MARCO BOUWER: The rapid configuration to a new global economic order

It’s a been nothing short of a rollercoaster ride in world economics since Donald Trump took office in January.

In two short months his swashbuckling policy shifts have shocked the old system, while his trade tariffs have wreaked havoc on long-standing trade relations with friend and foe.

Washington’s actions have escalated the US-China trade war, caused monumental shifts, and forced on the world a reconfiguration of global trade policies and age-old economic alliances.

Nations worldwide have been reassessing their trade policies and security strategies to minimise the economic risk and limit exposure to the trade tensions between these superpowers.

The truly astonishing effect of Trump’s “America First” policy, which is upending the economic order, has been the speed at which nations have been reconfiguring new trade and security alliances. Countries have swiftly changed course, found new trading partners, and realigned their policies to reduce dependency on the US.

A new world economic order is taking shape. This in itself is not a complete surprise. China’s meteoric growth has always threatened to upend the status quo and shift the global power dynamics. The country was initially seen as a marvellous growth opportunity for corporate America. However, its unfair trade practices, among other red flags, eventually prompted the Obama presidency to identify it as a growing threat.

Among other initiatives, Barack Obama created the Trans-Pacific Partnership with China’s neighbours, to keep its rising power in check. While Trump initiated the trade war with tariffs in 2018, it should be noted that it was also continued under the Biden administration. In addition, US domestic issues and a growing sociopolitical divide has pre-empted the change.

It can therefore be said that Trump’s tariffs merely accelerated the changing global economic order. Leaders and governments around the world were bracing for an escalation of the trade war when Trump entered the oval office a second time. 

Brics members’ strategic manoeuvres

The Brics member countries have been moving to reduce their dependence on the dollar, with discussions centred on a possible shared currency or common payment system. This challenge to the dollar’s dominance prompted Trump to threaten the five founder member countries with a 100% tariff hike on all imports.

At the time of writing government officials from four of these countries have confirmed that a common currency will not be pursued. At least not for the time being. South American countries, specifically Brazil, have emerged as a major agricultural exporters to China, with the US being circumvented.

This is a wake-up call for SA, which should be staking its claim to increase exports to China. According to the Word Economic Forum, India and the EU are close to signing a new free trade agreement. The deal could be the largest of it’s kind, as both countries are pushing hard for alternative partnerships in the midst of current economic tensions.

Simultaneously, India has resumed negotiations with New Zealand towards a free-trade agreement to strengthen economic ties and improve mutual market access.

Global economic and security realignments

Similarly, the big news recently was the EU’s $5.1bn investment towards SA’s green energy transition. This announcement came after the US withdrawal from the Just Energy Transition Partnership (JETP), a multibillion-dollar initiative to help coal-dependent economies transition to low-carbon, lower emission systems. The EU and its partner nations have since chosen to move ahead with the programme without the US, in support of key beneficiaries such as SA, Indonesia and Vietnam.

In another show of speedy adaptation to the changing landscape the Philippines has been actively seeking new defence partners. Reports of current talks are under way with the UK, Canada and Japan. The country is vulnerable without US military protection, as a number of minor incidents in past months has escalated tensions in the South China Sea.

The EU member countries have been quick to increase budget allocation towards defensive measures, as reliance on US military support seems to be evaporating. Like other West European nations, Germany’s newly elected chancellor, Friedrich Merz, has announced a plan for significant defence spending, aka rearmament. “Germany is back,” he said.

For the EU, it also includes enhancing Pesco, the European Defence Fund and permanent structured co-operation in their post-America reality. Elsewhere, new Canadian prime minister Mark Carney visited France and the UK recently to strengthen long-standing security and economic relationships in response to US economic measures.

China’s resilience and market dynamics

While the US trade tariffs are pushing nations away, it seems to be boosting China’s trade and domestic economy. The Chinese economy is demonstrated resilience during the escalating trade war. While the US stock market is experiencing declines, with the S&P 500 dropping by 10.1% in one week recently, Hong Kong’s Hang Seng index has surged 20% year-to-date, outperforming both the American and European markets.

This could indicate China’s growing appeal as a robust market amid global economic shifts. The irony is that the US tariffs are pushing other countries towards China as an alternative trade partner.

SA is strategically positioned to leverage the opportunities offered by Brics as a trade platform, while reducing traditional reliance on the dollar. However, this will require smart policy decisions to ensure long-term economic growth. Trade agreements with China should offer sustainable benefits for SA citizens, while dependence should be avoided.

As all nations are scrambling to reduce dependency on the US and build beneficial, diversified partnerships, new pacts are being created. We are seeing a new post-American multipolar global economy being formed. It is an opportunity to reconfigure alliances with these emerging economic blocks and negotiate for stronger positioning for SA in the world market.

The void being left by the US gives room for China to grow its influence, a country with very different political and economic objectives. Its stated national aspirations are to take its rightful place as a superpower, an agenda the Chinese Communist Party has been proclaiming for decades.

How will Chinese soft power look to the nations of the world? What will be the new rules? It remains to be seen. What a time we live in.

• A former Cape Town news reporter, Bouwer is a marketing communications expert focused on the Chinese consumer market. He currently facilitates trade between China and SA.