The Hindu: Published on 21st March 2025:
Why in News?
The Trump administration's economic policies, including tariffs, deregulation, and America First initiatives, have led to shifts in global economic dynamics. Asian businesses and investors are seeking ways to reduce their dependence on the U.S. market, raising concerns about the future of global trade and the dominance of the U.S. dollar.
The Changing Global Order-
Since World War II, the U.S. has been the dominant force in global trade, with the dollar as the world's reserve currency.
Trump's policies, such as tariffs on allies like Canada and Europe, are reshaping international economic alliances.
Countries and businesses are exploring an "America plus 1" strategy to diversify their investments.
The Role of Asia in Diversification-
China & India’s Rising Influence:
China is pushing its economic influence by encouraging firms to reduce exposure to the U.S.
India is emerging as a major economic power, making the world more multipolar.
Financial Diversification Efforts:
Asian banks like Standard Chartered and Citi report increased client interest in managing geopolitical risks.
Businesses are exploring trade corridors beyond the U.S., including Asia-Middle East and Asia-Latin America trade routes.
Challenges in Reducing U.S. Dependence:
The U.S. remains attractive due to its strong economy, capital markets, and institutional stability.
Limited viable alternatives to the U.S. dollar for global transactions.
Challenges in Finding Alternatives to U.S. Assets-
Gold, Cryptocurrency, and the Yuan:
Some central banks are increasing gold reserves to reduce reliance on the U.S. dollar.
Cryptocurrencies are considered volatile and not yet a mainstream alternative.
The Chinese yuan has gained attention, but companies face risks in hedging transactions in the currency.
Swap Connect Growth:
The Hong Kong Exchange’s Swap Connect allows businesses to manage exposure to yuan-based transactions.
It grew from 3 billion yuan in 2023 to 14.9 billion yuan ($2.06 billion) in daily turnover in 2024.
Economic & Market Impact-
- The fracturing global economy has increased unpredictability, creating market "blind spots."
- The rise of Chinese AI startups like DeepSeek has shown how shifts in tech and finance can cause volatility in U.S. markets.
- More "jaw-dropping moments" are expected as economic power continues to shift.
What Lies Ahead?
- Increased Economic Nationalism: Countries may continue prioritizing domestic industries over globalization.
- New Trade Alliances: Nations in Asia may strengthen regional trade agreements to counterbalance U.S. dependence.
- U.S. Market Strength vs. Alternatives: While the U.S. remains a global economic leader, diversification efforts could gradually reshape trade flows.
- The global economic landscape is undergoing a historic transformation, with Asia playing a key role in redefining trade and investment patterns.
