USA’s economic power remains strong but is it still an hegemonic

power?

Nicolas FOUCRAS PhdUniversity TEC de Monterrey

nicolas.foucras@itesm.mx

• USA’s hegemony depends on in its economic, financial, political, cultural and political power => they have developed world structures/institutions to influence/interfere in all areas

• 1st economic power (from 2nd half of XIXth c. to present)

• It represents 33% of the global GDP with only 5% of the population

• Crisis in 2008 has proven that economic and financial health of the USA affects the entire planet => with an important disposition of the G20 to rescue the economy of the USA

• USD is the 1st currency used in international trade and the one with most confidence

• It is the biggest contributor to aid for development (specially in the Middle East) = soft power with important capacity to interfere in regional decisions

• Very high Index of Food and Energy Security; Important natural resources allows stability and industrial development. It has easy and cheap access to raw materials (became 1st oil producer in 2014) => it does not depend on the decisions taken by Organization of the Petroleum Exporting Countries

• 1st market consumer in the world => barometer for the international economy

• In the financial market it enjoys a high level of confidence; mainly because it is the hard core of the international economy => this results in an excellent mark granted by credit-rating agencies

Þ Important access to the financial market: due to the confidence it generates many actors are willing to lend money to all the domestic actors: firms, authorities, households

Þ They do not have any problem to access to financial capital (above all from Tax havens) at a very low rate

World wealth per capita levels

Top 5 markets for US agricutural exports (2000-2014)

Top 30 markets for US agricultural exports (2012-2014 average)

Top 10 Markets for US Processed Food Exports (2009 Vs 2013)

Sour

ce: w

ww

.fas.

usda

.gov

Rose by 40%

• Budget for R&D= engine of success and growth= 1/3 of the global budget; it allowed to develop: – Competitiveness (Silicon Valley), universities, research

centers– Has developed innovative sectors with government

incentives (thanks to the debt): defense + aerospace + technology information + communication

Þ Regarding the global value-chains they specialized in high value-added products => they obtain the greatest benefits

Þ They relocated labor intensive and polluting activities to other countries (Mexico thanks to NAFTA) to remain competitive (purpose: to maintain low costs)

Homeland Invest Act adopted in 2004 by the Bush Administration grants important tax advantages on profit repatriation for US subsidies located abroad

• They have an important political power in the international organizations (WTO, IMF, WB) with veto power

• They have promoted and achieved to extend their free-market rules as well as political rules, their lifestyle, their currency and their language (using hard and soft power). English is the 1st language used in Irs

• 1st country to receive foreign students (21.5%) => capacity to draw skilled labor force

Share of all International students (2010): EEUU = 21%

Source: Immigration Statistic os Students

USAs energy recovery: many predict that USA will recover its energy independence (due to the exploitation of shale gas)

meanwhile other countries will lose independence

2014: USA was the 1st oil producer (mainly for own consumption)

Oil exporters in 2012 (Organization of the Petroleum Exporting

Countries leads)

World oil consumption: USA is 1st just before EU-28 and China

Concentration of R&D in ICs

Military Power• Defense budget:– After 9/11 it was multiplied by 2 (between 2000-2010): war

against terrorism allowed to maintain a strong defense sector with important investments in R&D (engine of the US competitiveness)

– It is now 3.3% GDP (2015 International Institute for Strategic Studies) (China 1.2%; France 1.8%; UK 2.1%; Russia 3.7%; India: 2.2%; Japan: 1%)

– It is equivalent to almost half of the world’s military spending Mainly financed by Treasury bonds (debt) (Herd 2012)

• Nuclear capacity 5 times the size of the other nuclear powers

• Ability to deploy military forces at the same time in different places: They can send troops to any region in the world to contain conflicts or to protect national interests

Concerns for USA

• Commercial deficit; they import more than they export; financed by Asian banks=> China owns many Treasury bonds issues by the US Gvt economic interdependence

• USA’s debt level: out of control

• Increase of competitiveness in emerging countries (China and BRICS: they are affecting historical influence for USA in LAC and Asia)

• The growing presence of counter-powers in all the regions (Europe, Asia with a Chinese active role, LAC with the new organizations mucho more autonomous than during cold war…)

• There is growing cost of the globalization assumed by the hegemon (to secure the proper functioning of the global market => maintain peace) => Need to redistribute powers and to collaborate with other regional powers (Europe, Japan, Australia…)

• Deterioration of the national GINI index

Total public debt: around 78% belongs to national actors and 22% to foreign countries

Foreign holders of US Public debt

US GINI Index: worse and worse

Chinese growth since entrance in the WTO is more important than US growth USA focus more and more on relative gains

and not absolute gains in its relation with China

USA’s and China’s global exports participation: China overtook USA in 2011

Increasing trade deficit with China (1986-2012)

US-Chinese trade 1985-2010

In the mexican case it is not a problem. Most of

the exports from Mexico to USA come from US

subsidies located in Mexico and are using US inputs. It is the case for tha automobile sector.

• The Gap between USA and its direct competitors is vanishing

Threatens leadership USA are getting more selfish The US willingness to cooperate and to respect

international rules is less important (it is the reason why they are taking protectionist measures)

Il creates internationally distrust, uncertainty and tensions (hegemon is sick)

¿Is it the beginning of the end of the US hegemony?