Rising powers to the rescue? The future of the liberal economic international order

Those touting China and other rising powers as saviours of the liberal economic international order are likely to be disappointed

Richard WoodwardDonald Trump’s election as President of the United States has sponsored a series of obituaries for the liberal economic international order the US has championed since the 1940s.  In truth the retreat of the liberal international order predates Trump’s arrival in the Oval Office.  In recent years the ‘rising powers’, most notably those belonging to the BRICS grouping, have become bolder in challenging elements of the system which they believe perpetuates US pre-eminence at their expense. Likewise the Obama administration was marked by the scaling back of US involvement in global affairs and a sometimes prickly relationship between the State Department and international economic organisations like the International Monetary Fund, World Bank and the OECD.

Nevertheless, Trump’s worldview is fundamentally different to his post-war predecessors and promises an epochal shift in the United States’ role in global governance. Typically, incoming US administrations have signalled their commitment to using American power to underwrite the provision of global public goods such as security, financial stability, free trade and a clean environment.  Trump in contrast has promised to unpick long-standing alliances, embrace protectionism, and abrogate the Paris climate deal in the name of putting ‘America first’. Without US leadership it is widely forecast that the world will slip into chaos and disorder.

Against this background some commentators point to the possibility that the rising powers, especially China, may fill the vacuum left by a withdrawing US. That such hopes are being pinned on countries previously identified as posing a threat to the US dominated order is not as mystifying as it might appear.  The rising powers have benefitted enormously from the open, integrated and rules-based international economy.  Rather than looking to replace or ‘route around’ the system the emerging powers have sought accommodation within it. The Chinese backed Asian Infrastructure Investment Bank (AIIB) for example is often cited as the start of an attempt to supplant existing US backed institutions but in reality the AIIB incorporates many of their most cherished rules, norms and principles.

Hopes that China in particular will pick up the baton of international leadership have been heightened by some of the latest pronouncements emanating from Beijing. In his speech to the World Economic Forum (WEF) last month the Chinese President Xi Jinping mounted a spirited defence of globalisation, condemning protectionism and promising to promote international cooperation to tackle climate change. These sentiments have since been echoed by other high ranking Chinese officials. Finally, commentators have suggested, China seems to be shedding its previous timidity and recognising that with great power comes great responsibility.

This optimism is misplaced. The United States’ abdication from its global leadership role will dramatically alter the contract upon which Chinese support for the liberal international order depends.  China’s support for the liberal order rests on its securing large benefits at relatively low cost.  Trump is threatening to take a sledgehammer to the rules and institutions which, as he sees it, have allowed countries such as China to accrue such benefits at the US’ expense.  His accusation that China and other countries have  ‘stolen’ US manufacturing jobs underpins his commitment to impose tariffs on Chinese exports in defiance of World Trade Organisation norms, withdraw from the Trans-Pacific Partnership and renegotiate various multilateral trade agreements.  Whilst the Chinese have an interest in preserving the benefits of a relatively open global economy the costs of doing so are, as the US found after 1945, substantial.  It seems inconceivable that China would allow its markets to be used as a dumping ground for distress goods– especially if those goods are being produced by its rival hegemonic power which is shielding its industries with trade barriers.

In addition to whether China or a cabal of rising powers would be willing to pay the costs of underwriting the liberal international order, there are also questions about their ability to do so. By some measures China has already surpassed the US as the world’s largest economy and its development banks have significant financial firepower. In other areas, however, China’s power still lags behind.  China lacks the military capabilities to supply certain global public goods, not least guaranteeing international security or ensuring freedom of the seas.  Moreover, China does not possess the soft power resources needed to entice states to follow its leadership.

The prospect of the rising powers leading a liberal economic order also runs into what, in the current vernacular, might be described as ‘alternative facts’. It is hard to reconcile arguments about China’s putative leadership of a liberal economic order with its maintenance of strict capital controls, limits on foreign direct investment, a structural trade surplus, and attempts to limit freedom of navigation and claim disputed territories in the South China Sea.  In the immediate term China’s outward gaze may be blurred by domestic economic and social concerns, not least the danger of a financial crisis linked to unsustainable asset and real estate bubbles.

Despite the capricious nature of Trump’s rhetoric, his initial decisions since entering the White House demonstrate a determination to follow an agenda that will diminish US leadership. Yet equally China and their emerging market counterparts have not shown they are either willing or able to play the role of global hegemon. In this leaderless world the rules, norms and institutions that have doused the economic tensions of the last 70 years could swiftly fall into disrepair thus extinguishing a key bulwark against the wrenching hegemonic transitions of the past.