The world’s economic center of gravity is on the move again, and this time it’s heading east. After decades of Western dominance, the fulcrum of global economic activity is returning to Asia, driven by the rise of powerhouse economies like China, India, and Indonesia.
Fueled by state investments, booming household consumption, and rapid technological progress, they’re posting impressive growth rates and leaving the West in their dust.
China, in particular, has become a case study in successful development. Its unique blend of socialist-inspired policies and market dynamism has propelled it to the forefront of the global stage. Yet, mainstream institutions like the IMF and OECD struggle to comprehend this model, clinging to outdated frameworks that fail to capture the nuances of China’s rise.
A Journey Eastward
The implications of this eastward shift are vast. It means a redistribution of power and influence, with Asian perspectives and priorities taking center stage.
For much of history, the West reigned supreme. Europe and North America were the engines of economic growth, their industrial might and vast resources tipping the scales in their favor. The center of gravity hovered somewhere between these two continents, a reflection of their economic dominance.
But the 20th century witnessed a seismic shift. The rise of Asian tigers like Japan and South Korea, followed by the meteoric ascent of China, began to pull the fulcrum eastward. By the turn of the millennium, the center of gravity had crossed the threshold, settling somewhere near the Caspian Sea.
The Age of Asia
Today, the world’s economic center of gravity is firmly planted in Asia. China, the world’s second-largest economy and a manufacturing powerhouse, holds immense sway. With its huge population and growing middle class, India is another key player. Southeast Asian nations are also rapidly rising, their economies fueled by a combination of cheap labor, abundant resources, and strategic trade agreements.
This eastward shift has profound implications. It means that the locus of global economic power is no longer in the West. It means that the rules of the game are changing, with Asian perspectives and priorities taking center stage. It means that the future of the global economy will be shaped, to a large extent, by the decisions made in Beijing, Delhi, and Jakarta.
The Road Ahead: Uncertainties and Opportunities
The future trajectory of the economic center of gravity is far from certain. While Asia’s continued rise seems likely, several factors could disrupt its dominance. Internal challenges like income inequality and environmental degradation could slow down growth in some Asian economies. The rise of new technologies like automation and artificial intelligence could further reshape the global economic landscape.
However, the potential opportunities are equally vast. A more multipolar world, with multiple centers of economic gravity, could foster greater cooperation and innovation. It could lead to a more equitable distribution of wealth and resources. It could open up new markets and opportunities for businesses and individuals around the world.
Shifting Landscape
The global economic landscape is expected to shift significantly by 2075, according to projections from the IMF and Goldman Sachs. While China maintains its lead, India is predicted to experience explosive growth, potentially surpassing the US to become the world’s second-largest economy by then.
Regardless of its future location, the shifting center of gravity presents both challenges and opportunities. For businesses, understanding these changes is crucial for adapting their strategies and remaining competitive. Governments need to develop policies that support economic diversification and inclusivity. Individuals must equip themselves with the skills and knowledge to thrive in a more interconnected and dynamic world.
The world’s economic center of gravity may be on the move, but its journey is far from over. By understanding the forces driving this shift and preparing for its consequences, we can navigate these uncertain times and build a more prosperous and equitable future for all.
Regional Trade
Asia-Pacific economies are highly integrated in regional trade already, with intra-regional trade making up 74% of total trade on average. The recent Regional Comprehensive Economic Partnership (RCEP) agreement between ASEAN countries, China, Japan, South Korea, Australia and New Zealand aims to further boost integration. RCEP has less restrictive trade rules compared to deals with the US or EU, which could facilitate more trade within Asia.
Looking at which countries may benefit most from greater integration, the analysis finds differences in export competitiveness and trade complementarity (matching export and import profiles). China, South Korea, Singapore, and Japan seem best positioned – they are competitive in highly traded sectors globally, with export profiles that closely match partners’ imports. India and Indonesia are similar, but India is not in RCEP. Australia and New Zealand are more specialized in commodities so they exhibit lower complementarity.
Vietnam and South Korea have become more competitive exporters by increasing their comparative advantage across more sectors. Overall, further deals like a China-Japan-South Korea FTA could reinforce integration benefits. But some countries like Australia, New Zealand, and Indonesia seem less well placed to gain from more regional trade.