‘US no longer has the balance of power’
The economist discusses his new book and China’s economic dominance with Aziz Haniffa
sEconomist Arvind Subramanian’s new book, Eclipse: Living in the Shadow of China’s Economic Dominance, defies the mainstream consensus of thinkers like
Harvard’s Joseph S Nye, Jr (author of The Future of Power)
and Niall Ferguson that America’s dominance is omnipotent vis-à-vis China. It has so alarmed the powers that be,
that he has been regularly invited to testify before
Congressional committees and for private breakfasts with
Senators to brief them on how to engage with Beijing.
Francis Fukuyama of Stanford University, who wrote The
End of History, Last Man and The Origins of Political
Order, noted, ‘Defying conventional wisdom, Eclipse not
just vividly imagines, but provides a plausible scenario for,
the replacement of the United States by China as the
world’s dominant economic power… (it) persuasively
underlines the need for Washington to get its act together.’
Liaquat Ahmed, Pulitzer Prize-winning author of Lords
of Finance, says, ‘If you want to understand the true mag-
nitude of the shift in economic power that is currently
changing the world, Eclipse is the book to read.’
Dr Subramanian is currently a senior fellow at the
Peterson Institute for International Economics and the
Center for Global Development. Before joining Peterson,
he served at the International Monetary Fund and the
General Agreement on Tariffs and Trade, and taught at
Harvard’s Kennedy School of Government and the Johns
Hopkins School for Advanced International Studies.
He also briefed President Barack Obama before his visit
to India in 2010 and advises the Indian government in different capacities, including as a member of the finance
minister’s expert group on the G-20.
Subramanian, who was selected by Foreign Policy
magazine as one of its Top 100 Global Thinkers last month,
spoke to India Abroad about why he has challenged the
mainstream consensus on the US and China’s power play.
The title of your book speaks for itself. But has China’s
economic dominance over the United States become such a
In the US, as I say in my book, the central belief is still
that yes, China is rising; yes, China is becoming powerful,
but we are still the dominant power and if we do the right
thing, it will be ours. I am challenging that central belief.
China is likely to become very dominant and that that dominance is in China’s hand to control, not that of the US.
The scenario you paint in your introduction is ominous.
What led you to paint the scenario where in February 2021,
the newly inaugurated Republican president of the US is on
his way to the office of the Chinese managing director of the
IMF to sign an agreement under which the IMF will provide
$3 trillion in emergency financing — about 12 percent of the
GDP — to the US and the conditionality to which the US will
have to adhere?
That scenario was inspired a bit by the 1956 Suez crisis.
It’s a combination of reading about history, about the Suez
crisis and applying it to the current context.
Remember, a few months ago, the US was on the verge,
threatening to default, with lots of nervousness about what
might happen. The fiscal situation is not in very good state.
So, it seemed to me that history could repeat itself. In 1956,
the UK needed foreign exchange very badly because of the
Suez crisis and they invaded the Suez Canal. They got into
trouble, they wanted money and the only place they could
turn to was the IMF. But the US said we won’t allow the
IMF to give you money unless you withdraw from the Suez
Canal. So the US used its economic dominance to achieve
political ends. It seemed to me that the roles were reversed,
and now the US was in UK’s position — not actually, but
potentially — and the country on the other side is China
because it’s a big power, it controls the finance spigot. So,
why couldn’t that happen?
COUR TES Y: PETERSON INS TI TU TE FOR INTERNATIONAL ECONOMICS
The Business Interview
That’s why I paint this exaggerated scenario, just to make
the point that this is not out of the realm of possibility.
Interestingly, Fareed Zakaria on his CNN Global Public
Square program also pointed out how China, with the
resources it has today, could play the kind of role that the
IMF is playing in terms of the European economies, which
seem to be unraveling…
Something like that could happen in the future. China
now has the choice. China could say to Europe, ‘We’ll give
you money individually’ or, it can say, ‘We will put this
money in the IMF and act collectively multilaterally.’ My
view is that China should act multilaterally, strengthen the
IMF and not do it bilaterally. But it’s up to China to determine that. The point is that either way, China has the
means to determine that.
Why do you feel that it’s better for China to act multilater-
ally through the IMF? Won’t China be able to call the shots
more if it acts unilaterally, since it’s virtually got Europe and
the US on the ropes?
That’s a very good point and it’s true. The benefits are
that it can leverage more that way. One cost is that it kind
of exposes itself to the charge that it is getting enmeshed in
domestic European politics. That leads to the broader cost
that if China wants to become and be seen as a positive
force going forward and to use its power in a positive, constructive manner, it’s always better to act together multilaterally.
It requires an act of enlightened self-interest. It can say,
‘Oh, for my immediate narrow benefits, I can exert lever-
age,’ or it can say, ‘Look, what I really want is to preserve the
multilateral system because that is the system that has been
responsible for my growth over the last 30 years.’ China has
depended on trade and an open multilateral system, and it
has a broader self-interest in preserving that. In fact, that’s
one of the main points in my book — that the world and
China have an interest in strengthening the multilateral