US President Trump is shutting down imports of foreign products into US markets. This is a fundamental change to the world order known to anyone who is alive today. Therefore, an emerging country can no longer rely on the export-led growth model which began in the 1960s with Japan and culminated with China’s rise as an economic powerhouse by 2020.
Since World War II, the US has, in progressive stages, given favourable import terms to most nations, thereby creating a robust consumer market for its citizens, and the dynamic engine for American businesses. Open trade has been a tool for US foreign policy.
The US has been the backbone of the world economic and financial system which encompasses the US import-export trading capabilities, the US dollar, the US Federal Reserve, the US capital markets, the US commodities markets, as well as the US private market such as private equity and venture capital. In addition, the US legal system and the UK legal system play a strong role as an ancillary factor for ensuring the smooth operations of the components of the US system.
Various economic and financial systems of Western Europe, Canada, and Japan provide secondary support and linkages to the US primary markets. The core leading nations comprise the G7: Canada, France, Germany, Italy, Japan, the UK and the US. The financial systems of the “Asian Tigers”: Hong Kong, South Korea, Singapore, and Taiwan were nurtured and supported by and modeled on the US system.
Globally, banks use dollars for approximately 60% of their non-domestic deposits and loans. And in the foreign exchange market, the US dollar is on one side of about 90% of all transactions. The soundness of the US Treasury and Federal Reserve’s monetary policy is essential to global trade.
No nation favourably responded to the tariffs announced after April Fool’s Day by President Trump. It is an open secret that China is the main target of the tariffs. Many nations would have wanted the World Trade Organization’s (WTO) mechanism to be used against China for what the US perceives as unfair trade practices. Trump has no interest in doing this.
For about a decade we heard BRICS+ speak about being an alternative block to the post-World War II world order and “de-dollarization”. It began with Brazil, Russia, India, and China and later expanded to include Egypt, Ethiopia, Indonesia, Iran, South Africa, United Arab Emirates (UAE). BRICS+ has risen in global economic and trade might; as it comprises ~40% of world GDP, ~50% of the global population, and ~20% of global trade. And it might remind one of US and Western Europe of post-World War II and lead them to predict, “The BRICS+ will be the architects of an alternative new economic and financial system.” I doubt it.
Apart from being a group that gets together for occasional meetings, it is not a formal trading block nor does it have a founding treaty or framework. Legal language and common philosophies matter. The bedrock of the Bretton Woods system was the white men all represented personal, national and multinational belief in capitalism, democracy, and sound regulations. While there were some differences of opinion to the degree of each, there was no disagreement with the fundamental good of these principles.
Nothing binds the BRICS+ apart from the fact they are not in the G7 club. I see contradictions: The world’s largest democracy, India, with the world’s largest autocracies, China, Russia, and Iran; major geo-political rival India and China; theocracy-based constitution of Iran and the atheist China. They don’t have a common legal framework -- the bedrock on any agreement. The UAE has an excellent relationship with the US whereas the constitution of Iran is founded on deep hatred for the US. Iran’s second (or joint first) hated nation is Israel, whom UAE recognized by signing the Abrahamic Accord championed by US President Trump. The UAE currency has been permanently tied to the US dollar. So de-dollarization would impact its currency as much as the US dollar.
The Euro was virtually launched on January 1,1999 and the notes circulated in 2002. I was a student and then a professional during the entire period leading up to and the launch of the common currency. The ambition was laid out before I was born in the 1960s, and was a recurring topic for three decades before project plans were drawn up and agreed upon. The project was for appx 10- year period among 11 nations who have had more common history, culture, geographical and economic integration than any of the two BRICS+ have. It required incredible leadership and commitment from the 11 nations: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal and Spain. Three EU members decided not to participate: The UK, Sweden, and Denmark.
The blueprint on “how to launch the one and only common functioning currency among independent nations” is available for anyone to analyze. Commonality of intangibles matter tremendously. In addition, the US has been in favour of the Euro and provided the currency market stabilization forces required in the early trading days. I am willing to wager all my earthly possessions that BRICS+ will not be able to launch a common currency.
With the expansion of the EU, the Euro is now used by 19 nations and the second most used currency for global trade, after the dollar. There is a rational voice that it can become the default currency for the global economic system. As I mentioned earlier, the US dollar currency is one of the factors that gives the US the controlling power of the present economic and financial system. The European capital markets are spread out in multiple nations. The central bankers of each nation have a level of autonomy, and most importantly each nation elects its own type of government. At any given time, some of the elected government will be nationalistic, some will be centre-right, and some will be left-leaning. Their primary focus is their national budget and re-election goals. This sort of difference is a stark contrast from the decisiveness which the US has shown for the last 80 years.
And yet, that US decisiveness comes with vigorous disagreement of one group of Congress or Senate with the president. Every two years crucial elections change the actual power of the president. Though the president changes at minimal every four years, at maximum every eight years, mid-term elections have a huge impact on a sitting president’s ability to be decisive.
Which brings us to statements like: “China can take over the role which the US has in the global economic and financial system”. China has razor-sharp decision-making abilities and can attain goals it sets on a 30-year horizon since it is a one-party system. It has achieved the second largest economy in one generation and surely it can now replace the US. My stance: China does not have the global mindset nor national conditions required to take the mantle.
The Chinese currency, RMB or Yuan, has a long way to go. RMB’s usage for international payments increased slightly from 1.6% in January 2021 to 2.7% in January 2025. The most important factor for an economic and financial system is trust. If allowed, most mainland Chinese millionaires will keep their money in US Dollars or Euro over RMB. How do you make foreigners hold a currency the richest citizens of the country are less interested in holding? Nevertheless, the Chinese government is keen to boost up the usage of the RMB and I predict they will have some success. No reason why the RMB’s share of currency for international payments can’t grow from the very small figure of 2.7%.
The US became the leader of the global economic and financial system by championing multilateral institutions and opening its domestic market for goods and services: It began with Western European nations, Japan, and the Asian Tigers, and soon extended to developing nations or emerging markets, including China. Is China ready to ever open its markets to nations that are less wealthy than China? Though they were given WTO membership in 2001, it still protects its markets more than many emerging markets do. The world’s largest manufacturing economy, China needs to keep its strong manufacturing base because this is its engine of growth. China has an almost $1 trillion goods surplus -- meaning it is exporting more goods to the rest of the world than it imports. It has a surplus with every single nation in the world -- no matter how rich or poor the other nation is.
China has relied too much on infrastructure investment as opposed to domestic consumption. Chinese consumer spending has not reached the pre-Covid levels. While the service sector’s share of value-added to the economy has increased in recent years to just over 50%, it is still well below the average of about 75% for advanced economies. And therein lies the real problem: China has many of the features of a super power economy but some of the glaring problems of an emerging economy.
China has a real estate crisis. It began with the collapse of Evergrande, once the world’s most valuable real estate company, and then Country Garden, its largest property developer. Each of them had anywhere from $200 to $350 billion debt.
Recently, Indonesia’s largest textile company, Sritex, closed down because it couldn’t compete with Chinese imported textile -- a total of 60 Indonesian textile companies have closed. Thai and Indonesian shops are flooded with everyday consumer items, sold at prices lower than their own domestically produced items. Producing lower priced decent quality goods is China’s core capability. Some ASEAN nations are banning Chinese ecommerce companies because they are wiping out domestic producers. Thailand, Malaysia, India, Chile have criticized dumping practices of certain Chinese products before Trump announced his tariffs.
China is the world's leader in clean energy technology: Electric vehicle production and consumption. It is also the leading producer of batteries for electric vehicles, solar panels, and many higher value technological and pharmaceutical products. China needs to find markets for each of its product categories.
ASEAN nations are debating what are the benefits of having China as their largest trading partner. Indonesia had an $11.41bn trade deficit with China, excluding oil and gas trade, in 2024. In 2023, Vietnam's trade deficit with China was $49.3bn, but this figure soared to $82.8bn in 2024.
China makes more manufactured goods than the US, Japan, Germany, and South Korea combined. The Financial Times of the UK has an article with all the facts and graphical figures of China’s trade surplus with the world that one can read to get the specific figures. Saudi Arabia, EU, Switzerland, Singapore, Russia, or India -- you name the nation; China has a trade surplus with them. Since the 2010s, China has poured substantial foreign direct investment in ASEAN and African emerging nations, however, it was still based on the ultimate goal that the finished goods would be exported to the US and EU.
Neglected by Western nations, Africa has benefited from foreign investment in China; African mineral resources helped fuel the growth of China. In return, African industries and infrastructure have benefitted. But this too may have run its course.
Nearly every nation where China has established factories are now subject to US tariffs. China imports mineral resources and agricultural products from Africa. It imports a negligible number of industrial products from Africa and Asia -- the two continents with the poorest nations of the world. Moreover, China’s demand for mineral resources will be severely curtailed if it can’t find markets for its own finished products. Therein lies the China “overcapacity” problem. China has been built as a mega factory to export cheap knick-knacks to the best EV batteries and highest value pharmaceutical products.
Though the US’s traditional G7 friends are not pleased with Trump’s tariff, none of them are also keen to allow China the same level of access to their domestic market as they did in the 2000-2010s decades. Chinese President Xi stated a few times: “Stop blaming China’s overcapacity. Rather, it is Europe and the US who don’t have the ability to produce.” And while there is some truth in his words, I doubt China can make the EU buy large quantities of products when European businesses are urging their governments to investigate China’s unfair practices.
Boosting Chinese consumption will not be easy because per capita income is around $13,000. Consumption has been falling since Covid. The middle-class savings rate has gone up; the Chinese government doesn’t have any programs for income transfer to boost consumption. College-educated unemployment is estimated to be anywhere from 15-20%.
China faces huge challenges to set up a system which is completely decoupled from the US. The EU already has various cases in the WTO against China. The EU and G7’s hand got stronger due to the US tariffs on China: The EU will negotiate for access to Chinese markets and also impose tariffs on Chinese goods to counter what they consider unfair trade practices by China. When China comes to negotiate with ASEAN, the main question from ASEAN will be: Will China allow us to sell our industrial or consumer products, not just minerals and oil, into China?
China needs friendly secondary players to create an alternative economic and financial system. I do not see China possessing that sort of long-lasting friendship and trust with ASEAN. China has support from African nations but they are still economically and financially at rudimentary level to be able to constructively build up organizations with China akin to those that the US and G7 created back in the 1950s. Therefore, China will not be able to replace the US on the world scene or even in ASEAN with a robust economic and financial system.
Lubna Kabir has over 25 years of experience leading US and international projects in first line of defense risk management, integrated internal audit, strategy, and financial analysis.
