Washington’s Policy Dilemmas: Ripple Effect on America’s Global Power

Founder of one of the largest hedge funds — Bridgewater Associates and author of ‘The Changing World: Why Nations succeed and fail’, Ray Dalio has repeatedly highlighted the impact of political polarization on US polity and economy. In an interview with the Financial Times – last month —  Dalio who resigned as CEO of Bridgewater Associates, also pointed to the increasing possibility of a ‘civil war’ in the US. Unlike earlier civil wars characterised by violence, Dalio said in the new ‘civil war’: “people move to different states that are more aligned with what they want, and they don’t follow the decisions of federal authorities of the opposite political persuasion.”

Apart from domestic political divides in the country, other major challenges which US was facing according to Dalio are the growing economic inequalities in the country as well as the rising debts.

 Dalio also said that the complex global geopolitical situation – especially the Russia-Ukraine crisis and the turmoil in the Middle East — will also impact the US and countries  like India, Indonesia, Vietnam and Singapore along with several Gulf countries could emerge as attractive destinations for investors. 

It is not just Dalio, but several prominent thinkers – especially realists — who have predicted a US decline in recent years attributing it to Washington’s faulty economic and foreign policy. Several US politicians, including former President and current Republican Presidential Candidate, Donald Trump have also been critical of US policies in recent decades. 

A few points need to be borne in mind however: 

First, to what extent will countries be able to strike a fine balance between their ties with US and China, US and Russia and US and Iran in the current geopolitical climate? While countries in Association of South East Asian nations (ASEAN) have so far managed to balance their ties between Washington and Beijing they have been raising concerns about growing tensions between China and US (they have emphatically stated that they would not like to be a position where they need to make a choice between Washington and Beijing). Similarly, in the aftermath of the Russia-Ukraine war several countries have continued with economic links with Russia. One prominent example has been India which has been purchasing Russian oil at cheaper prices. While several commentators and analysts had argued that this decision impacted ties between Washington DC and New Delhi, the US Ambassador to India, Eric Garcetti said: “We allowed the purchase to take place to ensure the prices did not go up globally.”

In the case of Iran, while the Biden Administration unlike the Trump Administration has turned a blind eye to Iran’s economic links with the rest of the world – the sale of oil being one instance – of late it has stated that it will impose sanctions.  It is due to the sanctions, on Russia and Iran, that the trend of de-dollarization, or the reduction of dependence upon the US dollar, has accelerated in recent years. 

Second, while countries may be seeking to diversify from the US, they realize the pitfalls of being excessively dependent upon China. Those countries which seek to balance would thus not want to get in any camp. Interestingly, several ASEAN countries are the favoured investment destination for many US companies seeking to diversify supply chains and re-locate from China (The US-China tech war has especially benefited countries like Malaysia which have emerged as a favoured destination for semi-conductor factories). ASEAN countries are also wary of China’s increasingly aggressive behaviour in the region. While India may have strong ties with Russia, its strategic relationship with Washington DC has grown manifold – especially in the Indo-Pacific. China itself has been seeking to mend ties with the US as is evident from Chinese President Xi Jinping’s meetings with US CEO’s earlier this year where he urged them to invest. One of the reasons for Xi and other senior officials wooing US CEO’s has been China’s economy slowing down and the dip in foreign investment.

Third, China has been unable or unwilling to play a pro-active role in any of the geopolitical conflicts in the Middle East. The US had asked China to utilize its clout vis-à-vis Iran from preventing the spread of the conflict (especially in the aftermath of Houthi attacks in the Red Sea). Beijing has been cautious in doing so. 

Fourth, while because of the changing global and economic order, several countries may have been seeking to reduce their dependence upon the US dollar and de-dollarization has gained momentum, yet the US dollar accounts for 58% of global reserves in 2022. Several countries are also wary of a new economic order in which China would be dominant. 

Fifth, one of the major advantages which the US still possesses vis-à-vis other countries is its ‘Soft Power’. It remains a favoured destination for international students given the advantages it possesses in Research and Development (R and D) and development. The US has made some changes to the visa regime, but it is keen to attract talent from several parts of the world and its universities are still the number one destination for students in STEM (Science, Technology, Engineering and Math) related disciplines. Several of these students who stay on contribute to R and D and innovation in the country. 

In conclusion, while it is true that the US is facing several challenges and its clout may have reduced globally, it still possesses several advantages vis-à-vis China. While Beijing’s economic and geopolitical clout has risen in recent decades, it is facing its own set of challenges, especially in the economic sphere.

[Official White House Photo by Adam Schultz]

The views and opinions expressed in this article are those of the author.