After gaining its independence from Great Britain in 1776, the United States’ economy and power slowly rise. Increased strengths in education, innovation/technology and competitiveness allowed the US to create massive productivity growth and increased its shares of global economic output and world trade. As the US became more competitive, the British empire became less competitive and its global colonies became more costly to maintain. By the early 20th century, especially after World War I, the US was clearly recognised as a leading power economically and militarily and continued to gain relative strength from there. New York became a rival financial centre to London, channelling debt and investments into various businesses.
Immediately after the US and Allied Powers won the Second World War in 1945, Germany was split, with Russia having control of the East and the United States, Great Britain, and France having control of the West. Japan was placed under US control. Unlike after World War I when the United States chose to be relatively isolationist, after World War II the United States took the primary leadership role as it was much more powerful economically and militarily than any other country. Great Britain was left heavily indebted from its war borrowings and faced the gradual end of the colonial era.
New York flourished as the world’s major financial centre. US’s shares of global economic output and world trade continued to increase at a much faster rate. By early 1950s, the US had around two-thirds of the world’s gold reserve making it by far the richest country in the world. The US dollar was linked to gold and quickly gained its status as the world’s reserve currency. Unlike after World War I, when the losing countries were burdened with large debts, countries that were under US control, including the defeated countries, received massive financial aid from the US via the Marshall Plan. At the same time the currencies and debts of the losing countries were wiped out, with those holding them losing all of their wealth in them.
As is typical after the war, no country wanted to challenge the dominant world power because it’s too strong and the new world order was working so well. That produced a relatively peaceful and prosperous period. As American get used to this continuous prosperity, they increasingly borrow money to fund their investments, which eventually leads to debt bubble. Eventually the debt bubble bursts, which leads to the printing of money and credit. By 1971, the US didn’t have enough gold in the bank to meet the claims on gold for paper dollars that it had promised. Consequently, the US defaulted on its promise and ended the gold-backed monetary system, and the world moved to a fiat monetary system.
Also as is typical during this post-war period, other countries used this period of relative peace and prosperity to get richer and stronger themselves. This is when the Soviet was a rival, though it was never nearly as strong overall. The Soviet power began to fade under the weight of its growing inefficiency around 1980 and then collapsed in 1989-91. That is about when China began to rise to become a comparable rival power to the US where it is today.
The magnitude and speed of China’s growth has been dramatic and caught the US by surprise. In forth years, China’s real per capita income has increased by 24 times, and it has become the largest country in the world in trade. China also holds the largest foreign reserves assets in the world, the largest lender/investor in the emerging world, the second most powerful military power, and a geopolitical rival of the United States. China is growing in power at a significantly faster pace than the United States and other “developed countries.”
Although the United States is currently still the most powerful empire, it is in relative decline, Chinese power is rapidly rising, and no other powers come close. That brings the United States and China as the only two major powers. From history we learn that, when a rising power threatens to displace the dominant power, the dominant power will do whatever it can to stop it. Typically, there is about 10 to 20 years of some sorts of conflicts (geopolitical, trade, technological or capital) between the raising power and the dominant power before all-out war is declared. We saw that happened over the past 500 years and we see them transpiring between the US and China in various degrees of play now.
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