Opinion

Globalisation needs rebuilding, not just repair

An attempt merely to restore the pre-Trump status quo would fail to address major challenges; the task ahead is one of rebuilding, rather than repair. It should start with a clear identification of the problems that the international system must tackle.

By: Date: October 29, 2020 Topic: Global economy and trade

This opinion post was originally published in Project Syndicate.

Project Syndicate logo

A second term for US President Donald Trump would complete the demolition of the post-war international economic system. Trump’s aggressive unilateralism, chaotic trade initiatives, loathing of multilateral cooperation and disregard for the very idea of a global commons would overpower the resilience of the web of rules and institutions that underpin globalisation. But would a victory for Joe Biden lead to a repair of the global system – and, if so, of what kind? This is a much harder question to answer.

There will be no lack of eagerness to wipe out Trump’s legacy, either in the United States or internationally. But an attempt merely to restore the pre-Trump status quo would fail to address major challenges, some of which contributed to Trump’s election in 2016. As Adam Posen of the Peterson Institute has pointed out, the task ahead is one of rebuilding, rather than repair. It should start with a clear identification of the problems that the international system must tackle.

The first priority should be to move toward a commons-oriented system. The preservation of global public goods such as a stable climate or biodiversity was understandably ignored by the architects of the post-war international economic order, and (less understandably) was still a secondary priority in the system’s post-Cold War partial renewal. Policymakers focused on visible linkages through trade and capital flows, rather than on the invisible ties that bind us to a common destiny, which helps to explain why the rules and institutions governing the latter are still much weaker.

Biden’s intention to re-join unconditionally the 2015 Paris climate agreement is to be welcomed, but it will not by itself turn the accord into an ambitious, enforceable program. The large number of players and the strong temptation to let others shoulder the burden make preserving the global commons notoriously hard. Even in the area of health, solutions to date do not measure up to the challenge.

Climate action is critical. Without an elusive global consensus, efforts will have to rely on a coalition whose members converge on hard targets and on border-adjustment mechanisms applicable to trade with third countries. Implementation will be fraught with difficulties. Success will require agreeing on which trade measures are acceptable and which are just covert protectionism. That is a high bar to reach. Having already indicated its intention to introduce a border adjustment, the European Union is on the front line here. This is a major responsibility.

The second priority is to make the global economic system as rivalry-proof as possible. Regardless of who wins the US presidential election on November 3, great-power competition between the US and China will continue to dominate international relations. But the Cold War analogy is misleading, because today’s protagonists are major economic partners. Whereas the Soviet Union’s share of US imports never exceeded a fraction of a percentage point, China currently accounts for 18%. Die-hard US advocates of decoupling wrongly picture further Chinese development as a national security threat and want to end this interdependence in an attempt to stop China’s growth. However, as the Peterson Institute’s Nicholas Lardy has argued, a general decoupling from China would be a “high-cost, low-benefit policy.”

The question is then how to recognise the reality of geopolitical tensions while containing their impact on global economic relations. The relevant comparison is not with the Cold War but with the pre-1914 rivalry between Britain and Germany in the context of the first major period of globalisation. Contemporary claims that economic ties made war unthinkable were proved wrong. But as long as states refrain from fighting a real war, a strong multilateral regime can help repress their temptation to wage it through other means.

Europe is the biggest of all bystanders. It risks suffering collateral damage from the fight between the two global giants, both of which have started bullying it. But the EU is not toothless. It should stand up for the rules-based international economic order and lead the fight against its weaponisation. As the European Council on Foreign Relations argued in a recent report, the bloc should start by equipping itself against economic coercion.

The third priority is to make the global economic system more protective of workers and citizens. Already prevailing doubts about globalisation have grown as a result of the US-China trade conflict, rising inequality, and the realisation that in a situation of acute stress such as the pandemic, advanced economies could struggle to procure simple equipment. Citizens and workers want an economic system that better protects them. Governments have taken note and want to show that they care. The question is how.

The primary response should be domestic: from education and training to place-based revitalisation and redistribution, there is much that governments can do, but neglected in the heyday of free-market globalisation. Now is the time for new policies.

But experience has shown that few national governments can carve out a complete response without a supportive global environment. Individual countries cannot curb global corporate tax avoidance and aggressive regulatory competition by themselves. Policymakers globally should acknowledge that the sustainability of economic openness depends on whether its benefits are distributed in a fair way. And as Harvard’s Dani Rodrik has long argued, the global system should both promote openness and allow room for national adaptation.

Each of the three goals – taking care of global public goods, containing the weaponisation of economic relations, and making the system fairer – is challenging. Combining all of them will be daunting. Never in history were rival power centres compelled to cooperate in addressing common threats of a comparable magnitude. It is not hard to imagine how policymakers might use the commendable goals of avoiding carbon leakage or buttressing what Europe now calls ‘strategic autonomy’ as pretexts for outright protectionism. Moreover, how will the world avoid a global economic breakup if China is simultaneously seen as a national-security threat, a reckless polluter, and a destroyer of social rights? Such challenges will severely test leaders in the years ahead.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint.

Due to copyright agreements we ask that you kindly email request to republish opinions that have appeared in print to [email protected].

Read article
 

External Publication

European Parliament

Tailoring prudential policy to bank size: the application of proportionality in the US and euro area

In-depth analysis prepared for the European Parliament's Committee on Economic and Monetary Affairs (ECON).

By: Alexander Lehmann and Nicolas Véron Topic: Banking and capital markets, European Parliament, Macroeconomic policy Date: October 14, 2021
Read article More by this author
 

External Publication

Global Economic Resilience: Building Forward Better

A roadmap for systemic economic reform calling for step-change in global economic governance to increase resilience and build forward better from economic shocks, prepared for the G7 Advisory Panel on Economic Resilience.

By: Thomas Wieser Topic: Global economy and trade, Macroeconomic policy Date: October 14, 2021
Read article More on this topic More by this author
 

Podcast

Podcast

Will ‘common prosperity’ address China’s inequality?

Why is China reviving this old mantra?

By: The Sound of Economics Topic: Global economy and trade Date: October 13, 2021
Read article More by this author
 

Opinion

European governance

The inconsistency in global strategic relations

All of this talk on strategic retrenchment and autonomy is the language of escalation, not of appeasement and collaboration.

By: Maria Demertzis Topic: European governance, Global economy and trade Date: October 13, 2021
Read article
 

Opinion

Xi’s pledge on financing coal plants overseas misses point

China’s domestic installation of coal-fired power plants continues at great pace.

By: Alicia García-Herrero and Simone Tagliapietra Topic: Global economy and trade, Green economy Date: October 7, 2021
Read article More by this author
 

Blog Post

European governance

Pandemic prevention: avoiding another cycle of ‘panic and neglect’

Agreement is needed at international level on mechanisms to ensure better preparedness for the next pandemic.

By: Anne Bucher Topic: European governance, Global economy and trade Date: October 7, 2021
Read article
 

Opinion

Will China use climate change as a bargaining chip?

Beijing shows signs of changing tactics ahead of the COP26 conference.

By: Alicia García-Herrero and Simone Tagliapietra Topic: Global economy and trade, Green economy Date: October 6, 2021
Read article More on this topic More by this author
 

Opinion

The geopolitical conquest of economics

Although economics and geopolitics have never been completely separate domains, international economic relations were shaped for 70 years by their own rules. But the rise of China and its growing rivalry with the United States have brought this era to an end.

By: Jean Pisani-Ferry Topic: Global economy and trade Date: October 4, 2021
Read article More on this topic More by this author
 

Opinion

What Evergrande signals about China's economic future

Under Xi Jinping's new economic agenda 'common prosperity', China is cracking down on indebted real estate developers like Evergrande.

By: Alicia García-Herrero Topic: Global economy and trade Date: September 30, 2021
Read article More on this topic
 

Blog Post

German elections: seizing the moral and economic opportunity of global health security

The new German government should play its part in global health security and preparedness.

By: Amanda Glassman and Guntram B. Wolff Topic: Global economy and trade Date: September 24, 2021
Read article More on this topic More by this author
 

Blog Post

Germany’s foreign economic policy: four essential steps

Germany and the EU need to develop a strong and proactive agenda to manage foreign economic relations, which are essential for German and European prosperity.

By: Guntram B. Wolff Topic: Macroeconomic policy Date: September 23, 2021
Read article More on this topic More by this author
 

Opinion

Europe doesn’t need a ‘Mega-Fab’

Europe should defend its existing dominance in equipment manufacturing for semiconductors and invest in chip design instead of luring high-end fabrication to its shores.

By: Niclas Poitiers Topic: Global economy and trade Date: September 22, 2021
Load more posts