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G8: New Friends, Old Rivals

As the Group of Eight rich nations meets in Heilegendamm, Germany, the stakes appear higher -- and more complicated -- for the U.S. than in recent years.

A Level Playing Field

The once-sluggish economies of Germany and France are revving up and the pace of growth in the European Union is expected to surpass that of the U.S., where the economic expansion is now six years old. Meanwhile, Chinese growth shows no signs of slowing from its projected 11% rate. And Russia, flush with money from its crude oil and natural gas industries, is in a position to flex some muscle, raising the spectre of security concerns for the first time since the Iron Curtain fell.

Merkel, Putin, Bush
Merkel, Putin, Bush

All of this has created an interesting and dynamic backdrop to the official agenda of the G-8 conference, which is “to foster consensus on global issues,” enable trade, address climate change, fight pandemics including AIDS and seek answers to Africa’s ills. Nonetheless, they are issues now in the forefront of many participants’ minds.

The United State's position as the sole superpower seems less assured, if not tenuous, as the European Union super-bloc, China and Russia each pose their own challenges to America’s preeminence.

Vladimir Putin, president of the Russian Republic – and former KGB lieutenant-colonel – has invoked nationalistic pride and wielded power in ways many call reminiscent of the Cold War. After predecessor Boris Yeltsin presided over social chaos and economic malaise, Putin has appealed to order-hungry Russians, clamping down on press freedoms and seizing control of industries such as vital oil and natural-gas entities.

Going into the summit, a verbal skirmish erupted between Putin and U.S. President George W. Bush over a proposed U.S. missile shield in eastern Europe. Observers wondered if the Kremlin, traditional bogeyman of the Western world, will again pose a threat to democratic Europe – and America.

Both governments have since downplayed the missile shield disagreement, most recently with Putin Thursday reportedly suggesting a joint missile radar base in Azerbaijan, a former Soviet republic in central Asia, as a way of resolving the issue. Trish Regan reports from the summit.

Russia: No Iron Fist

Demetri Sevastopulo, Washington correspondent for the Financial Times, told CNBC’s Morning Call that Putin is merely saber-rattling to send the U.S. – and Central Europeans -- a message: “Ten years ago, Russia was a poorer country… Now, they have a lot of cash, thanks to energy resources. ‘We’re a big power again.’” Gerald Seib, Washington bureau chief at The Wall Street Journal, agreed: “We’re a long way from the Cold War – there is no ‘Russian Empire,’ and the Russians are in the global economy now.” He also predicts that the Kremlin will seek greater economic cooperation with the U.S. -- in order to compete with China and India.

New Look For Europe

Changes In Europe

Europe remains a friend but has clearly emerged as an economic rival. The so-called Euro Zone economy is the strongest in years, as is its common currency. Germany -- the region's biggest economy -- has shaken off years of sluggish -- if non-existent -- growth. And France -- the region's largest country by size-- has a new leader and perhaps a new economic agenda.

President-elect, Nicolas Sarkozy, is vehemently pro-American and seeks freer markets; he has vowed economic reforms to undo many of the nation's regulations and make France more competitive. His election has cheered Berlin, where Chancellor Angela Merkel has sought warmer post-Iraq ties with the U.S. – and greater understanding with France. Sarkozy is expected to improve relations with Berlin, as his predecessor Jacque Chirac sometimes alienated Germany. A renewed Paris-Berlin alliance could reinvigorate the European Union – which has struggled with the growing pains of rapid expansion -- and create a stronger rival to U.S.

And China, though not a member of the G8, will walk the sidelines of the event, just weeks after standing its ground in high-profile trade talks in Washington -- which yielded little if any agreement on major economic issues. The U.S. and other G8 members are concerned about artificially undervalued Chinese currency, the yuan.

China: Too Much, Too Soon?

As China continues to grow in affluence and influence – with an 11% economic growth rate predicted for 2007 -- grass-roots dissent has united traditional opponents in the U.S.: Pro-labor liberals and anti-globalization conservatives cry foul over Beijing’s currency policies and the tidal waves of cheaply-made goods flowing into America, as political bedfellows blame both for a massive U.S. trade deficit. Then there are the U.S. entertainment and software sectors, where reportedly vast Chinese piracy has raised hackles among copyright holders already smarting from a plague of Internet bootlegging. The U.S. has filed at least two lawsuits against Beijing with the World Trade Organization. Are these bones of contention the result of a China grown arrogant with success – or merely sour grapes on the part of Americans facing aggressive competition? One thing seems certain either way: the U.S. can no longer rest on the laurels of being the world’s sole superpower.

Treasury Secretary Henry “Hank” Paulson declared that China must be dealt with via “small steps.” But Peter Navarro, business professor at University Of California – Irvine, and author of “The Coming China Wars,” insists the scope of the problem is too big for piecemeal measures. “China is essentially the U.S. central banker now,” yet “they use five unfair trading practices, including export subsidies that violate the WTO [treaty], and gross currency manipulation,” he told CNBC’s “Power Lunch.” Sijin Cheng, China analyst at the Eurasia Group, sees a more complex story that defies a unilateral “tough policy.” With “U.S. industry divided” – some firms view China as a manufacturing base, some as a market -- she supports Paulson’s perspective, recommending “incremental policy” that avoids alienating those groups within China that do seek greater openness.

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