In an increasingly turbulent world, the future hangs on how well the new Chinese leadership and the U.S. manage their complex and sensitive relationship. This much we know: Their appetite for global leadership will be constrained by their heavy preoccupation with domestic challenges.

For China, sustaining its unique form of authoritarian capitalism poses its greatest challenge. Redirecting economic development more to domestic consumption will be job number one for President Xi and his team. Growth cannot be sustained by exports alone. The internal imbalances stemming from China’s remarkable growth — huge income gaps between rich and poor and between urban and rural populations — threaten political stability and the country’s economic future.

To date, foreign policy has not been China’s strength. After decades of self-imposed isolation, China still tends to approach international affairs gingerly, with slogans of “non-intervention” and platitudes about “peace and harmony”, while avoiding taking positions on sensitive global issues. Many in the West have been urging China to assume a responsible role commensurate with its rising economic power — without really knowing what that would entail.

There certainly has been more Chinese swagger of late, generating tensions over territorial disputes with Japan, Vietnam and the Philippines, any one of which could trigger a dangerous incident that could escalate into a wider confrontation. China’s new leaders are certainly aware that their rising global stature is not an unalloyed plus. Provoking quarrels with neighbours over obscure islands is always a convenient way to rouse patriotism and divert domestic discontent. Many of China’s neighbours worry openly about Beijing’s growing “arrogance” and aspirations for regional hegemony. Substantial economic interests and growing interdependence between China and its neighbours ultimately may be the best guarantee of stability.

China has been reluctant to use its influence on the madmen in Pyongyang, whose sabre-rattling antics are as unpredictable as they are destabilizing. But China’s tolerance for North Korea’s bad behaviour may also have limits. Spontaneous combustion on the Korean peninsula would be disastrous for China and precipitate a major humanitarian crisis.

Many countries in the region are looking to the U.S. to calm troubled waters in the Asia Pacific. This helps explain the rationale for both the Obama pivot to Asia and the Trans-Pacific Partnership (TPP). However, there is genuine concern about the United States’ ability to keep its security commitments to Japan and Korea, especially if the situation worsens. Both countries may be tempted to develop their own nuclear deterrent.

And America is distracted. The setback on a modest gun control proposal is just the latest example of dysfunction in Washington. The prospects for substantial reform of immigration policy may be more favourable, but the Boston bombing and growing divisions within Republican ranks on this issue will not help. Serious deficit reduction is even more of a reach. The sequester came and the sky did not fall — except, of course, at the Federal Aviation Administration, where 4 per cent cuts led to temporary delays of 40 per cent of U.S. flights. Congress, in its inimitable fashion, quickly fixed that one and found a way to kick the fiscal can down the road without knocking it completely out of bounds.

At a recent press conference the president vented his frustration about the dysfunction in Washington: “It is not up to me to make Congress behave,” he lamented. Obama has so far failed to convince Washington that a stagnant middle class is bad for U.S. economic growth. He has rarely demonstrated an aptitude for the ruthlessness of politics, or the powers of persuasion, that entices cooperation from lawmakers. The country badly needs a grand bargain — real tax reform. Obama has a little more than a year before the electoral cycle risks diminishing his presidency further. He may become a premature lame duck.

U.S. foreign policy (as we know too well from the Keystone experience) is defined through a domestic political prism — and that has had a limiting effect on U.S. global leadership. Every passing day of deepening strife in Syria makes it abundantly clear that, despite rhetorical ‘red lines’, there is little prospect of direct U.S. military intervention.

Some see the energy boom and a recovery of the U.S. housing market as setting the stage for a more robust U.S. recovery. That would be a good tonic for everyone, Canada included. It might also be the best stabilizer for tensions between China and the U.S. Neither stands to benefit much from the weakness or insecurity of the other.

Geopolitical power alignments are trying to adapt and keep pace with the transformation of the global economy. However, we are more likely to see greater turbulence and uncertainty than stability in the days ahead. Global institutions are losing much of their resonance — the UN, NATO and the IMF, to name just a few. The G-20 is trying to emulate the G-8 as the coordinator on macro-economic issues but we’re seeing more disagreement than consensus.

Self-interest and nationalism are on the rise. Multilateralism — the hallmark of diplomacy for ‘middle powers’ like Canada — is on the wane. In a devil-take-the-hindmost world, Canada will need to be nimble in safeguarding and advancing its interests and using its limited leverage strategically to serve the national interest.

The opinions expressed in this article/multimedia are those of the author(s) and do not necessarily reflect the views of CIGI or its Board of Directors.