Early in the COVID-19 pandemic, I argued in an article for Foreign Affairs that in the 2010s, the United States had defied predictions of its imminent decline and instead risen to new heights as an economic superpower. This revival, I warned, was in its very mature stages and likely to end in a long hangover. If the United States had been the comeback nation of the last decade, the 2020s would belong to the rest of the world. Two years on, the pandemic and the Russian invasion of Ukraine are solidifying that forecast by accelerating trends that could erode U.S. preeminence. Debt is rising faster in the United States than in most other countries. Inflation is running well above the global average. And many nations, observing the crippling effect of U.S. sanctions on the Russian economy as the war rages on in Ukraine, are looking for ways to reduce their dependence on the mighty dollar, which is the foundation of the United States’ position as the preeminent financial superpower.

Potent economic booms often lead to politicians and economic stewards losing discipline and pushing their economies off the rails. The U.S. boom of the 2010s was unexpectedly potent: for the first time since record keeping began in the 1850s, the United States experienced a full decade without a single recession. Growing faster than many other economies—developed and developing—the United States saw its share of global GDP expand from a low of 21 percent to 25 percent over the course of the decade. Its share of global stock markets expanded even more rapidly, from 42 percent to 58 percent. Average incomes in real dollar terms started the decade 26 percent higher in the United States than in Europe and finished more than 60 percent higher. U.S. business and consumer confidence hit highs last seen in the 1960s. 

Having staged a comeback in the 2010s, the United States is unlikely to repeat the feat in the 2020s. Hot decades often lead to downturns. Witness how the U.S. boom of the 1960s ended in the malaise of the 1970s; the boom of the 1990s ended in the dot-com bust, with the United States leading the world into two recessions in the first decade of this century. The boom of the 2010s was already showing fissures when the pandemic came along and wrenched those cracks open. 

This is not to say that the United States will necessarily decline in the coming years—nor that China will surpass it and take the helm of the global economy. What is more likely is that the United States will have a mediocre decade, stagnating rather than expanding. It is a victim of its own success after such a strong comeback. The markets appear to sense this impending shift: despite the shadow cast by the war in Ukraine, seven out of every ten emerging stock markets are outperforming the U.S. market so far in 2022. China also faces similarly daunting debt burdens, which are compounded by the challenges of a rapidly aging population. The winners of the next decade will likely emerge from other parts of the globe—and that process may have already begun.

THE PERILS OF EASY MONEY

I wrote in 2020 that the United States was taking its success for granted by not responding to mounting threats from debts and deficits. Over-indebtedness has historically posed an existential threat to financial empires, but rather than attempting to chip away at the federal government’s arrears, Washington has instead upped its borrowing. In the spring of 2020, flush and confident in the wake of its decade-long boom and facing arguably the worst global economic downturn since the Great Depression, the U.S. government rolled out the most generous stimulus package of any large economy in response to the havoc wreaked by COVID-19, pushing its debts to new heights. Easy money gushed from the U.S. Federal Reserve into the financial markets, and from there to the .01 percent of the country’s economic elites, widening inequality and the U.S. financial system’s growing addiction to debt. This approach further accelerated the rise of monopolies, since easy money gives the largest companies both the incentive and the means to buy out the small and tighten their grip on industries. It also accelerated the rise of “zombies”—firms that do not earn enough to service their debts and survive only by taking on more debt. Labor productivity briefly surged in 2020, as workers still on the job scrambled to make up for those who had been let go as a result of the pandemic-induced recession, but it is now fading. 

And the outlook has only gotten worse. The federal government and U.S. corporations are currently so deep in debt that it is hard to imagine how they can further boost the economy, especially as interest rates are now rising. In 2010, the United States owed the rest of the world $2.5 trillion, a sum equal to 17 percent of U.S. GDP. By early 2020, those liabilities had risen to $12 trillion, or well over 50 percent of GDP—a threshold that has often triggered currency crises in the past. They now stand at $16 trillion, or 70 percent of GDP. Zombies, which barely existed 20 years ago, now account for as many as one in five U.S.-listed companies. 

Many Americans, including U.S. President Joe Biden, ignored the underlying decay of the U.S. financial system and interpreted the recovery of 2021 not for what it was—a bounce off the depths of the 2020 recession—but as the sign of another hot decade to come. Optimism seized the stock markets as millions of Americans started trading for the first time. Relative to other markets, the U.S. stock market rose to a 100-year high in 2021, reflecting unbridled confidence in the American future. Such giddiness makes it only more likely that history will repeat itself: the boom of the 2010s will wither and the 2020s will prove far less great than the previous decade was for the United States. 

AN EMERGING MARKET DECADE

Should the United States turn from boom to bust—or simply drift sideways for a period of time—the winners may well be emerging economies outside of China. Though the pandemic and the war in Ukraine are deepening a sense of gloom about the prospects for developing nations, many of these countries are likely to thrive in the coming years. Most nations in Africa, Latin America, and the Middle East are large commodity producers, and their exports will be more valuable as the world reduces its dependence on supplies from Russia.

Even before the Russian invasion of Ukraine, emerging economies driven by exports of oil, metals, farm products, and other commodities were poised to rally. The campaign to build a greener global economy has simultaneously increased the demand for energy and raw materials while making it increasingly difficult to invest in new oil fields, aluminum smelters, or copper mines. The result has been what is known as greenflation—a rise in commodity prices driven by environmental pressures—which could last for much of this decade, with new supplies entering the global market very slowly. This new commodity up-cycle should lift the fortunes of major exporters such as Brazil, Saudi Arabia, and South Africa.

To be clear, I am not predicting a return to the first decade of this century, when a perfect storm of global forces including rapidly expanding trade and rising commodity prices simultaneously accelerated growth in virtually all emerging economies. That was a freakishly unusual synchronized boom, but it led nonetheless to forecasts of a coming “emerging market century.” I demurred in these pages, arguing in 2012 that excess and complacency had left the big emerging markets such as Brazil and Russia broken—and the United States poised for a comeback. That is ultimately what happened in the 2010s: emerging markets, save for China, dwindled and lost shares of both global GDP and global markets, while the United States grew ever stronger as a financial superpower.

It is the turn of smaller powers—not superpowers—to stage a comeback.

The global economy of the 2020s is different. The excesses created by boom times in the United States are matched by pockets of strength in the emerging world, in regions ranging from eastern Europe to Southeast Asia and in industries such as manufacturing, natural resources, and digital technology. These possibilities have largely been overlooked because, in the past, emerging world success stories were confined mainly to export manufacturing economies such as Taiwan, South Korea, or China itself. Now, with both exports and manufacturing shrinking as a share of global GDP, this path is increasingly narrow—but it is not closed. As factories seeking cheaper labor or shorter shipping routes move out of China, they are providing a big boost to a select few countries, such as Bangladesh, Cambodia, and Vietnam.

Nothing inspires reform like a crisis, and a crisis on the scale of the pandemic was bound to force a major wave of reform. Emerging nations couldn’t borrow and spend to ease the pain the pandemic inflicted on their economies the way the United States did. Instead, many were forced to adopt reforms that ultimately should boost productivity and growth. India has been privatizing some of its inefficient state-owned enterprises, Indonesia has cut taxes and eased labor laws, and Saudi Arabia is loosening immigration barriers. Similar reform campaigns are underway in Egypt, the United Arab Emirates, and other emerging nations. 

The pandemic is also accelerating the digital revolution, which was already unfolding with more transformative impact in emerging economies than developed ones. Since consumers in emerging economies are less likely to have access to brick and mortar businesses, they are moving much more quickly to adopt mobile Internet services, from digital cash to online education and shopping. Digital revenue not only accounts for a higher share of GDP in emerging economies than developed ones, it is also growing faster: India, for instance, is home to as many new technology companies today as is France or Germany. In regional markets from Africa to Asia, the dominant brand names in Internet service industries such as e-commerce and search are often those of local players, not familiar U.S. giants such as Amazon or Google.

None of this means that American declinists will finally be proved right, particularly since their standard narrative is that the United States is losing ground to China. Measured in real U.S. dollars, the United States still accounts for about a quarter of global GDP—the same share as in 1980. China’s rising share has come largely at the expense of Europe and Japan, and declinists overlook the fact that China faces its own huge debt problem, magnified by the challenges of an aging population and shrinking labor force. These signs point to a flat decade for both superpowers, creating an opening for emerging markets to make significant gains.

COMEBACK NATIONS

Many analysts dismiss or ignore the budding economic success stories of the developing world out of an attachment to a bygone era. They compare growth today to the unusually high growth rates achieved in the post-World War II decades, when the world was in the midst of a demographic and productivity boom that makes every economy today look sluggish in comparison. Developed or developing, all economies now face the challenges of slower population growth, declining productivity, and higher debt burdens. Growth is likely to be slower everywhere in coming decades, but success is always relative. An era of slow global growth will still give rise to relative winners and those will still be found mainly in the emerging world.  

As the global economy enters this new era of multipolar growth, the United States would be wise not to succumb to tunnel vision in foreign policy. The Ukraine war has only narrowed the familiar debate over which foreign rival the United States should focus on more, China or Russia. But the old superpowers are not among the economies most likely to gain on the world stage in this decade. The United States will see the rise of new economic challengers—or partners— in countries such as Poland and Vietnam, driven by manufacturing and tech; Brazil and Saudi Arabia, fueled by commodities; and India and Indonesia, propelled by digitization and a dash of economic reform. A foreign policy that neglects these potential players would be shortsighted. All these nations stand to gain from the pattern of history, which often leaves the hottest economy of one decade cool to the touch the next. It is the turn of smaller powers—not superpowers—to stage a comeback.

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