The end of U.S. dominance and the new economic world order

Recently, another Monday Club event took place in midtown Manhattan. Again, it was a very interesting panel discussion with around 65 people in the audience, primarily from the financial service industry. The panel setup was as follows: Tara Hariharan, MD and Head of Global Macro Research at NWI Management LP, Rohit Goel, Partner and Head of Global Macro, Breakout Capital Partners, LP and Troy Ludtka, Senior U.S. Economist at SMBC Nikko Securities Americas, Inc. This paper version summarizes key arguments, themes, and insights from the discussion among Tara, Rohit, and Troy.

The speakers broadly agreed the U.S. remains dominant across economic, financial, technological, and military dimensions. However, they stressed that for the first time in decades the U.S. faces a credible challenger: China. While U.S. innovation and capital markets remain unmatched, China’s rise, particularly in strategic industries and long‑term planning, has eroded the U.S. margin of superiority. The panel suggested the world is transitioning away from U.S. unipolarity toward a bipolar or selectively multipolar system.

The speakers noted growing fragmentation, with countries forming transactional, situational alliances based on interests rather than ideology. While Rohit framed today’s world as clearly multipolar, Tara emphasized a more bipolar U.S.–China structure supported by “variable geometry”, countries shifting alignment depending on the issue. The Global South, though rising in importance, remains heterogeneous in capacity and influence.

Regarding the status and future of the U.S. dollar, though nations are experimenting with non‑dollar channels, such as Saudi Arabia’s recent payments in yuan to China, the panel agreed de‑dollarization will be slow. The dollar’s dominance is anchored in deep capital markets, global trust, and large‑scale liquidity. China’s yuan cannot rival it without an open and liquid capital market, which is unlikely under the current communist regime.  Stablecoins may augment dollar demand rather than weaken it, though global skepticism of Western institutions is rising.

Another area of increased focus and important is the rare earth minerals, crucial for high-tech components, producing magnets for EVs and wind turbines, included in TVs and phones as well as advanced electronics such as lasers, optics, AI, and essential for defense systems (radar, missiles, drones, night vision). China’s control of rare earth mining and processing gives it major leverage. The U.S. allowed its domestic rare earth industry to atrophy due to environmental, regulatory, and cost issues. Rebuilding this supply chain will take years. China’s dominance is not due to resource scarcity but to decades of strategic investment across the entire value chain. Pharmaceuticals may be the next major vulnerability, as China dominates many precursor ingredients.

In the new world order, Europe will find itself in a difficult situation. Europe’s challenges are many such as overregulation, weak innovation, costly labor market, and heavy dependence on China, which limit its geopolitical leverage. German industry in particular is deeply tied to Chinese supply chains. While the U.S. pressures Europe through tariffs and trade disputes, Europe lacks the industrial base or capital markets depth to counterbalance. Speakers suggested Europe may drift closer to the U.S. out of necessity.

The Middle East, particularly Saudi Arabia, is well‑positioned as a wealthy, non‑aligned region capable of interacting with both the U.S. and China. With strategic energy and investment resources, it plays a balancing role while leveraging geopolitical competition. Concerns remain that Saudi may serve as a channel for U.S. technology to reach China.

The speakers debated the effectiveness of tariffs and sanctions. Troy argued sanctions rarely work and often entrench adversaries. Tariffs can redirect economic activity but require complementary regulation and subsidies. Tara emphasized that Trump’s threat‑based tactics have been surprisingly effective, and export controls may be the most precise long‑term policy tool. All agreed such tools are now permanent features of U.S. foreign policy.

Looking ahead at 2040, demographics will reshape global power. The U.S., though aging, is in better demographic condition than Europe or East Asia. This may support a golden age for Latin America, if political stability improves. The speakers also stressed that global multipolarity will still revolve around two dominant centers: the U.S. and China. Renewable energy’s strategic value will rise as nations seek domestic, geopolitically secure power sources. Panelists lamented the mismatch between America’s short political cycles and the long‑term planning required for strategic competition. China’s multi‑decade planning provides major advantages. The U.S. system’s strengths, federalism, entrepreneurship, and innovation, are offset by an inability to maintain consistent long‑term industrial strategy. Recessions, though politically unwelcome, serve vital functions and cannot be eliminated without distorting economic incentives.

Automation may displace service‑sector workers more than manufacturing workers, where robotics is already advanced. However, several labor‑intensive sectors, such as healthcare and eldercare, will remain human‑driven. Countries with large, inexpensive labor pools (e.g., India, parts of Latin America) may still benefit from global restructuring. The broader challenge is how nations use AI, the U.S. pursues technological frontier breakthroughs while China focuses on mass diffusion across industries.

The U.S. has attracted the overwhelming majority of global equity flows since the pandemic. Rohit expects some normalization, though not an exodus. Tara stressed that no market can match U.S. depth and liquidity; even countries with promising innovations lack the institutional infrastructure to support large‑scale investment. Despite geopolitical tensions, investors continue to view the U.S. as the world’s most reliable destination for capital.

To sum up, the panel sees a world defined by intensifying U.S.–China rivalry, structural fragmentation, and the emergence of flexible, transactional alliances. While U.S. dominance is being challenged, its institutions, capital markets, and innovation ecosystems remain unparalleled. China’s long-term planning and industrial coherence make it the most formidable competitor. Europe struggles for relevance, the Middle East navigates opportunistically, and Latin America’s future hinges on political reform. The next 15 years will test the resilience of the U.S. model and determine whether global power stabilizes into a durable bipolar order.