BRIC Economies & Foreign Policy
Unilateralism vs. Multilateralism In light of our Balance of Power analysis, let us once again evaluate what incentives are available to the BRIC countries to be unilateral or multilateral. Unlike the Balance of Power analysis, we will evaluate unilateralism and multilateralism under three areas: 1. Unilateralism as it pertains to the world at large 2. Unilateralism as it pertains to each other 3. Unilateralism as it pertains to the US However, we will also add another economic bargaining tool to the mix: Public Debt. The reason for this is that unlike free trade, countries that hold American debt facilitate capital inflow and could therefore affect US interest rates. While reserve diversification by holders of American debt is unlikely (given the lack of other suitable assets, with the exception of gold), increased foreign debt and trade imbalances could yield a sovereign debt crisis for the United States . This is potential leverage for those countries that hold significant quantities of American debt. Before we get started, it is worthwhile to look at the External Debt vs. GDP for all the BRIC countries as well the US and Japan. The reason for including Japan is because outside of China, Japan is the largest holder of American debt and is an American ally. This, coupled with geographic proximity to China, could play a role in how China may perceive its leverage in holding American debt.