FEATURE ADDRESS

The US is undergoing an inevitable rebalancing, but its underlying economic and societal strengths remain substantial.

The rebalancing of American power is structural rather than simply a consequence of any one administration. The United States has accounted for roughly a quarter of global GDP for much of the modern era, while its post-war dominance of around 40% was an exceptional period created partly by wartime destruction elsewhere. As other economies prospered under the US-led order, America’s relative share naturally declined even though its underlying economic weight remained significant.

America’s global commitments have increasingly exceeded the capabilities it is prepared to deploy, making adjustment unavoidable. US defence doctrine has moved from preparing for two major wars simultaneously to one, despite maintaining treaty commitments with more than 60 countries. This rebalancing has been discussed since the Nixon era and will continue regardless of who occupies the White House.

America’s domestic resilience is stronger than its political headlines often suggest. Social media and news incentives amplify political extremism, while the deeper sources of American power remain its entrepreneurialism, societal dynamism and capacity for renewal. For long-term investors, the key question is therefore whether America can put its domestic house in order while successfully recalibrating its role abroad.

Governance will determine whether Europe and China can overcome very different constraints on their future power.

Europe’s challenge is not a lack of talent, but its weakening economic dynamism and ability to translate capabilities into growth. Europe’s share of global GDP has fallen substantially since the 1980s despite world-class universities and human capital, while limited energy resources and venture capital constrain renewal. Reform may emerge more plausibly through different European economies moving at different speeds than through the EU acting uniformly.

China faces the opposite tension between a highly dynamic society and a comparatively rigid political and administrative system. Its extraordinary economic rise demonstrates considerable institutional adaptability, entrepreneurial energy and coercive capacity. Yet Prof. Kotkin argued that maintaining political monopoly while accommodating an increasingly sophisticated and innovative society creates a long-term governance contradiction.

Governance is ultimately the “killer app” behind sustained national and institutional performance. America must rebalance, Europe must rediscover economic dynamism and China must manage the tension between societal dynamism and political rigidity. The future balance of power will therefore depend less on simple extrapolations of current trends than on each system’s capacity to renew itself.

Great-power uncertainty creates greater strategic space for middle powers such as Malaysia, provided they build the capacity to use it.

The difficulties facing the US, Europe and China create an opportunity for rising middle-power countries to shape what comes next. The global order will not simply return to its previous configuration as American power rebalances and other major powers confront their own constraints. Countries such as Malaysia, Japan, South Korea, Taiwan and Singapore therefore have greater scope to influence how the emerging order evolves.

Influence requires strategic capability, not simply participation in international forums or the ability to propose rules. Prof. Kotkin stressed that making rules is different from enforcing them, particularly in areas such as freedom of navigation, undersea cables, satellites and other infrastructure underpinning the global economy. He therefore argued that a stable international order will still require some form of American power, even as responsibility becomes more widely distributed.

Malaysia can strengthen its power by moving beyond its existing endowments towards a higher-value, human-capital-driven economy. Natural resources, energy and tourism provide a foundation, but lasting influence and soft power are built through developing talent, opportunity and strategic capacity. Prof. Kotkin cautioned against extrapolating today’s technological trends too far into the future, as breakthroughs in AI, fusion, quantum computing, batteries or materials science could rapidly reshape the assumptions on which current strategies are based.

Quotes

“Anybody who projects current trends into the future knows nothing about history… The world is going to be different. The world is going to shift. Projecting current trends out is a losing game.”

“There’s an inevitable, inescapable rebalancing of American power. It’s a generational question. It has nothing to do with who’s president.”

“There’s never been more opportunity for countries. Middle income, middle power, define them any way you want. Successful, aspirational, rising countries. The rise might not be linear, but it’s happening.”
– Prof Stephen Kotkin