GENEVA — The U.S. has retained the top slot as the world’s most competitive economy in 2007, but trade tensions and a new protectionism is looming as emerging nations catch up, a new global survey showed.
The report anticipates a big shake-up, as some 40 emerging nations, notably China, India and Russia, rapidly improve their competitiveness with the U.S. and Europe.
The report placed Singapore second and Hong Kong third, with China moving up to 15th from 18th last year, India coming in at 27th and South Korea at 29th.
New companies and new brands, noted the report, are appearing all over the world and are now challenging the competitive supremacy of the rich industrialized nations.
Stéphane Garelli, director of the Lausanne, Switzerland-based IMD World Competitiveness Center, said this “could lead to an increase in protectionism measures in Europe and the U.S.”
The IMD’s “World Competitiveness Yearbook, 2007,” which ranks 55 national economies on the basis of 323 criteria and data drawn from an executive opinion survey by more than 3,700 respondents, estimates that rich trans-Atlantic nations will find it difficult to tolerate such a power shift.
But it adds that the trans-Atlantic nations will probably not accept the loss of national business champions to emerging market newcomers without a fight. The IMD report expects this to result in “rising protectionist measures,” marked by the filing of new complaints at the World Trade Organization for alleged unfair practices.
However, Garelli said in a phone interview that in contrast to protectionism through tariffs and non-tariff barriers, he expects to see new and “more subtle” forms introduced against emerging countries on lack of corporate governance, lack of transparency, inadequate intellectual property protection and lack of adherence to social standards.
He said emerging countries will come under intense pressure from the U.S. and Europe “who want to impose their social and environmental standards on the rest of the world.”
Emerging nations, he said, might agree to some reforms that they view as reasonable, but not to others they see as hidden protectionist measures.
“In 2007 and beyond, economic relations will be more tense than ever, as emerging markets turn into emerging powers and challenge the established order for competitiveness,” Garelli said.
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Comparing data going back 10 years, he said Russia, China, India and the oil-rich Persian Gulf states that together have stacked up in excess of $2 trillion in foreign currency reserves, in the future will not only buy treasury bonds but industrial assets.
He observed that the Chinese are interested in buying companies outright, while rich Gulf investors have more of an interest in participation.
China’s foreign currency reserves have now reached $1.2 trillion, Japan’s $909 billion, Russia’s $357 billion, Taiwan’s $267 billion, South Korea’s $244 billion and India’s $203 billion.
Looking at the competitiveness road map between 2007 and 2050, Garelli cited a list of issues he feels will affect the environment in which nations and companies will operate. These include continued pressure on oil prices due to fast-growing demand by China and India, and harmonized productivity as operations widely diffuse the same technology and processes among markets where they locate their assets.
As for emerging Asia, Garelli said the region’s financial system “remains the Achilles’ heel” of countries there.
“The degree of sophistication and transparency of finance in the region is not as advanced as manufacturing competitiveness and constitutes an endemic risk of destabilization for the region,” he added.
On the other hand, the U.S. national debt, which has exceeded $8.7 trillion and is growing at $1.3 billion a day, threatens to hinder the country’s future economic growth.