Macroscope | Don’t expect US, Russia and China’s emerging superpower club to help global recovery

Forget about BRICS, NATO, NAFTA, G7 and IMF as there is a new superpower kid on the bloc and its star will be rising as other bodies start to fade in importance.

The election of Donald Trump as next US president has sent reverberations around the world. The tectonic plates of international accord are already shifting and new allegiances taking shape.

One of the clearest trends to emerge so far is the stream of warm words between Donald Trump and Russian President Vladimir Putin. It is a positive sign that the two former Cold War warrior nations may be ready to bury the hatchet and usher in a new era of closer co-operation. There have also been positive responses from China to Trump’s election. It all sounds auspicious so far.

It could mark the first signs of a new superpower club emerging called ARC – with America, Russia and China forming much closer diplomatic ties after years of political frostiness. The fall-out from the Crimea crisis with Russia and US trade frictions with Beijing have not served the purpose of global geo-political tensions too well during recent years. Any detente on the political front should be seen as a positive step for the world.

The key question for the world economy is whether it will make any difference to the outlook for global recovery. Could the combined economic might of America, Russia and China acting together provide a better chance of global revival? If ARC bypasses the traditional channels of global economic co-operation and harmonisation the answer is probably no.

The record of supranational bodies like the IMF, G7, OECD, WTO and BIS has left much to be desired in recent years, especially after the 2008 global financial crisis. In the event, world economic doom was largely averted thanks to unilateral actions of fiscal and monetary super-stimulus in the US, UK, Japan and Europe. But at least the international super-forums kept the lines of policy communication open to encourage the stimulus taps to be left wide open.

The worry about Trump is that his much-lauded ‘America-first’ policies could be a backward step away from international co-operation, with America retreating back into its shell of domestic issues.

Trump’s bid to create 25 million new jobs, double US GDP growth and cut the tax burden sounds great in theory. But in practise it will open up old wounds that the US economy is still recovering from 30 years on from the tax-cutting, supply-side boosting Reaganomics debacle.