More Responsible Stakeholders
July 24, 2019This has been a month of notable anniversaries. The moon landing 50 years ago has understandably received the most attention. But an event a quarter-century earlier arguably had even more impact on world affairs, when representatives of 44 Allied nations met at the Bretton Woods resort in New Hampshire to chart the postwar global economic order.
Were they alive today, the Bretton Woods delegates would be mystified by the current strains in the global economic order they helped create. When told of the 75 years of global growth and rising incomes that followed their meeting—a burst of prosperity unprecedented in human history—the delegates would wonder why so many people wanted to throw away something that had clearly worked so well.
In absolute terms, two countries benefited most from this rising prosperity: the United States and China. Yet no two countries are more responsible—in all senses of the term—for today’s strains in the global economic order. Both Washington and Beijing have contributed to the weakening of the international institutions conceived at Bretton Woods and the rules and norms they supported. To be sure, the constructive engagement of other actors—the European Union, Japan, and other large emerging market countries in particular—is essential, but Washington and Beijing have to take the lead in reversing this trend. The responsible course for both is to stop doing harm, better manage their differences, and seek new areas for cooperation where they can.
Washington’s contributions to the problem predate Donald Trump. Successive administrations failed to make an adequate case to the American people about the benefits of U.S. leadership in the global economy. They did not do enough to ensure the effectiveness and legitimacy of the Bretton Woods institutions: the International Monetary Fund (IMF), World Bank, and World Trade Organization (WTO). And, perhaps most important, Washington failed to appreciate the very real dislocations to U.S. workers resulting from trade, technological progress, and other forces transforming the U.S. economy.
Donald Trump has increased stress on the system by criticizing multilateral institutions and pursuing policies that violate the rules and norms they were set up to promote, including through his use of broad, unilateral tariffs against allies and competitors alike. In pursuit of bilateral trade balance with China, he has unleashed forces that could produce at least a partial de-coupling of the U.S. and Chinese economies.
China has contributed in its own way to weakening the global economic order. While publicly stating its support for the institutions and norms of the existing system, Beijing has often violated the rules in letter and spirit. Its massive subsidies to domestic firms fuel global overcapacity and stifle competitive markets. Beijing has tolerated—or enabled—widespread intellectual property theft. It has not done enough to ensure the transparency and sustainability of its Belt and Road Initiative (BRI) investments. And with notable exceptions such as during the global financial crisis in 2008-09, it has rarely taken the lead in working to improve the global commons.
To be sure, both Washington and Beijing have legitimate gripes about the existing order and each other’s behavior in it. China has a point that, as the world’s second-largest economy, it is still underrepresented in international institutions such as the IMF and World Bank. Beijing is also justified in chafing at Trump’s unilateral tariffs. But Washington is also right that China has largely abandoned the path of reform and opening and that its industrial policies are doing harm to the global economy. And widening inequality in the United States would appear to support the argument that the multilateral, rules-based order is no longer delivering for most Americans.
But do these complaints justify undermining an order that by most objective measures has been hugely beneficial to both countries? The 800 million Chinese citizens who have escaped poverty over the past four decades would surely say no. The U.S. economy has also benefited enormously from the growing market opportunities and consumer choice that globalization has enabled. It is clearly in the interest of both China and the United States not to squander these gains by undermining the multilateral institutions and norms that have made them possible or by ratcheting up a damaging bilateral trade war. Instead, they should be working, individually and together, to try to repair the global economic order so that it produces more broadly shared benefits.
Job one is to stop doing harm. This means that both Washington and Beijing should pull back from tit-for-tat trade escalation and reduce the uncertainty this is creating. The Trump administration should redirect its energies from pointing out the flaws of multilateral institutions, especially the WTO, toward constructive reform of those bodies, working in tandem with like-minded countries. It should stop violating the very rules it helped create, which are one of the few bulwarks against bad behavior by other countries. For its part, Beijing should curtail its harmful industrial policies, remove obstacles to market competition in China, and raise the standards of its BRI investments.
Second, Washington and Beijing should draw sharper lines around the areas where competition between them is unavoidable. At the moment, trust is so low that almost everything the other side does is viewed through the lens of strategic rivalry. During the previous 40 years of engagement, the two sides were able to identify the most contentious issues—say, Taiwan or human rights—and focus their differences there. Today’s competition over critical technologies is the economic issue on which the real differences between the two sides are the greatest, and friction is inevitable. Washington and Beijing should make a conscious effort to lower the temperature on other issues where the stakes are not as high.
Managing the differences that remain will also require effort and restraint. Both sides should identify their red lines and use the right tools to defend their interests in a transparent manner. Having defined the range of technologies that are critical for national security, for example, Washington should use its investment-screening and export-control mechanisms in a targeted way to protect those “crown jewels,” while preserving the generally open U.S. climate for investment and innovation. For its part, Beijing should act more transparently, rather than using the informal, coercive tools it often uses today. The two sides should meet more regularly at all levels to discuss and try to resolve their differences.
When they meet, bilaterally and in regional and global forums, Beijing and Washington should also look for areas where they might be able to cooperate. On an array of transnational challenges—including sustainable infrastructure investment, energy security, and global health—the United States and China have a clear incentive to work together.
Finally, each side should double down on domestic policies that would strengthen its own economy and create the conditions for healthier competition. For the United States, this includes investing in domestic infrastructure, skills for the twenty-first-century workforce, and basic research. For China, it means returning to the path of reform and opening.
When he was deputy secretary of state in 2005, Robert Zoellick famously called for China to act as a “responsible stakeholder” in the global system. He might just as well have applied the term to a United States that was already retreating from its traditional role as champion of the global economic order—a role that dates back to the Bretton Woods conference 75 years ago this month. In today’s time of stress, it has never been clearer that both the United States and China have a profound stake in that order; both need to act more responsibly in updating and upholding it.
This commentary is adapted from an essay in a forthcoming collection from CSIS.
Matthew P. Goodman is senior vice president and holds the Simon Chair in Political Economy at the Center for Strategic and International Studies in Washington, D.C.
Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
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