The US is throwing away its world leadership; will China fill the gap?
In the past, this column has pointed to a transition in the world order, as the American hegemony weakens. It was uncertain how the resulting multipolar world – with none of China, the European Union, India or the US able to dominate – might function.
The transition is proving trickier than expected. Previous US presidents –the two Bushs, Clinton, Obama, Biden – kind of recognised the declining US hegemony and did their best to manage the consequences. Donald Trump’s recognition has been more explicit, as the final word in Make America Great Again indicates. But the explanation of the decline, a failure of American will, is crude, nostalgic and wrong.
The relative decline in US economic power in the postwar era was inevitable as the West recovered from the devastation of war and as everyone – including post-colonial countries – took up the opportunities to adopt top-of-the-line technologies. Ultimately it may be that population will determine economic power, subject to the ability of a country to organise itself and modified by its natural resource base. The populations of India, China, Pakistan, Nigeria and the Congo are expected to exceed the US and EU populations by the end of the century.
The US economy is now smaller than China’s; the EU is about the same size, and India is catching up. The US military remains more powerful, accounting for over a third of total global defence spending with significant advantages in technology, naval power, and overseas presence. Even then, the US is proving stretched for policing the whole world; no other country even tries. Trump implicitly acknowledged this when he demanded Western Europe increase its military spending. Meanwhile, the US is having trouble dealing with Iran whose economy is only one twentieth of its size. (Ukraine’s is about a tenth of Russia’s.)
The third dimension of the world order is soft power – moral and cultural leadership. Canadian prime minister Mark Carney summed up at Davos 2026:
‘For decades, countries like Canada prospered under what we called the “rules-based international order”. We joined its institutions, praised its principles, and benefited from its predictability. We could pursue values-based foreign policies under its protection. We knew the story of the international rules-based order was partially false. That the strongest would exempt themselves when convenient. That trade rules were enforced asymmetrically. And that international law applied with varying rigour depending on the identity of the accused or the victim. This fiction was useful, and American hegemony, in particular, helped provide public goods: open sea lanes, a stable financial system, collective security, and support for frameworks for resolving disputes ... [We] largely avoided calling out the gaps between rhetoric and reality. This bargain no longer works.’
Trump has destroyed any US claim to soft-power leadership by displaying the raw power of the hegemon without any attempt to disguise its brutality, so alienating its democratic friends. Argentina aside (the US promised financial support), US backed candidates are losing elections; even the hard-right Prime Minister of Italy, Giorgia Meloni, is backing off Trump. The world will not forget the gaps between rhetoric and reality, even if future US presidents take a more conciliatory line; a Franklin Delano Roosevelt could not recover America’s claim to moral leadership.
The transition from British to American hegemony was not always easy, but it was slow. Under Trump the transition to the next world order has accelerated. In a slower transition, India would become more powerful; Narendra Modi’s economic leadership, building on the foundations set by Manmohan Singh, has been bravely impressive. (Modi’s treatment of the non-Hindus has been just awful.) Given a longer timeframe, the European Union would have strengthened its economic governance. The transition is happening so fast that, as Carney said, ‘we are in the midst of a rupture, not a transition.’ Trump’s precipitant actions are enabling China to take a greater role in world leadership.
We should not get too taken with the Chinese economy. It has certainly been very successful, but it has not shaken off its housing industry crisis. Moreover, it seems to be moving into the more challenging phase of development where technology is innovated rather than borrowed (some Chinese innovating is impressive). There are also major population challenges as a consequence of its previous precipitant one-child policy. Its labour force is already contracting while the ageing population is growing. Internationally China has been smarter at hiding its gap between ‘rhetoric and reality’.
Transitions – even slow ones – are not helped by the inertia of nostalgia. The British students I taught in the 1960s were still imbued with the glories of the British ‘Empire’ despite the clear evidence of the diminished strength of Britain. (Perhaps the seminal moment was during the Suez crisis of 1956, when the Anglo-French forces had to withdraw because the Americans told them to.) I thought the illusion would wear off but the Brexit vote and the rise of Reform was about those who thought Britain is big enough and strong enough to go it alone.
MAGA is the US equivalent nostalgia. It is likely to be with us for a very long time, even if Trump ends up with a terrible domestic reputation. While future presidents may be more enlightened, Congress will still have a sizeable rump of the nostalgic and isolationist.
New Zealanders can also be nostalgic. This may be legitimate towards Mother England some generations back, but today’s England is a second cousin, as are Ireland, Scotland, Wales, continental Europe, and East, South and Southeast Asia. (First cousins are Australia and Polynesia; there are a lot of valued third cousins.) The danger is that we think there is still an imperial mentor we can tuck in behind. Or the nostalgia which pretends we can isolate ourselves from the world – promoted by those who are just as dependent upon imports as the rest of us are.
We are currently debating a Free Trade Agreement with India. Such deals are exchanges. The neoliberals threw away most of our negotiating cards when they unilaterally abolished almost all of our border protection. (They thought the gains would be such that other countries would follow. They didn’t. Neoliberals supporting Brexit made the same mistake of assuming huge static gains.)
Any deal involves making concessions in return – hence our visa concessions. Admittedly, there are FTAs where the other parties appear to have acted generously towards us, but India has been a tough negotiator with everyone. And sure, we are not getting much on the dairy front – no country has.* But we are getting access to other parts of the fast growing and huge Indian economy.
We already have FTAs with China and the EU. That leaves the US. I am for one except, as we saw with the TPP, the US is so domestically isolationist that they will screw tiddlers like New Zealand – they did Australia. Our best chance of an FTA with the US will probably come from a plurilateral deal in which a number of countries jointly negotiate.
After the Indian deal is settled, New Zealand will have to focus on addressing the new global order, with China the hegemon (almost) and most countries struggling with the rupture – probably leading to plurilateral cooperation. Cross fingers that – despite the posturing – we have politicians that lead.
* Econ101 says that India would be better off if it liberalised international access to its dairy markets (providing the released domestic resources were redeployed). Econ201 says that not all Indians would be better off. Urban Indians would get cheaper high-quality dairy products, but dairy farmers would suffer. However, the better-off could compensate the worse off so in total everyone could be better off under the deal. Econ301 points out that the Indian government has no means of compensating the large and politically significant dairy industry (or of ensuring that it will be redeployed). No one has resolved the Econ401 challenge of a feasible solution to Econ301.