US-China G2 Economic Cooperation Reshapes Global Order

The concept of a G2, involving the United States and China as dominant economic powers cooperating on global issues, has gained renewed attention in 2025. This marks shift from past decades of rivalry and trade conflicts. Recent developments indicate a pragmatic return to collaboration between these two giants amid complex global economic and geopolitical challenges.

Origins of the G2 Concept

The idea of a G2 was first proposed in 2005 by economist Fred Bergsten. He suggested that the US and China could form a cooperative partnership to stabilise and promote global economic recovery. This was a geo-economic, not geopolitical, vision focused on mutual benefit rather than control. The 2008-09 Global Financial Crisis accelerated this concept as China’s role in reviving the world economy became undeniable.

Impact of the 2008-09 Financial Crisis

The Trans-Atlantic Financial Crisis weakened Western economies, particularly the US and Europe. China’s substantial fiscal stimulus and support for global trade helped stabilise the world economy. This economic interdependence brought into light the need for cooperation between the US and China. The crisis underlined China’s rising global economic influence and the limits of Western dominance.

US Strategies and Shifts

US policy towards China has oscillated between cooperation and containment. Early advocates of geo-economic containment influenced President Trump’s trade war approach. His successor, Joe Biden, initially pushed for economic ‘delinking’ but later softened this stance to ‘derisking’. Recent developments suggest a pragmatic acceptance that complete separation is unfeasible, prompting renewed dialogue and partial détente.

China’s Resilience and Response

China has resisted US pressure and retaliated effectively during trade disputes. Its economic strength and strategic alliances with countries like India and Brazil have boosted its position. Analysts suggest China has gained the upper hand in recent trade tensions, forcing the US to reconsider its approach. The recent US-China agreement in South Korea is viewed by some as a ‘ceasefire’ rather than a resolution.

Implications for India

India’s foreign policy adapts to this evolving landscape through multi-alignment. It seeks to engage China while managing relations with the US and reassuring Russia. India’s strategic focus has shifted from relying mainly on US ties to strengthening regional connections across Asia. This approach aims to maximise India’s influence amid great power competition and shifting alliances.

New Dynamics in Asian and Global Relations

India’s standing depends increasingly on its Asian relationships. Past assumptions that a strong US-India bond would guarantee global leverage no longer hold. Instead, India must build resilient ties with neighbours and regional powers. This shift requires fresh diplomatic strategies and flexibility to navigate the complex interplay between the US, China, and other global actors.

Future Outlook

The G2 framework reflects ongoing global economic realities. While rivalry persists, cooperation between the US and China appears necessary to address shared challenges. India and other countries must adapt to this new order by balancing engagement and strategic autonomy. The evolving global order demands innovative diplomacy and pragmatic partnerships.

Questions for UPSC:

1. Discuss the significance of the US-China economic relationship in shaping the global order in the 21st century.
2. Critically examine the impact of the 2008-09 Global Financial Crisis on global economic governance and power shifts.
3. Explain India’s multi-alignment foreign policy strategy and its relevance in the current geopolitical context.
4. With suitable examples, discuss the challenges and opportunities of regional cooperation in Asia amid great power competition.

Answer Hints:

1. Discuss the significance of the US-China economic relationship in shaping the global order in the 21st century.

1. The US and China are the world’s two largest economies, driving global trade and investment flows.
2. Their economic interdependence influences global supply chains, currency stability, and financial markets.
3. Cooperation between them (G2 concept) can stabilize global economic recovery and manage crises.
4. Trade conflicts and tariffs have caused global uncertainty, showing the fragility of their ties.
5. China’s rise challenges US economic dominance, reshaping global power balances.
6. Their relationship affects third countries’ policies and global governance institutions (WTO, IMF).

2. Critically examine the impact of the 2008-09 Global Financial Crisis on global economic governance and power shifts.

1. The crisis weakened Western economies (US, EU), reducing their global economic share.
2. China’s massive fiscal stimulus helped revive the global economy, increasing its influence.
3. The crisis brought into light the limits of Western-led economic governance structures.
4. It accelerated the idea of a G2, emphasizing US-China cooperation over broader multilateralism.
5. The crisis triggered a shift towards more geo-economic strategies and competition.
6. It exposed vulnerabilities in global financial systems, prompting calls for reforms.

3. Explain India’s multi-alignment foreign policy strategy and its relevance in the current geopolitical context.

1. Multi-alignment involves engaging multiple global and regional powers without exclusive alliances.
2. India seeks to balance relations with the US, China, Russia, Europe, and Asian neighbours simultaneously.
3. This strategy enhances India’s strategic autonomy amid US-China rivalry.
4. It allows India to leverage diverse partnerships for economic growth and security.
5. Multi-alignment helps India manage risks from great power tensions and regional instability.
6. It reflects India’s ambition to be a key player in Asian and global geopolitics.

4. With suitable examples, discuss the challenges and opportunities of regional cooperation in Asia amid great power competition.

1. Challenges include conflicting interests of US, China, Japan, and ASEAN countries.
2. Territorial disputes (South China Sea, India-China border) hinder trust and cooperation.
3. Economic interdependence offers opportunities for trade agreements and infrastructure projects (e.g., RCEP, Belt and Road Initiative).
4. Regional forums (ASEAN, East Asia Summit) provide platforms for dialogue and conflict management.
5. India’s Act East policy and China’s regional influence create both competition and collaboration prospects.
6. Great power rivalry risks fragmenting regional unity but also incentivizes smaller states to diversify partnerships.