Shakespeare’s Julius Caesar wanted to have men about him who were fat because lean and hungry men were dangerous. If the same principle applies in international relations, this week’s news that China has overtaken the world’s second-largest economy, Japan, in terms of nominal gross domestic product should be welcome to the rest of the world. Yet nominal GDP is unfortunately a poor guide to what constitutes a satisfied, unthreatening state. Per capita income is a better, if imperfect, pointer. And since China’s per capita income of $3,678 is still less than a 10th of Japan’s, Caesar would have drawn little comfort from this watershed, given that China clearly remains a very poor country despite its spectacular recent growth rate.
It is a discomfiting historical fact that great power shifts in the global economy are dangerous. They have tended to coincide with extreme financial dislocation, currency turbulence and trade friction. This is because the aspiring new boy on the block is usually a protectionist-inclined creditor country that is reluctant to shoulder international responsibility commensurate with its economic strength.
Consider the transition from British to US hegemony after the first world war. From 1918 the US rejected the Versailles treaty, opted out of the League of Nations and had nothing to do with German reparations, although it collected war debts from the allies. Britain’s liberal attitude to trade allowed the US to run a big trade surplus. Meantime, the young and inexperienced Federal Reserve pursued lax monetary policies in the Roaring Twenties while unwisely trying to prop up the ailing pound.