Jimmy Truong, 970116-6275

IR102L M2, Home Exam

American Economic Power: Is it underestimated?

Introduction

Post second world war was a period of steady expansion of the world-economy in a
framework which, Wallerstein, would refer to as the framework of US world hegemony
(Wallerstein, 1979). However, reeling from a failed war in Afghanistan is the latest in a
catalogue of problems, from domestic social division and political paralyses, a national debt
of $28.8 trillion and rising to seemingly having the inability to lead a global mission to tackle
global climate change. This, against a backdrop of a rising and dominant China has led many
to believe that the U.S is in fact, in an economic decline. This paper argues that the American
economic power has not declined, but rather, to support the author, has globalized.

Starrs (2013) uses published books, articles, and data from international banks to
construct his arguments with a focal point on mostly, the economic sector, but also touches
indirectly on the political, societal, and environmental sector (Buzan & Little, 2000:73). The
focus of his arguments is surrounding the importance of taking transnational companies
(TNCs) into account instead of staring blindly at the gross domestic product (GDP), which
would clearly indicate that the American economic power has declined. Moreover, focusing
on the GDP takes away the importance of foreign direct investments (FDI) and the impact
and influence that TNCs has on the global political economy. Tables from Allianz, Forbes
and World Bank among a few sources are being used to support the construction of his
arguments (Starrs, 2013). The problem with the data being used, is that they are almost a
decade old. A question that begs to be answered is: Is the data still relevant and are his
arguments still valid in 2021?

American role in Globalization

According to Statista (2021a), the list of the top 100 largest companies in the world by
market capitalization is dominated by the US, with 57 American companies out of 100. The
US constitutes 4.2% of the world population. Yet, their economic output is almost one
quarter of the worlds GDP, and not to mention, the American share is more than 40 per cent
of the world capital (Knoema, 2020). The statistics mentioned above provides even more

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solid evidence to Starrs arguments. The support for the arguments has developed and grown
stronger over the course of this period, which in turn confirms that his arguments are still
valid.

The American role in economic globalization is underestimated, according to Starrs.

Modular production networks, as mentioned in the article, is a process of production where
TNCs split it into modules with low value-added assembly to high value-added branding
(Starrs, 2013). Products made by Apple is an example of this, “Designed by Apple in
California. Assembled in China”. If we use Apple, the most valuable company in the world
(Statista, 2021a), as an example to illustrate how important they are. Hon Hai, a Taiwanese
company in electronics, benefits to a large extent because of globalization, since they
assemble the final products of Apple and not to mention, the number of jobs it creates. “If
process defines what units actually do when they interact, interaction capacity defines what
they can do” (Buzan & Little, 2000:80). The US dominates the tech sector and China is
dominating the automobile sector. Although China is the largest automobile manufacturer in
the world and their share is accounting 30% of the world production. However, Volkswagen
is still the most sold car brand in China. Although, a company might produce most of a
product in a sector, does not mean that they are dominating in sales or competing
internationally, when they can’t even compete nationally (Starrs, 2013). China’s capital is too
nationally contained to be a threat to the American economic power.

Interaction capacity, what McNeill, argues, provides for a better framework. It plays
an important role in the world history and helps systems to be maintained and transformed
together with process and structure (Buzan & Little, 2000:8-12). Buyers and sellers from the
trading system in Eurasia met face to face (Buzan & Little, 2000:307) but has been replaced
with communication through phones and emails. The global networks of production, finance
and telecommunications have been important factors for globalization. Charnock (2013)
suggest that megacities, such as New York, London, and Tokyo among other cities, serves as
a hub within a globalized economic system. The Fed, also known as the Federal Reserve,
plays an important role in the US economy and is detached from any political decisions to
achieve its goals. Experience have shown that independent central banks have better
economic outcomes, if they are not influenced by political decisions (Federal Reserve, 2019).

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Constituent units are referred to as ‘building blocks’ in the mainstream literature and
is a type of territorial unit within a system (Watts, 2008:71). International trade is one of the
reasons for the expansion of TNCs. While, international trade has existed throughout history,
for example, the trading network Silk Roads. It has been showing its importance in the recent
centuries, not to mention when it comes to the economic, political, and societal importance.
International trade has been rising through the roof, but only because of globalization and the
advancement of technologies such as, FDI and evolution of shipping among other factors. It
is regulated through foreign government policies, which determines and control boundaries of
a company’s growth. Globalization is a process within the modern international system, a
revolution where products can travel across different continents at a low cost, because of the
advancement of technology in shipping carriers (Buzan & Little, 2000:307). In this era of
modern international system, it becomes more and more difficult to define constituent units,
mostly because everything seems to be integrated together and the units becomes even more
interdependent. Capital was mostly nationally contained until half a century ago and because
of globalization, that capital, with the help of TNCs are flowing internationally and takes
away the separation of units. Globalization works almost like a platform where capital can
expand across territorial boundaries. The difficulty with globalization is that it involves most
sectors, as mentioned earlier, where it is almost impossible to analyze one unit without
including the others. For example, the number of productions and emissions are not healthy
for the environment, which has caused a huge debate among politicians on how to reduce the
emissions, but also how to stop global warming and climate change.

“Neorealists define power as the amount of capabilities that a state possesses and can
employ in order to pursue its interest in the international system” (Pustovitovskij, 2016).
Power, as we perceive today, is not the same as we perceived 50 years ago. The definition of
power has evolved throughout history, just like the power of influence that TNCs have. An
example of this could be referred to when Facebook and Instagram were shut down for a
couple of hours at the beginning of October 2021 (BBC, 2021). Users on these platforms got
to realize how important the applications and websites are, since most keep contact with their
friends or family through Facebook. It’s almost unthinkable to think how our world and
society would function without the internet and companies involved in this sector.

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Starrs assume that profit-making is inherently a power process with his example of
class struggle (the more profits for owners, the less wages for workers). TNCs such as Nike
and H&M for example, are having their production factories down in Southeast Asia, where
labor work is cheaper than domestically (US and Sweden). By mass-producing products at a
lower cost and sell them to customers at a reasonable price with huge profit margins gives
these companies some sort of economic power.

NAFTA’s impact on the American Economic Power

North American Free Trade Agreement (NAFTA) is the most important feature in
US-Mexico bilateral commercial relationship. All tariffs and quotas were eliminated in 2008
and has been important for American exports, when it comes to 94 per cent of the small and
medium size enterprises in the US. The trade supports millions of jobs in the country, both
directly and indirectly, which in turn stimulates the economic activity within a country. The
reduction of tariffs and elimination of trade barriers has paved the way for a dominant
American economy (International Trade Administration, 2020).

The debate about the decline of American economic power is not ironclad, because
it’s lacking empirical evidence to support those claims (Starrs, 2013). Indeed, the share of the
American GDP has declined since the 1960s and will be most likely to continue to decline.
However, globalization have helped countries to strengthen their GDP, not to mention China.
China’s economy is only growing stronger because of globalization. The US plays an
important factor in an era of globalization and helps countries to economic growth through
FDI. Statista provides important data to support this argument, where the American direct
investments have increased from $11 billion in 2000, to almost $124 billion in China
(Statista, 2021b). The US helps countries to increase their share of the global GDP, which in
turn, and inevitably decreases the US share, but that does not mean that the American
economic power is in a decline. Hume notes that economic relations between states is the
idea of relative gains that matters. Applying this view on international trade, it is described as
a zero-sum game, where one’s gain is another’s loss (Gilpin, 2001).

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The global market structure in the modern international system is the biggest
difference when comparing to the ancient and classical era. The economic interaction back
then was too linear and too thin to generate structural effects (Buzan & Little, 2000: 334).
Because of history, from the first period of globalization in the middle of the 19th century and
events that took place in the 20th century such as the world wars, the great depression and the
oil crisis and recession have formed the international system that we have today. All the
events that took place in the last two centuries both stagnated and halted our economic
development.

Conclusion
In conclusion, the global market structure is shaped by nationally contained capital
that went international, with the help of modern technology. TNCs have played an important
role in expanding and distribute products to the regular consumer instead of the small elite
with the help of reduction in tariffs, taxes, and demand for certain products, which inherently
is a power process. All arguments mentioned in the text provides a solid foundation that the
American economic power is not in a decline, but rather, has globalized. The breakdown of
trade barriers, better transportation and communication has built an environment where the
American economic power seems to thrive in.

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Bibliography

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