Crisis of open rules-based global order

By Robert A. Manning Source:Global Times Published: 2018/4/24 20:28:40

Illustration: Liu Rui/GT

There is little dispute that the liberal, rules-based global order is unraveling. It is being torn asunder by centrifugal forces within - populist nationalism, massive immigration largely from a conflict-ridden Middle East, America First, illiberal democracies, inequality and middle-class malaise - and from without, from the consequences of a diffusion of wealth and power from West to East. The resulting gap in global governance is a dangerous void.

Since the Bretton Woods system was created in the aftermath of World War II, trade has been a key driver of economic growth and prosperity. World trade was $2.7 trillion in 1980, but by 2016, global merchandise and trade in services totaled $19.8 trillion, according to the World Trade Organization's World Trade Statistical Review 2017. More broadly, the World Bank/IFC, International Monetary Fund (IMF) and network of global institutions under the UN umbrella have steered the world through financial crises, boosted development and managed global challenges including nonproliferation, terrorism, peacekeeping and climate change.

Yet it all appears under siege, with growing concern that the world is returning to a past era of protectionist beggar-thy-neighbor policies, great power rivalry and sphere-of-influence geopolitics.

Why is this occurring at this moment in history? And will it be revised, rejuvenated or replaced?

Despite its flaws, the open, rules-based order designed to avoid a repeat of the twin scourges of 1930s' economic disorder and the devastation of World War II, was driven largely by enlightened US self-interest.

Initially it was not as liberal, open or orderly as is sometimes advertised. It was in some measure a Cold War artifact. The Marshall Plan aimed at rebuilding Europe. Free trade was intended to open markets and rejuvenate a democratic Western Europe and Japan. A US-centered alliance system underpinned stability and a forward-deployed US military presence was aimed at containing the Soviet Union. The "global order" mainly existed in that bipolar universe.

After the Cold War, the rules-based system more broadly encompassed newly open nations. An internet-powered globalized world grew, and as supply chains drove production networks, the rules-based order became more truly global and inclusive.

This open trade and investment enabled faster industrialization in developing economies and began to nurture a global middle class. In China and India, more than half a billion were lifted out of poverty. No nation benefited from this more than China. It also led to more inequality and wage stagnation in the US. Economic success meant new stakeholders in a system dominated by the West, with the US remained its hegemonic enforcer.

The dynamic, rapid expansion of markets and economic growth changed the shape of the world economy. Asia and the global South became the new center of gravity of a global system that had outgrown the trade and financial architecture that helped spawn it. The rise of digital commerce, emerging technologies, fintech, all raced ahead of accepted rules. The new global commons of cyber and space have only rudimentary rules.

This has led to a deficit in global governance. It has been two decades since a global trade round at the World Trade Organization. The Doha round failed and no new round is expected. The rise of new stakeholders in a more multipolar world with their own interests and agendas, complicates efforts to reach a global consensus. In the past the Group of Seven could reach an accord that was formed the basis of trade and financial deals. No more. Efforts like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, the Regional Comprehensive Economic Partnership and other regional and inter-regional deals are filling some of the gap.

The reality is that the rules-based order has been largely frozen and it requires a rethink to shape institutions and norms for a polycentric world. There have been areas where reform has been successful. The IMF's G-20 reforms gave China and other emerging economies larger voices in governing. China increased its vote, the renminbi was added to the IMF's special drawing rights basket of currencies and the No.2 position and other senior IMF jobs were filled by Chinese.

The lesson of history is that international systems work to the degree that major powers are invested in them. Trump's America First is a retreat from post-war US responsibility for maintaining a rules-based system.

Of course, the US broke its own rules too often whether invading Iraq or failing to ratify the UN Law of the Sea Treaty: usually with costly consequences. But in the 21st Century, global leadership requires enlightened self-interest, a measure of restraint and a willingness to provide public goods. The US has done this more often than not. But looking forward, even absent Trump, global leadership will require a shared sense of mutual responsibility, a pooling of power where interests overlap if a world of fragmentation and confrontation is to be avoided.

China has begun to assume more global responsibility in areas like peacekeeping and especially on climate change. President Xi Jinping has asserted a leadership role and advocated for an open multilateral, rules-based system while providing public goods like the Belt and Road initiative to underpin it. But many in the US, the EU and elsewhere feel Chinese trade and industrial policies do not accurately reflect Xi's public views. Xi's recent speeches at the Boao Forum and Digital China Summit suggest change is coming. If the current US-China trade confrontation can be resolved and they find a balance of interests with more reciprocal trade and investment policies, that would be an important step toward a new normal and an updated rules-based order.

The author is a senior fellow of the Brent Scowcroft Center for International Security at the Atlantic Council and its Foresight, Strategy and Risks Initiative. Follow him on Twitter @Rmanning4

Posted in: VIEWPOINT

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