While the “first decade and a half of globalisation was largely driven and shaped by the United States and Europe,” tomorrow’s world will be multipolar, with rising powers posing both opportunities and risks for the transatlantic economy, writes Joseph Quinlan, chief market strategist at Bank of America Capital Management, for the German Marshall Fund of the United States.
His October paper argues that the transatlantic economy will remain “one of the largest and most powerful economic entities in the world in 2025,” but predicts a shift in world economic power as the figures for global output in purchasing power parity terms, currently 60% for the developed world and 40% for developing countries, are reversed.
The US and the EU will both lose ground as global manufacturing output shifts towards emerging nations and their new corporate actors begin to challenge American and European players, Quinlan predicts. Moreover, nations outside the transatlantic structure will seek more influence in multilateral institutions as their increasing capital and natural resources lend them more weight. New international alignments can be expected as a result of the rise of China, India, Russia and Brazil, he observes.
Globalisation is nevertheless not a “zero-sum game,” the paper recalls, warning that trade and investment protectionism would only be to the detriment of global growth. Transatlantic relations must be transformed to embrace the benefits of facilitating integration of developing countries into the global economy.
Quinlan recommends that the EU and the US identify mutual interests with developing countries and step up cooperation, citing climate change, energy security and aging populations as possible areas where joint efforts would be beneficial to all parties. Developed countries should also engage China and other key developing states in multilateral organisations, including the International Monetary Fund and the World Trade Organisation, to coordinate global macroeconomic policies, he adds.
Next, Europe and the US must further strengthen their partnership, as removing the remaining barriers to trade would significantly improve the competitiveness of the transatlantic economy, the paper states.
Finally, both the EU and the US must tackle their own economic issues to build confidence in their economies, Quinlan concludes, suggesting that the US increases its national savings rate and reforms its social security system, while calling on the EU to reform its labour market and implement the Lisbon growth and jobs agenda.