The world has a new G-7. The Group of Seven once comprised the world's leading industrialized economies -- in North America, Europe and Japan. Now, the International Monetary Fund calculates the combined gross domestic product of the seven biggest emerging powers exceeds that of the G-7 developed nations, on a purchasing power parity basis. This finding turns our mental map of the world upside down -- and requires American and Japanese foreign policies to navigate a new era.
The IMF calculates that China now has a slightly larger economy than the U.S., adjusted for price differentials. This signals the rise of a peer competitor of the kind that Americans who came of age after the fall of the Soviet Union in 1991 have never known. It also highlights the risk that Japan will be sidelined by China's ascendance, which is why Prime Minister Shinzo Abe's economic reforms are critical to Asia.
Equally striking is the relative decline of Europe. The European Union remains the world's biggest single market, but over the coming decade, 90% of global growth will come from outside Europe, the IMF predicts. Measured by purchasing power, Brazil's economy is now larger than that of France, while Indonesia's adjusted GDP exceeds Great Britain's. A powerful Germany still holds the No. 5 position, just behind India and Japan -- making Berlin the leader of an otherwise sinking, although still rich, continent.
Russia's size and resource endowments rank it as the world's sixth-largest economy by purchasing power. But shrinking output, overdependence on oil and gas exports, and troubling demographics -- a quarter of Russian men die by age 55 -- reveal a petro-state facing terminal decline. It is this weakness, not strength, that has led Moscow to lash out at the West by invading Ukraine and cozying up to China. Japanese officials should judge from this behavior that Russia under Vladimir Putin cannot be a reliable partner in East Asia.
The developed G-7 countries still share a strong core of interests and values. But unlike that cozy Western club, the new G-7 -- composed of China, India, Russia, Brazil, Indonesia, Mexico and Turkey -- is riddled with contradictions. India and China are engaged in a military standoff over their disputed border; Brazil and Mexico tussle for leadership of Latin America; Turkey and Indonesia are modernizing Muslim nations with serious internal cleavages. Russia stands alone as a rapacious imperial power in a post-imperial age.
Nor are the economic prospects of the rising powers uniform, or likely to converge with standards of living in Japan, Europe and the U.S. Brazil has been a middle-income country for decades and may stay that way: In 2014 its economy stopped growing. China's rigid one-party state is often credited with pulling hundreds of millions out of poverty, but it may keep its citizens from ever becoming as rich as their Japanese neighbors.
How to respond
What does the new G-7 mean for the U.S.? This question assumes overriding importance given America's global leadership role, and its centrality to allies like Japan. Most importantly, the U.S. needs to enhance its competitiveness across all dimensions of national power. This means ending Washington's dysfunctional politics; rolling back haphazard defense cuts that hollow out its ability to project influence; jolting growth by finalizing trade deals with Europe and Asia; and investing more in education, scientific research and infrastructure.
It also means re-establishing a bipartisan tradition of competent statecraft. America must return to being the indispensable power, not the indisposed one. Isolationism produces vacuums that hostile forces fill. Friendly aspiring powers like India want to partner with a winner, not with a country tormented by a sense of decline that is more psychological than real.
As the U.S. has backed away from its traditional leadership responsibilities, Moscow and Beijing have sought to carve out new spheres of influence in Eastern Europe and maritime Asia. Their leaders believe Washington is hopelessly gridlocked, ambivalent and irresolute. A dash of strategic initiative by President Barack Obama could prove these assumptions wrong.
This could include deploying NATO forces in Poland and the Baltic states to deter Russian aggression; building a NATO-like alliance structure in Asia; reversing cuts to the fleet that undermine the U.S. Navy's ability to patrol Asian sea lanes; leveraging the shale revolution to open the spigot of U.S. oil and gas exports to the world; embracing and enacting both the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership agreements; and doing a deal with the new Congress on entitlements and immigration reform. Smart statecraft would also recognize that if America is to compete with strong, revisionist states in a more multipolar world, it must first defeat the mishmash of jihadis for whom it is a prime enemy, but who do not have the backing of a single state in the Middle East.
Daniel Twining is senior fellow for Asia at the German Marshall Fund, and a former member of the U.S. secretary of state's policy planning staff from 2007 to 2009.