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.