Macroscope | No one wins with a world split into two rival political-economic blocs

It’s safe to say US-led democracies will be on one side, and China and Russia leading the other. But how many others will join the second camp as economic conditions deteriorate?

Beijing is in a relatively strong position to consolidate and strengthen its position while the US and its allies struggle with long-standing economic problems

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International Monetary Fund managing director Kristalina Georgieva speaks at the World Economic Forum Annual Meeting in Davos, Switzerland, on January 17. Photo: DPA

Published: 11:30am, 22 Jan 2023

There is widespread and resigned acceptance now of the idea that the world is fated to split into two rival political-economic blocs, one led by the United States and the other by China. But there could be surprises and shocks when it comes to who opts to join which bloc and which will emerge as the most successful.

It will not be a simple matter of US-led democracies on one side and China-led autocracies on the other. Trade, finance, currency and other economic developments will influence the shape of the world to a much greater extent than is often realised.

In fact, the determination of the Trump administration to “make America great again” and the Biden administration to go one better by ensuring the US remains the world’s top economic, technological and financial power has already provoked responses aimed at changing the status quo.

It’s safe to assume that the US, Canada, Japan, the UK and some continental European countries will be in Bloc 1, while China and Russia will be leaders of Bloc 2. How many others will join the second camp as economic conditions deteriorate is an open question.

Things are happening – if not behind the scenes exactly, then certainly out of the glare of daily headlines on Russia’s invasion of Ukraine, Taiwan tensions, and gyrations on Wall Street – which show that bifurcation of the global economy is a dynamic process rather than a passive reaction to events.

When International Monetary Fund managing director Kristalina Georgieva wrote during the recent World Economic Forum in Davos that “we are facing the spectre of a new Cold War that could see the world fragment into rival economic blocs”, she was only hinting at the many complexities and subtleties of the situation.

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