside that appeals to nationalism and identity politics, feeding popular resentment, the creation of personality cults, undermining the role of investigative journalism, academia and the political establishment and destroying the importance of facts as the underpinning of civil discourse and scientific advancement. These are all part of the toolkit used by successful authoritarians, which have been now successfully applied to democracies. The only counterbalance thus far appears to have come from the tragic impact of the pandemic which has laid bare the deficiencies that populists have in actual governance, with the governments of countries like the US, the UK, Brazil and Russia having overseen among the highest infection rates and death counts among major nations globally.39
For the US in particular, it has yet to be seen if the phenomenon of populism will die when Donald Trump leaves the White House. It is clear that many of the isolationist, transactional elements of America First are features that appeal to roughly half the voters in America and politicians will seek to gain their favour in the future. This matters because the populist vision or America First cannot be a rallying call for its allies to support it as the world’s leading power and the arbiter of global affairs. It would force a divided world where China would have the easiest ride to great power. However, President elect Joe Biden has clearly repudiated America First and publicly committed to resuming leadership in the world, embracing allies, confronting adversaries and standing up for shared values.40
For the US to secure its position of world leadership (and enjoy the fruits of that at home), its leaders, including the losing party, will need to consider that its divisions risk its future. A series of insights from the analysis above are important:
- Reality of Four Power Blocs. Given the strength and/or the trajectory of their positions across key global economic, military and security and social factors, the four power blocs as a group will continue to be the key shapers of the world for a generation or more, although the relative power of the four blocs themselves may shift significantly during this period. Approximately 40-70% of world GDP, military, demographics are in the hands of these four.
- American Power Still Undisputed Across Key Metrics. America has leveraged its historical position as the world’s largest economy to amass scale and power well in excess of its current share of global output, with key aspects of its leadership (e.g. of its military or financial markets) expected to endure for a time despite its relative economic decline. The US still controls c.40% of the world’s financial markets and military power and 25% of the global economy.
- US Facing Internal Challenges Threatening its Position. Political turmoil, increasing inequality and political and social division in America are reducing its ability to exercise effective leadership in the world and threatening its position, thereby creating a vacuum for others to fill. The US’ score on the Fragile State Index has declined every year since 2016 dropping ten places (to 30th place currently) based on political partisanship and gridlock and a growing racial divide with civil unrest.
- China has Risen Quickly and Effectively Along Multiple Power Vectors. At the same time China’s scale has reached the point where it can no longer be contained by any other power bloc acting alone. China has a small (c.15% or less) gap to America in GDP, total trade, and R&D spending, closing fast.
- Tripartite Bloc Highly Complementary. Partnerships between the US, India and the EU are highly complementary across nearly every dimension, with the US supplying a current leadership base, the EU adding further scale to create a dominant position, and India providing demographic and growth momentum for the future. This Tripartite Bloc is currently home to c.50% or more of the world’s GDP, market capitalisation, leading companies and Nobel prize winners.
- Clear US Leadership of the Blocs Across Key Areas. In some areas the US will continue to be an effective sole leader directing its allies, for example in continuing to underwrite global defense and security (despite increasing commitments to military spend and action from its partners) and its financial system and currency, for now, underwriting global economic development. US equity markets and defense spending alone is 2.5-3.5x larger than the EU and India’s combined.
- Innovation Partnerships for Energy and Technology. Making the necessary breakthroughs in energy and technology that will determine the next world order and will require significant coordination and collaboration across allied power blocs, which together also have the scale to determine global standards. About 27% of the total energy needs across the three blocs is still reliant on imports.
- Multi-dimensional Nature of Future Competition (and Conflict). America’s (and its allies’) enduring defence advantage means that any future conflict with China bears a much lower risk of military escalation than the Cold War did, with any future conflicts likely to be highly asymmetric and incorporate elements of economic, cyber and information warfare. The Tripartite blocs have combined defence budgets 3.8x China’s.
- Continued US Leadership Requires Multiple Breakthroughs Too. For the US to re-establish its global primacy it will need to make a number of significant and parallel breakthroughs in energy, technological innovation, its political system and governance, social and racial equality and new economic model, all within the next decade.
- Unanimous Action Still Required on Key Global Issues. Any potential future competition or conflict notwithstanding, there are a number of global issues that the four power blocs will need to work together on to underwrite the world’s continuing peace and prosperity, such as climate change, nuclear proliferation, global health issues and existential risks from technology. This provides the path to a soft-landing for the world whereby the four power blocs learn to live and work together.
Conclusion: Reclaiming Leadership for Democracy
America has been the sole great power for nearly three decades. Inevitably, others have risen in its wake and are catching up. The foremost of those is China. As an autocracy and a challenger for global leadership, it holds the biggest threat to American power, to the other two power blocs, the EU and India, and also to democracies worldwide. This threat does not arise from China actively threatening anyone. Indeed, China continues to tout its peaceful rise and has called for world harmony. The threat comes from the success of an autocracy in a world that has fought hard for its freedoms and today supports democracies across just over half its countries.
America’s lack of leadership of democracies during the last administration poses a threat to whether it will be fully capable of quickly stepping back into its previous position of world leader. The notion that international issues can be solved from a position of weakness at home and that negotiating win-lose deals against both allies and foes, is one that has left its allies suspicious of America not just the incumbent president. In addition, despite the incoming administration’s intentions, America today lacks a clear path to renewed (sole) leadership of the world with demographics, globalisation, the diffusion of technology all leading to its relative decline in the world. Atop these is also the fundamental challenge of America having built the most advanced domestic populist infrastructure including politicians, the media, and the electoral process itself and so it faces the dual challenge of fighting at home while fighting the biggest rival abroad.
While no leading power in history has been able to reverse its inevitable decline, the US is uniquely placed to reinvent itself as a leader that is fit for purpose for the 21st Century, innovating a sustainable and cheap energy source in the world, implementing an inclusive and equitable model of growth, and developing practical solutions for the management of global commons. Such a transformation will of course take time and is one that America cannot likely complete while fighting rear-guard actions as a relatively declining power in the world.
The US will therefore need to find partners to share the burden, with America exercising multi-lateral leadership of a group of like-minded allies aligned around shared objectives and ideally shared values; first among allies. Based on the shifting dynamics of global power, the EU and India represent the most significant potential partners for the US, each embracing liberal democracy and free markets as core values. Partnering with these countries provides the US with the critical economic, demographic and political mass required to exercise continued leadership in the world.
However, any actions, whether uni- or multi-lateral, that seeks to preserve US leadership and the prevailing of democracy as the form of governance for the majority of the world to follow will need to recognise that China’s absolute rise cannot easily be stopped. The Soviet Union was easier to contain since its economics were founded on an economic and financial system that was fundamentally flawed. This is certainly not yet true of China, whose state-led capitalist model which also freely accesses foreign markets has delivered success to date, despite questions about its longer-term viability.
So, following decades of breakneck economic development, China has emerged as a middle income that is set to continue to grow into the world’s largest economy. Further, despite decades of political engagement and economic integration with liberal democracies, China has firmly repudiated liberalism at home and embraced a very different form of state capitalism over the free market version prevalent in the West. The stage has therefore been firmly set for China to emerge as an authoritarian hyperpower for this decade and potentially longer.
What is also clear from both history and current experience is that no party will benefit from conflict, whether of the military kind or of the economic kind over a prolonged period. Despite the clear US military advantage both sides have the “arms” – which will be economic, trade and corporate, rather than military - to fight for long and inflict real damage on each other. While confrontation is unavoidable, the goal for America and its allies needs to ideally be a peaceful one, where they underpin global prosperity and freedom, promoting their own values in the world while living and working together with countries that do not share them. Such a strategy would seek to co-opt rather than coerce, and while China may be beyond the reach of such efforts over the near to medium term, they would likely have a significant impact on many other authoritarian countries around the world. Ultimately, a global order based on any other premise would be a step back for the world into a darker period and one that would likely fail the world at large.
- Source: IMF World Economic Outlook, October 2020
- Source: Pew Global Attitudes Survey Summer 2020
- See the June 2020 Sign of the Times: The Coronavirus Pandemic Part III: The World Emerging from this Crisis
- See the August 2020 Sign of the Times: American Power: Mapping its Rise and Calculating its Fall (and Return)
- Source: IMF World Economic Outlook October 2020
- Source: WTO
- Source World Bank
- Sources; Eurostat, US Bureau of Economic Analysis, WTO
- Source: BP Statistical Review of World Energy 2020
- Source: ibid
- Source: World Bank
- Source: World Bank, Eurostat
- Source: CIA World Factbook
- Source; Capital IQ
- Source: World Bank
- Source: Fortune
- Source: World Bank, IMF World Economic Outlook October 2020
- Source: Global Carbon Project
- Source: IMF World Economic Outlook October 2020
- Source: UN World Pop Prospects. EU data is for Europe
- Sources: Eurostat, World Bank
- Source: Ibid
- Source: Ibid
- Source: Credit Suisse Global Wealth Report
- Source: WHO
- Source: UN Office on Drugs and Crime's International Homicide Statistics database
- Source: SIPRI
- Source: 2020 Fragile States Index;
- Source: Various
- Source: Royal Swedish Academy of Sciences
- Source: UNESCO
- Source: Forbes
- Source: History Database of the Global Environment 2017
- Sources: Statista, Household Wealth in China, Chin Sociol Rev. 2015; 47(3): 203–229.
- Source: The Commonwealth Fund
- See the August 2020 Sign of the Times: American Power: Mapping its Rise and Calculating its Fall (and Return)
- See the April 2020 Sign of the Times: The Coronavirus Pandemic: A Global Test of Resilience, Leadership and Values
- Quote: It’s a team that reflects the fact that America is back, ready to lead the world, not retreat from it,” Mr Biden said. “Once again sit at the head of the table. Ready to confront our adversaries and not reject our allies. Ready to stand up for our values.”
The Agenda for America’s Next President, and the Critical Significance of this Election