Question

In your view, has the financial crisis weakened the United States globally and strengthened China? Discuss

Answer 1

Indeed, it certainly has. This is not to suggest that the United States is poorer than China today. In absolute terms, the US still has a bigger economy, and a much higher per capita GDP market. It's militarily and diplomatically better too. The crisis, however, has been strengthening China and weakening the US. It did so for two primary reasons.

First, the US has become anxious about the crisis and the political consequences of that crisis. As the US political system is in a gridlock, it has far less ability than it has been to be strongly involved in world affairs. It opens the door to be more important for China.

Second, the crisis made the paradigm for the US/West look weak. It was believed that Western capitalism was the way of the future and that all countries wishing to succeed should follow this strategy China has lost leverage over foreign banks and international capital flows. Although China's influence on international financial flows has been slowly loosening, the system is still quite restrictive. Following much discussion of the various ways such restrictions can be evaded, they still have ample strength to severely limit international financial flows. While most economists argue that such controls entail cost of efficiency, they can limit the exposure of a country to international financial instability.