HAMISH MCRAE: Do not underestimate the US

It’s the weekend of the G20 summit in New Delhi, and it is a reminder of where power really lies in the world. America is still very much top dog.

Just about every leader is there. Joe Biden is, of course. Rishi Sunak is there, billing himself as ‘India’s son-in-law’. His wife, Akshata Narayana Murty, is Indian commercial aristocracy, daughter of one of the founders of software giant Infosys. Indeed, just about all the leaders of the big economies are there, bar two.

One absentee is Vladimir Putin. The other is Xi Jinping. While it is not hard to see why the Russian president is not there, the absence of China’s leader seems odd, all the more so since he went to the BRICS economic summit in South Africa last month. The G20 encompasses some 80 per cent of the world economy. The BRICS – that is Brazil, Russia, India, China and South Africa – about 30 per cent.

So why send your number two, premier Li Qiang, to the most important economic meeting, and go yourself to the less important one? The best answer surely is that China can boss around the BRICS, for it is by far the largest economy there, but it has to play second fiddle to the US at the G20. Indeed, it is trying to build up the BRICS as a rival body, so that when it passes the US as the world’s largest economy, it can also dominate global economic debate.

New members of the BRICS group joining next year do include some countries allied to the US, including Saudi Arabia and the UAE. But they also number Iran. And while the G20 covers the whole developed world – the UK, Europe, Canada, Australia, Japan and so on – the BRICS explicitly excludes developed nations.

Challenge: Even if China did pull past the US in the 2040s, it would be by only a small margin and the US would probably regain top position later this century

It is easy to see what is going on, but China’s strategy makes sense only if it does pass the US to become number one. Until a few months ago, that was the expectation of most economic forecasters, the main debate being whether this would happen in the next ten years or if would take a bit longer. But now that assumption is being increasingly challenged.

For example, last week a study by Bloomberg Economics suggested that even if China did pull past the US in the 2040s, it would be by only a small margin and the US would probably regain top position later this century. Indeed, I think it is quite likely that China will never become the world’s biggest economy. If that turns out to be right, it changes everything.

Why the shift in view? It is partly because of increasing evidence that the Chinese economy is in trouble: slowing growth, falling exports, huge debts, and a property crash of monumental proportions. It is partly because America is trying to stop its technology being sold or copied by Chinese firms. But most of all, it is because China’s population seems to be falling much faster than was previously expected.

India has just passed it as the world’s most populous nation and it is possible that it may decline from more than 1.4 billion people now to 800 million by the end of the century. Or maybe even fewer. 

Fertility rates are way below the replacement rate, for though falling births were originally triggered by the one-child policy, now relaxed, Chinese women are choosing to have far fewer children than not just their counterparts in the US, but those in Britain and Western Europe too.

China will still have a lot of people, but most of them will be retired. They will need to be looked after by shrinking numbers of young. The US, by contrast looks like it is carrying on increasing its population, and hence its workforce, far into the future.

What does all this mean for the rest of us? For a start we should recognise that the US is likely to lead the 21st century just as it did the 20th. That is good news for the UK, for let’s remember that the US is our largest source of inward investment and our largest single export market. But it will be difficult for countries that have become overly reliant on Chinese sales, notably Germany, which is losing market share in cars.

But most of all, we should be aware that there will be another rival power that we will all need to respect and work with, and that is India. I have seen some projections that suggest it might even become the world’s largest economy, but there is not much doubt that it will become number three, behind the US and China. That creates interesting opportunities for the UK, given the long, sometimes warm, sometimes difficult, relationship with the sub-continent. We will get no special treatment, nor should we expect it. But it is a partnership that could work very well for both sides.

This post first appeared on Dailymail.co.uk