The final weeks of 2020 have provided no let-up for economists, in what has probably been their most stressful year of their lifetimes. We enter 2021 with news of a Brexit deal, diverging national post-Covid-19 recovery strategies and the rapid acceleration of economic trends that existed before, but have been accentuated by the virus. Adding to this year's financial news, the UK-based firm Centre for Economics and Business Research is bringing forward by five years the date when it expects China to overtake the US as the world's biggest economy.
This will worry many in Washington. Economic size is one of the best single metrics to judge a country's financial influence. China overtaking America has been anticipated for some time, just not at this pace. Such speed is a huge vindication of Beijing's short and long-term economic strategies. The main reason behind this revised estimate is probably China's rapid success in overcoming the pandemic and rebuilding its economy. But it also fits a longer-term trend.
Since the economic reforms of 1978, in which the communist leadership changed tack to allow increased opening up to foreign markets, China's economy has grown on average almost 10 per cent yearly.
Size as an indicator of economic dominance, while illuminating in many respects, is still a blunt tool. On its own it does not provide the full picture. Factors such as an economy's dynamism, as well as how a nation's soft power – a huge part of US clout abroad – plays into the economy, have to be considered as well. Therefore, this news should not be taken as a sign that the US is becoming so much less relevant economically. Instead, it indicates that America will increasingly have to share its financial influence with other countries.
Some will view this in confrontational terms. But in today's globally inter-linked economy, there are grounds to view it instead as a chance for collaboration. The administration of President Donald Trump adopted the former view. In the case of President-elect Joe Biden, despite current cross-party scepticism of China in US politics, there is a chance American policy towards Beijing becomes less bellicose.
There is also the rising importance of middle-income countries to consider. It is no longer accurate to describe the world as one in which a few major economies call all the shots. China is acknowledging this in policies such as the Belt and Road Initiative, which involves massive infrastructure investments across Asia, Europe and Africa, aiming to boost trade. Countries such as the UAE have participated in the scheme, which resulted last September in the announcement of investment deals between the two nations worth $3.4 billion. Of this sum, $2.4bn was allocated for a colossal storage and shipping station in Jebel Ali, designed to boost UAE-China trade.
Despite the emergence of a more confrontational China-versus-the-West worldview in recent years, a more nuanced approach that favours frictionless trade, might produce better economic results for both sides. A completely cloudless relationship any time soon is unlikely. Western governments remain opposed to a number of China's economic practices, such as its alleged steel dumping on international markets, which Europe and America say undercuts the price of their supplies.
However, it would be misplaced to ignore the potential of a more ameliorative approach in the post-Trump era, one that did not just fear China's emergence as the world's largest economy. In a year in which the global economy has taken such a hit, economic isolationism and suspicion are obsessions few nations can afford.