Not long ago, “most governments had believed that closer economic integration would promote long-term prosperity. Now, integration is seen as a source of risk and insecurity.” This is how London-based Capital Economics introduces an intriguing analysis of “the shape of the fractured world economy in 2024”. Economics and politics always interact. Today, however, politics has become more important. Its concept then is of a global economy being reshaped by fraught relations between the US and China.
Capital Economics argues that countries can be divided into five groups: the US and its close allies; countries that lean towards the US; the unaligned; those that lean towards China; and China and its close allies. The first group consists of the US and Canada, Europe (except Hungary), Japan, Australia and New Zealand. The second group includes, above all, India, but also Colombia, Mexico, Morocco, Turkey and South Korea. The unaligned group includes, significantly, Brazil, Indonesia and Nigeria. The group of countries leaning towards China includes Argentina (true, until a few days ago!), much of Africa (including South Africa), Iraq, Kazakhstan and, suggests Capital Economics, Saudi Arabia. Finally, China’s strong allies include Russia, Iran and Pakistan.
A fundamental distinction exists between the first group and all others. The high-income democracies share core values (although whether they continue to do so will depend on the results of the 2024 US presidential election). The other groupings are defined far more by what they are against than what they are for. Russia and Iran are allies of convenience for China, and vice versa. They share an enemy. But they are still very different from one another. Yet such alliances of convenience can shape both economic and political relationships. The enemy of my enemy may, for a while, indeed be a good friend.