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Diversification has always been an essential tool for managing risk, but in a world that lacks clear leadership, one in which no single country or alliance of countries has the political and economic muscle to drive an international agenda, governments must avoid over-reliance for security and prosperity on a single dominant ally. Growth is good, but resilient growth is better – and the best way to build resilience is to diversify one’s friends and partners.
This is the predictable consequence of a G-Zero world. The United States will remain the world’s only true superpower for the foreseeable future, but stubbornly high unemployment, contentious debates over domestic policy, and a war-weary public leave Washington with little appetite for an activist foreign policy. Europe’s leaders won’t fill the vacuum; they remain fully occupied with a multi-year bid to restore confidence in the common currency. China and other emerging powers won’t step into the breach. Their governments face far too many complex challenges at home to accept the risks and burdens that come with leadership abroad. This gap won’t last forever, but it won’t be filled this year or next.
Some countries are better positioned than others to manage this increasingly decentralized global order. Their ability to 'pivot' among multiple political and commercial partners gives them resilience as well as growth. Though its economy has slowed over the past year, Brazil enjoys an expanding middle class, a broadly-diversified economy, ample energy reserves, and a growing national self-confidence. Crucially, it is also blessed with a diversified portfolio of trade and investment partners. Trade with the United States remains robust, but Brazil’s imports from China have risen more than 12-fold since 2000, and its exports to China have grown even faster. In 2009, China became Brazil’s largest trade partner, helping the country absorb the shock of the financial crisis and US recession. With expanded ties with the United States, China, and a growing list of other partners, Brazil has become a pivot state.
Add Turkey. NATO membership gives the country influence in Europe and America. The citizens of many Arab countries look to Turkey as a dynamic, modern Muslim state. The country is a bridge that connects Europe, Asia, the Middle East, and the former Soviet Union. Turkey’s government is using these advantages to build new political and economic partnerships.
Africa, home to the world’s fastest growing middle class, has become a pivot continent. For years, cash-poor African states were forced to rely almost exclusively on Western institutions like the IMF and World Bank for financial help. But China has become Africa’s largest trade partner, though it still accounts for only 25 per cent of foreign direct investment in the continent, and Gulf monarchies and other Asian states are deepening their interest. Multinational and state-owned companies from developed and developing states now compete for access to African consumers and favorable investment terms.
This is not simply a story of countries pivoting away from the West toward China. In fact, Asia is home to a number of potential pivot states that want to expand ties with the United States, in part to avoid over reliance on China. Indonesia, home to more than 240 million people and a well-diversified economy, maintains strong trade ties with China, the United States, Japan, and Singapore. Vietnam draws most of its machinery from China, its aid from Japan, its arms from Russia, and its biggest export market from the United States. Singapore has 18 free trade agreements with 24 separate partners. Traditional Pacific allies like Japan, South Korea, and Australia – and new friends like India – are working to enhance commercial relations with Washington as a hedge against China’s bid for regional dominance.
Finally, Canada remains vulnerable to an American slowdown – but not as vulnerable as it used to be. The percentage of Canada’s exports to countries other than the United States is on the rise, and its western provinces now export more to Asia than to the United States. Today, Canada draws nearly 40 per cent of its imports from countries other than the US. It exports large volumes of oil, natural gas, industrial machinery, auto parts, timber, and other products to many different consumer markets.
We’re living in a crisis-prone moment. In just the past four years, the United States has endured a financial crisis and the deepest recession in 75 years. Europe still faces a fundamental threat to the euro – and to the broader European idea. Upheaval continues across North Africa and the Middle East. Tensions are rising in East Asia as China and its neighbors argue over maritime borders, and North Korea keeps the outside world guessing.
In a world with so much uncertainty, it helps to have as many partners as possible. That is the power of the pivot.
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