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Thursday, September 8, 2011

Rising Economic Powers and the Global Economy: Trends and Issues for Congress

Raymond J. Ahearn
Specialist in International Trade and Finance

A small group of developing countries are transforming the global economic landscape. Led by China, India, and Brazil, these rising economic powers pose varied challenges and opportunities for U.S. economic interests and leadership of the global economy. They also raise significant policy issues for Congress, including the future direction of U.S. trade policy and negotiations, as well as for the multilateral economic institutions that have historically served as the foundation of an open and rules-based global economy.

This report addresses ongoing shifts in global trade and finance and projected future trends resulting from the emergence of these economies. It is the first of a three-part CRS series that focuses on how the
Rising Economic Powers are affecting U.S. interests and raising challenges for congressional oversight of U.S. international trade and financial policies.

The major trends in the global economy identified and discussed in this report are:

  • The balance of global economic power is shifting from the United States and Europe to a number of fast-growing and large developing countries. These economies account for rising shares of global GDP, manufacturing, and trade, including a significant expansion of trade among the developing countries (South-South trade). These shifts are driven by growing economic integration and interdependence among economies, particularly through new global production and supply chains that incorporate inputs from many different countries. 

  • Rising economic powers are becoming more important players in international finance. They have increased holdings of foreign exchange reserves, established sovereign wealth funds, borrowed capital from international capital markets, and attracted substantial foreign investment. Their multinational corporations, many state-owned, are investing assets globally and are competing with U.S. firms for natural resources and access to other developing-country markets. 

  • The long-standing distinction between advanced and developing countries, particularly for rising economic powers, is blurring. The advanced countries may still be the richest countries in terms of per capita income, but their economies may no longer be the largest, the fastest-growing, or the most dynamic. Rising economic powers are exerting greater influence in global trade and financial policies and in the multilateral institutions that have underpinned the global economy since World War II. These developments, in turn, have implications for U.S. global leadership that are subject to debate. 

  • While the impact of the rising economic powers is considered by most economists to be strongly positive for the U.S. economy overall, not all groups of Americans have benefitted equally. Highly educated workers are seen gaining more job opportunities and higher wages than workers with less education.

Issues for Congress on the international trade and finance policies raised by the changing global landscape could include:

  • Seizing full advantage of growing markets for U.S. manufacturers, service providers, agricultural producers, and their workers, including preparing for increased competition.

  • The future direction of U.S. trade negotiations and the global trading system, as well as specific policies and issues raised by the global economy. These might include the increasing role of state-owned enterprises, access to developing country markets for services and government procurement, the future role of the dollar as the primary reserve currency, and U.S. participation in global supply chains, among other issues. 

  • The evolution of international frameworks for financial integration, as well as multilateral and bilateral frameworks for foreign direct investment and sovereign wealth funds.

Date of Report: August 8, 2011
Number of Pages: 61
Order Number: R41971
Price: $29.95

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