The policies of President Trump have brought a new urgency to the debate about the future of the global economic and geopolitical order. American tariffs on Chinese goods[1], the withdrawal from the Intermediate-Range Nuclear Forces (INF) Treaty[2], sanctions against Iran[3], pressure on the World Trade Organization (WTO) to change its dispute settlement practice[4], and America’s withdrawal from certain trade negotiations[5], have serious implications. They are, however, not the only reasons why the post-World War II international order faces major challenges.

The post-World War II order consisted of the liberal economic institutions established in the late 1940s – the International Monetary Fund (IMF), the World Bank, and General Agreement on Tariffs and Trade (GATT). They are, to a significant degree, still the foundation of the present international economic system, but they did not guarantee a static order. By 1973, the Bretton Woods System of fixed exchange rates that had been established in 1947, came to an end and major currencies began to float against each other.

Additional changes to the global order followed. The needs and demands of developing changes countries constitute an important one. From the 1960s a host of newly independent developing countries joined the United Nations and other global institutions. With them came a different agenda, demanding special and differential treatment. The United Nations Conference on Trade and Development (UNCTAD), established in 1964, provided these countries and the Nonaligned Movement with a global platform from where to push for a New International Economic Order.

Regional integration has brought many economic benefits and joint governance but introduced new challenges. There is now a rising tide of populism, while the Brexit process (inspired, in part, by anti-immigration sentiments and claims about the European Union’s (EU) democratic deficit) demonstrates how difficult disentanglement from deep regional integration structures is. The UK faces tough choices between maintaining ties with the EU (its biggest trading partner), preserving national unity and, at the other extreme, trading under the World Trade Organisation’s (WTO) Most Favoured Nation (MFN) rules if a hard Brexit is to follow.

The end of the Cold War in the late 1980s ushered in more far-reaching changes. The establishment, in 1995, of the WTO meant that, for the first-time, multilateral trade is conducted in a rules-based manner. Trade disputes are settled through the application of legal norms. The single undertaking means that all 164 members of the WTO must accept adjudication as the means for settling disputes arising from the application of the WTO’s agreements.

In 2001, China became a member of the WTO. Its unique model of capitalism under communist rule unleashed a competitive model for which the WTO design was not prepared. Western economies complain about unfair Chinese practices such as the theft of technology and intellectual property and subsidies for local manufacturers. But the implications of China’s unique economic rise go further. Scholars of international relations predict a “Chinese century”. Since the financial crisis of 2008 China has accounted for 45% of the gain in world GDP.[6] It continues to strengthen its military power. China has also become a prominent investor and power in Africa.

While free trade and globalization have marked the post-war global economic order, inequality in income distribution has increased in many nations and regions. Africa still struggles to find solutions for poverty alleviation and the lack of inclusive development.

How will the international community tackle the challenge of global reform? What should a reform strategy aim to achieve? Who will take the initiative? The challenge now is to steer the forces of change in a direction which will ensure shared prosperity and stability and better governance at home. Change in the global economic order is about sharing international responsibility as well as adapting to new power relationships. However, traditional notions of “sovereignty” cannot hamper the collective effort required to deal with contemporary economic, political and environmental crises.

There are indications that bilateral discussions between the US and China may be in the pipeline, as early as the G20 meeting scheduled for November 2018. This will be a very necessary development but reaching agreement will not be easy. The US administration demands that Beijing makes “sweeping changes to its policies on intellectual property protections, technology transfers, industrial subsidies and domestic market access, along with steps to reduce a $375 billion (R5.35 trillion) US goods trade deficit with China.”[7] This position will have to be softened to include mutual benefits. China will not agree to unilateral diktat.

The WTO system can be reformed to provide many of the answers. As stated in a recent joint study by the IMF, World bank and WTO:

“Trade integration can play a larger role in boosting shared prosperity. Harnessing flexible approaches to WTO negotiations may be the key to reinvigorating global trade reform. Despite the benefits at stake – and with important exceptions such as the WTO Trade Facilitation Agreement – trade reform has lagged since the early 2000s. Now, as groups of WTO members pursue joint initiatives in several areas, attention is turning to how other negotiating approaches – including some used effectively in the past – can be leveraged so that trade once again plays its full role in driving increased global economic prosperity.”[8]

The fact that the present global order lacks shared leadership and a joint vision about how to deal with pressing issues is a complicating factor. The United states has traditionally played a leadership role but the Trump administration, with its emphasis on “America first”, has apparently abandoned that position. The first challenge facing world leaders now is to find a consensus on how to rescue and advance those vital aspects of rules-based governance under which all stand to benefit. To this should be added plurilateral arrangements among the nations able and willing to tackle vital 21st century challenges. This will set examples for a new architecture to which others may accede over time.

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[1] See for example: https://www.tralac.org/publications/article/13008-trump-s-steel-and-aluminium-tariff-action-putting-america-first.html

[2] This agreement (the only nuclear arms control agreement that eliminated an entire class of nuclear weapons) was signed by President Ronald Reagan and Soviet Union leader Mikhail Gorbachev in Dec 1987. One of the reasons why the US is withdrawing is the limited membership. Other nuclear powers (e.g. China) are not parties to it.

[3] The US announced its “toughest ever” sanctions against Iran on Monday, 5 November 2018. The Trump administration reinstated all sanctions removed under the 2015 nuclear deal, targeting Iran as well as states and firms that trade with it. They will hit core parts of the economy such as oil exports, shipping and banks. https://www.bbc.com/news/business-46092435

[4] See an earlier tralacBlog on this issue: https://www.tralac.org/blog/article/13530-the-crisis-in-wto-dispute-settlement.html

[5] President Trump withdrew from the Trans Pacific Partnership negotiations and pushed for the renegotiation of NAFTA as well as the American trade deal with South Korea. A revised trade agreement with South Korea was signed in September 2018. The new United States-Mexico-Canada Agreement, or USMCA, was signed in early October 2018.

[6] ‘The Chinese Century: Well underway.’ The Economist, 27 October 2018, available at https://www.economist.com/graphic-detail/2018/10/27/the-chinese-century-is-well-under-way

[7] ‘US-China deal maybe close, says Trump.’ Business Report, 5 November 2018, available at https://www.iol.co.za/business-report/international/us-china-deal-maybe-close-says-trump-17774220

[8] See the report pdf Reinvigorating Trade and Inclusive Growth (1.23 MB)