Still Ours to Lead: America, Rising Powers, and the Tension between Rivalry and Restraint

Chapter Two: The Trillionaires' Club

chapter two the trillionaires’ club 37 Though America is an enduring power, there is no question that there are other actors on the international stage, some of whom are rising in influence. If any single event illustrates the rise of these new actors, it is the international response to the global financial crisis in 2008. The financial crash started with ripples in the U.S. housing market in 2006. It rolled through the British, Irish, and Icelandic banking sectors, swelled into the bailout of the American Insurance Group (AIG) and the bankruptcy of Lehman Brothers in September 2008, and then crashed on September 29 with a 777-point drop in the Dow Jones, the biggest oneday drop in its history. This was followed by Wall Street’s worst week ever, by the end of which the Dow Jones had lost 40 percent of its value from its record high in 2007. The effects of the crash instantly spread outward, causing a global financial crisis, signaled by dramatic drops in the U.K., German, Chinese, and Indian stock exchanges. Even though the long waves of the global financial crisis have not yet exhausted themselves, there is already much to learn about the changing landscape of power. The response was swift—and global. The participation of key Western allies like Japan and Germany, financial powerhouses like the United Arab Emirates (UAE) and Switzerland, and the rising powers, including China, India, and Brazil, illustrates the new landscape of international economic power. One way to see the response is as evidence of erosion of America’s financial power.1 The G-20—the grouping of the world’s twenty largest economies—was called together to orchestrate the global 02-2512-1 chap2.indd 37 1/8/14 3:51 PM 38 A Greatly Exaggerated Decline response.2 China, India, and Brazil were an essential part of this response, as were Mexico, Turkey, and Indonesia. Also in attendance were the International Monetary Fund and the World Bank, international bodies used by the major powers for the management of the global economy. But if the composition of the group points to a redistribution of economic power, it also points to the reason why members of the group participated in the response: all of these countries were affected—and threatened—by the economic crisis. The scale of American influence in the global economy and in global finance and the extent to which these countries are knitted together in a single global financial system meant that the rest of the world was instantly affected by the American-born crisis. For several years before, many economists had argued that the emerging economies had “decoupled” from the United States, that their growth was no longer connected to the U.S. market. This argument was an important part of the story line of the rise of a separate group of challenging powers. The global impact of the crisis shattered that myth. So there is quite a different way of looking at what happened other than the erosion of America’s financial power. The response was marshaled by American leadership, and at the outset in particular, Washington ’s role was crucial. No actor other than the United States could have orchestrated the kind of global financial response that followed the collapse of Lehman Brothers or convened the leaders of the world’s twenty most powerful countries with merely a few days notice. Core U.S. allies were the first and most critical partners: when Lehman Brothers collapsed in September 2008, President Bush’s economic advisers orchestrated a collective international action starting with Japan, Germany, Switzerland, and the UAE. The emerging powers also, by and large, went along with U.S. leadership and made important contributions to sustain, rather than upend, the existing system. One instance is a decision made by Brazilian president Lula da Silva in September 2008. Brazil had been chairing the annual negotiations among the finance ministers of the G-20, a role that would have put Brazil in the position of leading the international response to the financial crisis at a time of presidential transition in the United States. Modesty is in short supply in international politics, nor is it normally associated with the bombastic former Brazilian president; but at this 02-2512-1 chap2.indd 38 1/8/14 3:51 PM The Trillionaires’ Club 39 critical juncture, Lula recognized that Brazil did not have the...