World Economic Order: Present and Future
By He Fan & Ye Qianlin
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The postwar architecture of world economy was to a large extent fashioned by the United States, with the hope of reconstructing a liberal international economic system. The International Monetary Fund (IMF), the World Bank, and General Agreement on Tariffs and Trade (GATT) laid the foundation for the postwar global economic order, and international trade and capital flows gradually started to resume. To solidify its supremacy in the shadow of Cold War, the United States supported the economic development of its allies through aid, such as the Marshall Plan aimed at Western Europe and enormous funding directed to Japan during the Korean War. In the 1970s, however, U.S. hegemony began to wane, as a host of developing countries arising from the postwar National Liberation Movement flocked to the United Nations, pressing for a so-called New International Economic Order that would be more in favor in Third World countries. Moreover, the collapse of the Bretton Woods system in 1973 meant that the United States had to rely more on macroeconomic policy coordination mechanisms with other developed countries to maintain the international monetary order.
The eruption of the 1997–1998 Asian financial crisis sparked extensive suspicion of the manner of governance adopted by the IMF and the “Washington Consensus” behind it, and accelerated a rising awareness of regional cooperation across Asia. The outbreak of the 2007 subprime mortgage crisis in the United States, as well as the 2010 sovereign debt crisis in Europe, changed the long-established belief that developed economies are immunized from financial crises. As the international economic system has become increasingly incapable of dealing with the detection, prevention, and treatment of crises caused by the wave of globalization, regional or cross-regional economic governance platforms are playing an ever more important role. This development can be seen in the multilateralization of the Chiang Mai Initiative, the strengthening of the BRICS, and the rise of mega-regional free trade agreement negotiations like the Regional Comprehensive Economic Partnership (RCEP), Trans-Pacific Partnership (TPP), and Trans-Atlantic Trade and Investment Partnership (TTIP).
Despite numerous challenges, the primary architecture of world economy remains largely unaltered. And the reform of the current international economic system should focus on three main issues.
First, the United States’ superpower status is challenged by its comparative decline in strength. U.S. gross domestic product (GDP) was in the lead until 2003 when it was overtaken by the European Union (EU). According to statistics released by the World Bank, U.S. GDP amounted to 30.6 percent of the world’s total in 2000, whereas by 2015 the figure had fallen to 24.3 percent.1 At the same time, the U.S. share of international trade and investment has dropped considerably. Despite the monetary hegemony that the U.S. dollar has maintained for decades, the creation of the euro has undermined its absolute dominance, which, together with the simmering debt problem plaguing the United States, will gradually shake its status as a safe “currency haven.” Plus, as the lukewarm economy and rising unemployment have become its main concerns, the United States is no longer capable of driving global economic growth and is shifting its focus to transplanting the domestic crisis overseas in an attempt to maintain its competitiveness in global economy. In the realm of security and diplomacy, irresponsible behavior by the United States and some of its unsuccessful economic and diplomatic policies have also caused damage to the international order and the country’s own leadership.
Second, the rise of emerging powers was expected to reorder the global economy’s architecture. Since the beginning of the twenty-first century, developing countries have maintained rapid economic growth, and their united strength is approaching that of the Group of Seven industrialized countries (G7). According to IMF estimates, in 2001 G7 nations accounted for nearly 43.435 percent of the world’s total GDP in terms of purchasing-power parity, but in 2015 their share declined to 31.5 percent. During the same period, the economic share held by BRICS countries has increased from 19.3 percent to more than 30.8 percent of the world’s total.2 Over the past several years, developing countries have become a new driving force in the global economy. Besides, they have begun to participate in top-level global governance design and thus play an increasingly important role in certain important global institutions. This situation is reflected above all in the rise of the Group of Twenty (G20), which encompass major developed and developing economies, and acts as the most important platform for international economic cooperation. Unfortunately, developing countries have still not gained the status or voice proportionate to their strength and the momentum of their economic growth in the international economic system. One reason is that emerging powers are facing the dilemma of “double identity” as large but developing countries. All in all, the redistribution of interests, obligations, and power entailed by the rise of developing countries will have an explosive impact on the international order. The question as to whether or not to accept and manage the rise of developing countries is key to deciding whether the current international system is elastic and stable.
Third, the new problems that have loomed large since the eruption of the global financial crisis called into question the liberal international economic system. As the principle of free trade marked the postwar global economic order, the past decades have witnessed large-scale economic globalization, and countries adopted reform measures and a policy of opening-up, handled international affairs in a cooperative manner, and coordinated effective policies. However, globalization has been ebbing in the wake of the global financial crisis for it revealed economic imbalances, inequality, and other social conflicts that had been concealed by rapid global growth. What’s worse, side effects of the global financial crisis began spilling from the economic and financial to the social and political sector, causing turmoil in some regions and countries. Having suffered from global financial woes, widespread unrest, and internal conflicts, people across the world became more concerned with injustice in the distribution and consumption of global wealth, and the pursuit of equity and justice has become an irreversible and increasingly popular trend.
As the United States predominance in the global economy is expected to decline further now that China will be becoming the world’s biggest economy by 2024, developing countries expand, and the new problems are fermented, the global economic order enters a seemingly fragmented stage. Some may point to the downside of China’s rise and are concerned that China intends to challenge the dominant status of the United States in the global economic order. It’s hardly the truth. Admittedly, the Asian Infrastructure Investment Bank (AIIB) and Belt and Road Initiative are likely to reshape the economic geography in the affected regions and thus exert an influence on the global economic landscape, but it doesn’t necessarily mean that China has the ambition to replace U.S. leadership in the global economy. Instead, China aims to abide by current global rules and institutions while assuming deserved responsibilities commensurate with its international status. It’s not only because emerging powers, including China, have all benefited a great deal from the postwar global economic order and a peaceful international environment, but more importantly, the international community is calling for a new approach to growth and a competitive outlook with tolerance for the development of other countries as the core value, which means absolute authority in the global economic order must become a thing of the past.
Indeed, every bit of change in the global economic order entails the redistribution of international responsibility as well as international power. Emerging powers, including China, should encourage a perspective that tolerates development across the world. Cultivation of such a core value will help emerging powers undertake international responsibilities proportionate to their current national strength and historical suffering from colonialism, and prevent them from being trusted with responsibilities and obligations beyond their capacity. At the same time, such an attitude toward the development of other countries will also demand that developed countries undertake their responsibilities, fulfill their commitments, and pay more attention to the reasonable demands of less-developed countries. This will certainly have a global impact and will translate into a more inclusive global economic order in the near future.
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 World Bank, “GDP (current US$),” 2017, http://data.worldbank.org/indicator/NY.GDP.MKTP.CD.
 International Monetary Fund, Report for Selected Country Groups and Subjects: Major Advanced Economies (G7) , 2017, https://www.imf.org/external/pubs/ft/weo/2017/01/weodata/weorept.aspx?pr.x=50&pr.y=10&sy=1980&ey=2015&scsm=1&ssd=1&sort=country&ds=.&br=1&c=119&s=PPPSH&grp=1&a=1; International Monetary Fund, Report for Selected Countries and Subjects: Brazil, China, Russia, India, and South Africa , 2017, https://www.imf.org/external/pubs/ft/weo/2017/01/weodata/weorept.aspx?pr.x=16&pr.y=9&sy=2001&ey=2015&scsm=1&ssd=1&sort=country&ds=.&br=1&c=223%2C924%2C922%2C199%2C534&s=PPPSH&grp=0&a=