The US, China and the New Economic Reality – Waiting for What Comes Next
Gerhard Massenbauer ??
Founder and CEO at hedge?go - FX Intelligence for treasuries
The geopolitical and economic landscape is undergoing profound change. The US is at the centre of a global restructuring process accompanied by strategic economic policies. Changing approaches to trade and fiscal policy play a key role, in particular the increasing use of tariffs as a primary instrument for asserting economic interests.
The State of the US Economy
The United States runs large trade and current account deficits, which are offset by capital inflows from abroad. This means that foreign investors buy US assets to offset the deficits. At the same time, high fiscal deficits reinforce this mechanism by stimulating consumption and overall demand in the US. The result is rising deficits and increasing dependence on external capital flows.
One solution to this problem would be a drastic fiscal consolidation programme. However, this would have serious negative consequences, ranging from a slump in consumption and a correction of overvalued financial markets to a possible recession. The associated collapse in demand for US dollars would severely disrupt the international currency structure and reduce the attractiveness of US assets. It seems highly unlikely that the US would be willing to pay this price for economic stability. Instead, it will continue on its current course: an externalising approach to economic policy that seeks to pass on the costs of its own surpluses and deficits to external actors.
US Economic Power Set to Wane
One aspect that is often underestimated is the role of the US in global trade in services. In particular, the large technology companies on NASDAQ generate a significant proportion of their revenues abroad – around 41% of their revenues come from international markets. Free access to these markets is therefore vital for the US economy. But there is a potential risk here: If countries under pressure use access to their markets as a bargaining chip or favour alternative suppliers, the US could find itself on the economic defensive.
This is particularly true of regions that are vital to the global economy because of their resources or economic structures. Countries in Africa, Latin America and Asia increasingly have economic alternatives – especially China – that allow them to break away from their one-sided dependence on the US. A deeper tectonic shift in economic power structures is emerging.
China in the Right Position
China’s economic rise in recent decades has been dynamic, but not without excesses and structural challenges, for example in the property sector. Nevertheless, the country has established itself as a global economic partner and increasingly offers alternatives to US-led structures. While the costs of an economic exit from the US would have been prohibitive in the past, they are now much more calculable. This opens up new opportunities for countries that want to escape Washington’s economic pressure.
Most importantly, China is no longer just catching up economically, but is already competing with the US in a number of technological and strategic areas, such as artificial intelligence (DeepSeek). As a result, the United States is increasingly losing its role as the hegemon with no alternative, which could have long-term consequences for the global economic system.
Adaptability as a new core competency. Current developments are characterised by increasing volatility. In times like these, adaptability becomes a critical skill – not only at the government level, but also at the corporate level. While treasury departments have focused heavily on process optimisation and risk mitigation over the past 15 years, they are now faced with the challenge of adapting to a rapidly changing reality. Companies that do not develop this ability to adapt will find themselves unable to act in times of crisis. Processes that ensure efficiency in stable times may prove useless when economic conditions change fundamentally.
Conclusion
The coming years will be characterised by economic restructuring, geopolitical power shifts and increasing uncertainty. The US has failed to address its structural weaknesses through sustained reform and is instead trying to shift the costs of its economic strategy to other players. At the same time, China is emerging as an alternative economic power, offering new prospects for countries seeking to break away from US dominance. In such an environment, stability and predictability are increasingly illusory. The successful players will be those who can adapt quickly and flexibly to new circumstances. The era of stable processes is being replaced by an era of adaptive resilience.