Introduction to International Politics

Has the era of US

hegemonic leadership of
the global economic
system ended?

Leung Wing Kiu

Abstract
Since more and more new superpowers are rising up, such as China and
Japan, it sparks the question of whether the era of US hegemonic leadership
of the global economic system has ended. However, it is believed that the era
of US hegemonic leadership has not ended as hegemonic power is not just
about GDP, the US still have a strong influence as the US is the founder of
most of the major Bretton Woods institutions, they can strengthen their
powers through leading the discussion, influences on policy making and
decision making. Besides, the US dollars is still the key currency of the global
trading system. It is also noticeable that the US has played a big role in the
rise of China.
Introduction
The United States (US) has been performing the hegemonic role in the world
and it has been the most powerful country in which it has retained this status
since the end of the WWII. However, domination will usually attract
opposition from other countries. Recently China and Japan are raising up to
counterbalance the economic tyranny of the US. The immense improvement
of Chinese GDP, the great capital inflow to China and the Japanese
quantitative relief also pose some pressure on the US domination. However,
USs GDA still remains the highest in the world where other countries cannot
override at one time.
In this paper, we will first define what hegemonic power and global
economic system is, then we will look into the development of US hegemony
and how the US diffuses its hegemonic power into the global economic
system. Noticeably, as China is considered the rival of the US hegemony, we
will evaluate the US-China relations. Finally, conclusion will be drawn.
The definition of hegemonic power and global economic system
Hegemonic power, means the power to interfere the other countries affair
and the power to dominate international institutions. Usually a world
hegemonic country is strong in economic, political and military areas. The
characteristics of a hegemonic country are considered as high GDP per capita,
key role in international economic organisations, major influence in
international trade and their national currency is used as the major world
currency. All in all, a dominant country enjoys a lot of benefits, including the
inflow of capital and goods. The global economic system means a set of
regulations and institutions that integrate and unite the world economies, it
enables countries to involve in global trade and allows labour and capital
flows move around the countries. (Hall,2005).
The US emerging as a hegemonic power
After the end of the civil war inside the US in 19th century, the economic
characteristics of the US started to transit from agricultural to industrial
economy. By 1913, almost of the worlds total production was produced by
the US. (Naji & Jawan, 2011:149). It is noted by Cox that, following the civil
war, the US economic base had been developed fiercely. And WWI and WWII
revolutionized the US economy while eliminating any potential enemies.
Besides, the essentials of a free market are also largely based on the American
liberal thought, it is also a step towards the US becoming a powerful country
and hegemonic power. Thus, we can see the important characteristics of the

emergence of the US hegemonic power in the world are Liberal and

Undermining any potential rival (Sanchez,2003:223).
During the 1990s, the economy of the US has been successful and it
was assumed that there would be an ascending trend. Later, in 1993, after
President Bill Clinton became the president of the US, the foreign policy of the
US adopted the principle of giving top priority to the economy and
openness. Thus, they emphasised the promotion of global trade (Naji &
Jawan, 2011:152). After Clintons re-election in 1996, the US has been
assertive and started to exercise its power to interfere with other countries
affairs. It has used its power to try to control the United Nations (UN), force
China into liberalisation, pressure the Japanese economy to reform, impose
the "Washington consensus" of liberalization on other countries and prop up
the Russian President (Catley,1999:157). The US published a report on the
national security strategy for the new century in late 1998. The report
mentioned the US was the strongest force in the world and was bearing a
duty of world leadership while the 21st century was coming. Then in 1999,
Clinton proposed foreign strategy of the US on globalisation in the 21st
century.
Bretton Woods institutions and the US
The US links "the duty of leading the world" with "globalization". To pursue
and carry out the hegemonic strategy, the US thinks globalisation is a good
method (Vermeiren,2010:115). The US believes that through political and
economic actions, they can diffuse, strengthen and expand its power into
geographical areas. Therefore, the US was then instrumental in the creation of
a series of Bretton Woods institutions, in the purpose of regulating and
sustaining the liberal economy. These institutions include the UN, the
International Monetary Fund (IMF), the World Bank (WB), and the General
Agreement on Tariffs and Trade. And the IMF and the World Trade
Organization (WTO) are particularly important institutions in the global
economic system. And the institutional leadership reflects the arbitrary
dominance of the US in global economic systems.
The institutional leadership is highly associated with world leadership
because it implies that the states must follow the regulations in order to trade
and cooperate with other countries. It also stated that the US hegemonic
power is diffused through setting up these regulations and guidelines and the
power is strengthened through the agreement of other states.
Capital flows into the US
Capital flow into the US is related to the US hegemonic position. The
economic force also is accompanied by the political and military success
because of the vast amount of capital (Zoffer, 2012:28). It is also noticeable
that in the international financial markets, the US is still a highly reliable
country (Zoffer, 2012:28-29). The US dollar is widely used in international
financial markets, it is the primary world currency. With a well-developed
legal, economic and democratic system, the US can supply the world with
highly demanded securities denominated in US dollars and stable
environment. It is believed that the quality of capital markets, banking system
and labour productivity growth contribute to US high capital flow.

According to the report of the US international investment position in

1960 - 2011, the figures indicated the foreign assets in the US were increasing,
and are still growing (King,2001:9). This is given by a relatively low risk rate
with which investments in this country are connected because of its dominant
position, and also by the high investment and legal quality system. It results in
Triffins dilemma, and businessmen are still supporting the US assets and
willing to lend money to the US government.
Case study: US-China relations
Theoretically, the US has to prevent any the rise of any new superpowers in
order to maintain its hegemonic status. However, globalisation, on the other
hand, will be obstructive to achieve this aim, as it is gradually integrating the
world economy. In recent years, it is well-known that Chinas hegemonic
against US is on the way because of its growing economic size and power in
trade, finances and investment (Du Boff,2003:19).
Concerning the rise of China, some people argue that the US and
China are struggling for dominance. It is important to know that the reason
why China has become a great power in global trade systems and markets is
because of American hegemony. It is due to the fact that China has abandoned
socialism, then sought to join a capitalist economy dominated by the US. As
witnessed, it is noticeable that the US is responsible for the drastic growth of
Chinas economy. For instance, in 2004, American firm Walmart purchased
$18 billion worth of goods from China. Walmart is also the 8th largest trading
partner of China (Beeson, 2009: 96-97). The US has a vested interest in
cooperating with China. And China invests in American Treasury Bills,
keeping the interest rates of the US low so the US can continue the
consumption of Chinese exports. It is believed that this relationship is
advantageous to both sides.
Paz argued that this partnership will inevitably result in a further
decrease of US command over world economic resources, a reduction of the
weight and centrality of the US market in the global economy, and a
diminished role for the dollar as international means of payment and reserve
currency. (Paz, 2012:20). In fact, the US has actually been in the similar
situation before. In 1980s to the 1990s, Japan attempted to develop its
economy independently so as to eclipse from the US dominance(Beeson,
2009: 95-100). However, its ironic that Japan took advantages from
American institutional and geopolitical order as the US played a big role in
establishing financial institution at the same time. Certainly, in the end, Japan
failed to eclipse the US economically.
From the abovementioned points, it is clear that China is highly
dependant on the US. But more importantly, as the legitimacy of Chinas
political leadership highly depends on economic development, it is clear that
China is not yet in a position to replace the US as the dominant power in the
region(Ipek,2012:30-32).
Conclusion
Undoubtedly, even though the income of the US is declining, the US
hegemonic leadership of the global economic system hasnt ended, as the US
is still the leader of most of the major international financial institutions. And
the US dollar is still the key currency in the global trading system. More
importantly, the legitimacy of the USs political leadership is high as it is long4

established. However, the US should take care of the safety of the world
economy in order to increase its own economic status. A stable world situation
will be favourable for the sake of the world economy. But the US nowadays is
unable to carry out the actions alone, it has to cooperate with big powers, such
as China and Russia, and it is somehow threatening to its hegemonic position.

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