The Trade Leadership Deficit
Even if Donald Trump’s protectionism proves to be a short-run aberration, US global dominance is likely to continue to decline. To ensure that US hegemony gives way to a peaceful and prosperous global balance of power, the European Union must step up.
ZURICH – For all the concern over trade flows and balances nowadays, the largest deficit the world must confront is one of leadership. With the United States retreating from its global role, someone needs to step up. But who?
Henry Kissinger once said, “Peace can be achieved only by hegemony or by balance of power.” The same could perhaps be said of trade, or even of globalization itself. It is no accident that the two great eras of globalization – the decades leading up to World War I and the last 75 years – were characterized by balance of power and hegemony, respectively.
Of course, trade requires more than the absence of conflict. Like all economic activity, it flourishes when property rights are respected, taxation is efficient and purposeful, letters of credit are honored, tariffs and other barriers are removed, and so forth. In short, effective trade demands clear rules, typically enforced by a hegemon. In the age of the British Empire, the Royal Navy combated piracy; for the last 75 years, the US Navy has been responsible for keeping sea-lanes open.
International institutions have also played an essential role. But here, too, the hegemon’s support is crucial. Without US backing, it is unlikely that the General Agreement on Tariffs and Trade and its successor, the World Trade Organization, could have gained sufficient authority to deepen and safeguard the post-war trading system. That is why US President Donald Trump’s embrace of nationalist protectionism is so dangerous.
The Trump administration wants the benefits of hegemony, but is unwilling to bear the costs. Those costs extend well beyond military spending and include, for example, issuance of the world’s main reserve currency. This position confers considerable advantages on the US, but it also requires the US to run persistent trade deficits, in order to supply the rest of the world with sufficient dollar liquidity.
Trump’s mercantilist approach is simply inconsistent with hegemony. But even if US protectionism proves to be a short-run aberration, and Trump’s successor reverses his damaging trade policies, America’s global status is in relative decline, particularly vis-à-vis a rising China. In other words, US dominance is likely to come to an end, regardless of who succeeds Trump.
To ensure that US hegemony can give way to a peaceful and prosperous balance of power, more varied and visionary leadership will be required. Here, the European Union – one of the world’s largest economies and a key defender of liberal values – has a vital role to play. But it first must get its own house in order, assuming responsibility for its own security – military, cyber, economic, and financial.
The challenge ahead for the EU is daunting. It must address its democratic deficit, implement sensible border and immigration policies, and shore up its financial foundations – tasks that will ultimately take decades.
To achieve these goals, Europe’s leaders must make clear that the days of relying on the US to carry out the heavy lifting of global leadership are over. German Chancellor Angela Merkel opened that discussion in a Munich beer hall during her election campaign last year. Now that the election is over, the topic must not be allowed to fade into the background.
Europe must also strengthen its financial footing. A single European financial market without a credible banking resolution mechanism will always be prone to crisis. That, in turn, requires the sharing of obligations – for example, through common deposit insurance or an emergency backstop for systemically important financial institutions. Debt mutualization is anathema to many in Europe. But, as the eurozone crisis clearly demonstrated, countries cannot enjoy the advantages of a common market unless they fulfill the necessary common obligations.
Finally, if the US is unwilling to play its role as the world’s leading champion of free trade, Europe must take over. Trade leadership should come easy to a continent that excels at free and open economic ties. It will require a balance of toughness, pragmatism, and diplomatic skill. Above all, the EU needs to lead by example. Eliminating its remaining external tariffs, even if largely symbolic, could reinforce the simple truth that trade is not a zero-sum game, but a mutually beneficial endeavor.
With the US in retreat and China ascendant, the transition from a hegemonic global order to one characterized by a balance of power is already underway. But the transition cannot be left to chance, with countries assuming that everything will work out naturally. Leadership is essential, and the outcome for the world as a whole depends crucially on whether, and when, the EU recognizes its responsibility.
Whither the Multilateral Trading System?
The global economy today is dominated by three major players – China, the EU, and the US – with roughly equal trading volumes and limited incentive to fight for the rules-based global trading system. With cooperation unlikely, the world should prepare itself for the erosion of the World Trade Organization.
BRUSSELS – Free trade seems to have few supporters these days. Though actual trade volumes are recovering from the post-crisis recession and drop in commodity prices, “globalization” has become increasingly contentious, as exemplified by the election of US President Donald Trump on the back of a promise to rip up international agreements and get tough on trade partners. What does this mean for the future of the rules-based trading system?
Some 60 years ago, when the current rules-based global trading system was conceived, the United States was the world’s sole economic “hyperpower,” possessing unquestioned dominance in the day’s most advanced manufacturing industries. With enough power to impose rules, and enough dominance to be able to count on accruing the largest share of the benefits, it could – and did – perform the role of “benevolent hegemon.”
As Japan and Europe recovered from World War II – with the latter getting an added boost from economic integration – America’s lead began to dwindle, and by the 1970s and 1980s, the US was sharing power over the world’s trade agenda with Europe. Nonetheless, because the US and Europe share so many common interests, they generally adhered to a cooperative approach.
It was not until imports began to overwhelm a growing number of industries in the US, fueling the emergence of large and persistent external deficits, that the country’s trade policy became more defensive, creating friction with many of its partners. Yet, even then, US leaders understood the value of the liberal multilateral trading system, and supported the establishment, in 1995, of the World Trade Organization as the successor to the General Agreement on Tariffs and Trade.
The WTO’s creation amounted to a major step forward, as it addressed not just tariffs, but also other trade barriers, including indirect barriers arising from domestic regulations. Given the complexity of assessing how domestic regulations might impede trade, especially compared to judging whether a tariff has been correctly applied, the WTO needed effective dispute-settlement mechanisms, with members agreeing to binding arbitration. The system worked, because its major members recognized the legitimacy of independent panels, even if they sometimes deliver politically inconvenient judgments.
Yet this recognition is now increasingly in doubt. Consider what type of economy would support a rules-based system. After WWII, the US supported such a system, because of its unassailable economic supremacy. An open rules-based system would also be highly appealing in a world comprising only small countries, none of which could hope to gain by relying on its relative economic power.
Things become more complicated when the global economy includes a small number of economies of similar size, larger than the small economies from the previous example, but not large enough to dominate the system alone. That is the scenario the Nobel laureate economist Paul Krugman considered in a 1989 paper on bilateralism, in which he reported that a world consisting of three major trading blocs constitutes the worst constellation for trade, as a lack of explicit cooperation among all three would lead to increasing trade barriers.
Unfortunately, this is exactly the situation in which the global economy finds itself today. There are three dominant economies or trading blocs – China, the European Union, and the US – with very similar trade volumes (exports plus imports) of around $4 trillion each. (Japan, which was a strong contender 25 years ago, now has a much smaller trade volume.) Together, the G3 economies account for 40% of world trade and 45% of global GDP.
With economic power distributed in this way, explicit cooperation by all three actors is crucial. Yet there are compelling reasons why they would be reticent to pursue such cooperation.
Even if Trump weren’t president, the current global trading system would present problems for the US, whose trade policy has long focused on manufactured goods. (Trade in raw materials has always been relatively free, and trade in agricultural goods has usually been considered special, and thus not subject to rules like the “most favored nation” principle, which applies to manufactures.)
Because the US is now self-sufficient in energy, it needs to export fewer manufactured goods than industrialized countries with no domestic energy resources. Annual US exports of manufactured goods thus now amount to only about $1 trillion annually – significantly less than both the EU and China, which export almost twice as much in manufactured goods, despite having somewhat smaller economies.
To be sure, Trump is unlikely to start an outright trade war, because any US tariff would harm the interests of the country’s largest companies, which have invested huge sums in production facilities abroad. Yet no individual firm will be willing to give up much of its political capital to defend the rules-based system, either, because it would have to bear the losses, while its competitors shared the gains. The same goes for the G3 trading blocs: if the EU expends political capital to stop the US from undermining WTO mechanisms, China (and the rest of world) will reap most of the gains.
That dynamic goes some way toward explaining why China’s leaders, despite having proclaimed their support for the multilateral rules-based trading system, haven’t taken concrete action to reinforce it. Their reticence is probably intensified by the assumption that, within the current generation, their country will dominate the global economy; at that point, they might no longer want to be bound by somebody else’s rules.
It does not help matters that the Communist Party of China has recently been empowered even further in all areas of the economy, with all major firms now having to accept a CPC representative on their board. It is difficult to see how a dominant economic power governed by a single party – especially one with such extensive control over the economy – would accept the primacy of international rules and procedures over domestic considerations.
The conclusion is clear. The world should prepare itself for the erosion of the rules-based trading system enshrined in the WTO.
International Cooperation 2.0
As faith in US leadership declines, so may other countries’ commitment to international cooperation – trends that could culminate in an economic race to the bottom or even violent conflict. But another way already seems to be emerging, based on new coalitions, as well as updated global institutions, spearheaded by more diverse actors.
OXFORD – After decades of serving as the backbone of a rules-based global order, the United States, under President Donald Trump, is touting an “America First” agenda that extols narrow economic nationalism and distrust of international institutions and agreements. But a new type of international cooperation may be emerging – one that works around Trump.
To be sure, as the Trump administration continues to repudiate long-established patterns of cooperation, the risk to global stability is becoming increasingly acute. For example, at the World Economic Forum’s annual meeting in Davos last month, US Secretary of the Treasury Steven Mnuchin spoke positively about a weaker dollar as a way to boost US trade.
For a country that relies on foreign demand for strong dollars and Treasuries to finance its rapidly expanding deficit, this is a foolhardy perspective. Moreover, it amounts to a betrayal of the longstanding US commitment to uphold a rules-based monetary system that discourages competitive currency devaluation.
In foreign policy, US Secretary of State Rex Tillerson has endorsed the revival of the Monroe Doctrine – the nineteenth-century assertion of US primacy in the Western Hemisphere that aimed to keep out European competitors – in Central and South America, in order to curb China’s growing influence. Tillerson’s nostalgia for 1823 was not shared south of the border, where, as one Mexican commentator pointed out, the Monroe Doctrine “served to justify gringo interventions,” and where China’s increasing engagement is viewed as a counterweight to the US.
The Trump administration has also unveiled a new, more aggressive nuclear policy. Its Nuclear Posture Review proposes using nuclear strikes in response to non-nuclear threats, and deploying new “low-yield” nuclear devices that would deliver by submarine a nuclear bomb equivalent in power to those that destroyed Hiroshima and Nagasaki in 1945. This policy – aimed, according to Defense Secretary James Mattis, at convincing adversaries that “they have nothing to gain and everything to lose from the use of nuclear weapons” – amounts to a reversal of 40 years of US leadership on reducing nuclear stockpiles and encouraging non-proliferation.
Unsurprisingly, other countries are quickly losing faith in the US as a stable partner, much less a reliable leader. According to a Gallup poll, trust in US leadership across 134 countries has dropped from a median of 48% in 2016 to 30% in 2018, plummeting by 40 points (or more) in Canada, Portugal, Belgium, and Norway. Meanwhile, disapproval of US leadership has surged by 15 points, to a median score of 43%, compared with 36% for Russia, 30% for China, and 25% for Germany.
As faith in America’s international leadership declines, so may countries’ commitment to cooperation – trends that could culminate in an economic race to the bottom or even violent conflict. After all, a country is unlikely to play by the rules if it does not believe that its opponents will do the same. Japan, for example, will more likely refrain from devaluing its exchange rate if it believes that the US will also refrain.
Of course, some of the Trump administration’s declarations might turn out to be mere bluster. During President Ronald Reagan’s first term in the early 1980s, he also questioned the international monetary order; took a tougher line on Latin America; and expressed doubts about nuclear deterrence (preferring the idea of nuclear superiority). But, by his second term, Reagan had come to embrace international cooperation.
At that time, however, US leadership was virtually guaranteed, given that the only other global superpower – the Soviet Union – was in sclerotic decline. That is not the case today. But that does not mean that international cooperation is doomed.
In his 1984 book After Hegemony, the American scholar Robert Keohane argued that international cooperation could continue, even without US global dominance. Keohane’s core insight was that the creation of institutions like the International Monetary Fund, the World Health Organization, and even ad hoc institutions like the G20 may require a clear leader, but running them may not.
Indeed, thanks to such institutions, the burden of leadership is now lighter. If governments seek to benefit from rules-based systems, such as those governing global trade, they can do so through existing multilateral institutions. This enables a more diverse array of governments to assume leadership in different areas.
In January 2017, after Trump announced that the US was withdrawing from the Trans-Pacific Partnership – the ambitious US-led initiative to create a massive trade and investment bloc encompassing 12 Pacific Rim countries – many assumed that the TPP’s days were numbered. But a year later, the remaining 11 countries announced that they would be moving forward, based on the so-called Comprehensive and Progressive Agreement for the TPP.
Likewise, after Trump announced last June that the US would withdraw from the Paris climate agreement, many observers feared the worst. By the end of last year, every other country in the world had become a signatory to the agreement. Moreover, 15 US states formed the US Climate Alliance, which is committed to upholding the objectives of the Paris agreement.
Finally, Trump’s public questioning of NATO, the US-led security alliance, has spurred Europeans to forge ahead with their own common security plans. The US, fearing that it could be sidelined, has now raised objections to these moves.
That is not surprising. The form of international cooperation that is now beginning to emerge promises to reflect more diverse views and interests, with countries adjusting their policies based on a variety of international considerations, not just the preferences and interests of the US. The result could be new cooperative coalitions, along with updated global institutions. As for the US, the Trump administration may well find that “America First” really does mean “America Alone.”
The Risk of a New Economic Non-Order
The upcoming IMF and World Bank annual meetings offer a critical opportunity to start a serious discussion on how to arrest the lose-lose dynamics that have been gaining traction in the global economy. The longer it takes for the seeds of reform to be sown, the less likely they will be to take root.
LONDON – Next month, when finance ministers and central bank governors from more than 180 countries gather in Washington, DC, for the annual meetings of the International Monetary Fund and the World Bank, they will confront a global economic order under increasing strain. Having failed to deliver the inclusive economic prosperity of which it is capable, that order is subject to growing doubts – and mounting challenges. Barring a course correction, the risks that today’s order will yield to a world economic non-order will only intensify.
The current international economic order, spearheaded by the United States and its allies in the wake of World War II, is underpinned by multilateral institutions, including the IMF and the World Bank. These institutions were designed to crystallize member countries’ obligations, and they embodied a set of best economic-policy practices that evolved into what became known as the “Washington Consensus.”
That consensus was rooted in an economic paradigm that aimed to promote win-win interactions among countries, emphasizing trade liberalization, relatively unrestricted cross-border capital flows, free-market pricing, and domestic deregulation. All of this stood in stark contrast to what developed behind the Iron Curtain and in China over the first half of the postwar period.
For several decades, the Western-led international order functioned well, helping to deliver prosperity and relative financial stability. Then it was shaken by a series of financial shocks that culminated in the 2008 global financial crisis, which triggered cascading economic failures that pushed the world to the edge of a devastating multi-year depression. It was the most severe economic breakdown since the Great Depression of the 1930s.
But the crisis did not appear out of nowhere to challenge a healthy economic order. On the contrary, the evolution of the global order had long been outpaced by structural economic changes on the ground, with multilateral governance institutions taking too long to recognize fully the significance of financial-sector developments and their impact on the real economy, or to make adequate room for emerging economies.
For example, governance structures, including voting power, correspond better to the economic realities of yesterday than to those of today and tomorrow. And nationality, rather than merit, still is the dominant guide for the appointment of these institutions’ leaders, with top positions still reserved for European and US citizens.
The destabilizing consequences of this obstinate failure to reform sufficiently multilateral governance have been compounded by China’s own struggle to reconcile its domestic priorities with its global economic responsibilities as the world’s second-largest economy. Several other countries, particularly among the advanced economies, have also failed to transform their domestic policies to account for changes to economic relationships resulting from globalization, liberalization, and deregulation.
As a result of all of this, the balance of winners and losers has become increasingly extreme and more difficult to manage, not just economically, but also politically and socially. With too many people feeling marginalized, forgotten, and dispossessed – and angry at the leaders and institutions that have allowed this to happen – domestic policy pressure has intensified, causing countries to turn inward.
This tendency is reflected in recent challenges to several features of the economic order, such as the North American Free-Trade Agreement, as well as America’s withdrawal from the Trans-Pacific Partnership and the United Kingdom’s renunciation of European Union membership. All are casting a shadow on the future of the global economic system.
America’s inward turn, already underway for several years, has been particularly consequential, because it leaves the world order without a main conductor. With no other country or group of countries anywhere close to being in a position to carry the baton, the emergence of what the political scientist Ian Bremmer has called a “G-Zero era” becomes a lot more probable.
China is responding to the global system’s weakening core by accelerating its efforts to build small networks, including around the traditional Western-dominated power structures. This has included the establishment of the Asian Infrastructure Investment Bank, the proliferation of bilateral payments agreements, and the pursuit of the “Belt and Road Initiative” to build infrastructure linking China with western Asia, Europe, and Africa.
These dynamics are stoking trade tensions and raising the risk of economic fragmentation. If this trend continues, the global economic and financial configuration will become increasingly unstable, amplifying geopolitical and security threats at a time when better cross-border coordination is vital to address threats from non-state actors and disruptive regimes, such as North Korea. Over time, the risks associated with this shift toward a global economic non-order could have severe adverse effects on geopolitics and national security.
None of this is new. Yet, year after year, top government officials at the IMF/World Bank annual meetings fail to address it. This year is likely to be no different. Instead of discussing concrete steps to slow and reverse the march toward a global economic non-order, officials will probably welcome the cyclical uptick in global growth and urge member countries to do more to remove structural impediments to faster, more durable, and more inclusive growth.
While understandable, that isn’t good enough. The upcoming meetings offer a critical opportunity to start a serious discussion of how to arrest the lose-lose dynamics that have been gaining traction in the global economy. The longer it takes for the seeds of reform to be sown, the less likely they will be to take root – and the higher the probability that a lose-lose world economic non-order will emerge.
The Global Economy’s New Rule-Maker
As China's domestic market continues to grow, so, too, does its economic power and ability to set global rules. With the country fast approaching a position similar to that of the US and Europe after World War II, much will depend on the policies it pursues in two key areas.
MILAN – In a recent commentary for the South China Morning Post, Helen Wong, HSBC’s chief executive for Greater China, shows that China’s rising generation of 400 million young consumers will soon account for more than half of the country’s domestic consumption. This generation, Wong notes, is largely transacting online, through innovative, integrated mobile platforms, indicating that it has already “leapt from the preweb era straight to the mobile Internet, skipping the personal computer altogether.”
Of course, China’s rising middle class is not news. But the extent to which digitally oriented younger consumers are driving rapid growth in China’s service industries has not yet received ample attention. Services, after all, will help drive China’s structural transition from a middle- to a high-income economy.
Not too long ago, many pundits doubted that China could make the shift from an economy dominated by labor-intensive manufacturing, exports, infrastructure investment, and heavy industry to a service economy underpinned by domestic demand. But even if China’s economic transition is far from complete, its progress has been impressive.
In recent years, China has been offloading its labor-intensive export sectors to less-developed countries with lower labor costs. And in other sectors, it has shifted to more digital, capital-intensive forms of production, rendering labor-cost disadvantages insignificant. These trends imply that supply-side growth has become less dependent on external markets.
As a result of these changes, China’s economic power is rapidly rising. Its domestic market is growing fast, and could soon be the largest in the world. And because the Chinese government can control access to that market, it can increasingly exert its influence in Asia and beyond. At the same time, China’s declining dependence on export-led growth is reducing its vulnerability to the whims of those who control access to global markets.
But China does not actually need to limit access to its own markets to sustain its growth, because it can increase its bargaining power by merely threatening to do so. This suggests that China’s position in the global economy is starting to resemble that of the United States during the post-war period, when it, along with Europe, was the dominant economic power. For decades after World War II, Europe and the US represented well over half (and near 70% at one point) of global output, and they were not heavily dependent on markets elsewhere, other than for natural resources such as oil and minerals.
Now, China is rapidly approaching a similar configuration. It has a very large domestic market – to which it can control access – rising incomes, and high aggregate demand; and its growth model is increasingly based on domestic consumption and investment, and less on exports.
But how will China wield its increasing economic power? In the post-war period, the advanced economies used their position to set the rules for global economic activity. They did so in such a way as to benefit themselves, of course; but they also tried to be as inclusive as possible for developing countries.
The post-war powers certainly did not have to take that approach. It was within their power to focus far more narrowly on their own interests. But that might not have been wise. It is worth remembering that in the twentieth century, following two world wars, peace was the top priority, along with – or even before – prosperity.
China shows every sign of moving in the same direction. It most likely will not pursue a narrowly self-interested approach, mainly because to do so would diminish its global stature and clout. China has shown that it wants to be influential in the developing world – and certainly in Asia – by playing the role of a supportive partner, at least in the economic realm.
Whether China can achieve that goal will depend on what it does in two key policy areas. The first is investment, where China has moved aggressively by introducing a variety of multilateral and bilateral initiatives. For example, in addition to investing heavily in African countries, it created the Asian Infrastructure Investment Bank in 2015, and, in 2013, announced the “Belt and Road Initiative,” meant to integrate Eurasia through massive investments in highways, ports, and rail transport.
Second, how China manages access to its vast internal market, in terms of trade and investment, will have far-reaching consequences for all of China’s external economic partners, not just developing countries. China’s domestic market is now the source of its power, which means that the choices it makes in this area in the near term will largely determine its global standing for decades to come.
To be sure, China’s current position on domestic-market access is less clear than its economic ambitions abroad. But China will most likely move toward an open, largely rules-based multilateral framework. The lesson from the post-war period is that this approach will do the most good externally, and will thus enhance China’s international influence. At this stage of China’s development, such an approach will have few if any costs, while most likely conferring many benefits.
What remains to be seen is how China’s relationship with the US fares. The US is suffering from non-inclusive growth patterns and related political and social upheavals. And it now seems to be departing from its historical post-war approach to international economic policy. But even if the US is isolating itself under President Donald Trump, it is still too big simply to ignore. If the Trump administration enacts aggressive policies directed at China, the Chinese will have no choice but to respond.
Still, in the meantime, China can continue to pursue a rules-based multilateral approach, and it can expect broad support from other advanced and developing countries. The key is not to be distracted by America’s descent into nationalism. After all, it is anyone’s guess how long that will last.
What Future for Global Leadership?
With global leadership now in question, the G20’s upcoming summit in Hamburg on July 7-8 could be the group’s tensest meeting ever. China and Germany increasingly regard themselves as the new defenders of the international order, but neither can fill America's shoes.
PRINCETON – With global leadership now in question, the G20’s upcoming summit in Hamburg on July 7-8 could be the group’s tensest meeting ever. The summit process long pre-dates the G20’s founding in 1999. It was originally designed, in the 1970s, to align major economies’ domestic policies, thereby reducing uncertainty. But domestic politics have now created a new type of uncertainty.
Whereas the international community isolated Russia at the G20 Brisbane summit in 2014, the United States has isolated itself in 2017. After making a blustering appearance at the G7 Taormina summit this past May, US President Donald Trump announced that he was withdrawing the US from the 2015 Paris climate agreement. In response, European G7 leaders, with the notable exception of British Prime Minister Theresa May, have signed a declaration condemning Trump’s position.
After serving as the main architects of the United Nations system and the post-1945 international order, the US and the United Kingdom now seem intent on reversing that legacy. Since Trump’s election and the Brexit referendum last year, both countries have embarked on an inconsistent and highly contested political path away from openness and multilateralism.
Their trajectories, while erratic, have been remarkably similar. Indeed, many saw the Brexit referendum as a precursor to Trump’s election. Like the “Leave” campaign, Trump has tapped into voters’ fears about immigration. And, like May’s post-referendum government, Trump’s administration has floundered in office. In both cases, a poorly conceived campaign has caught up to the victors. And as the winners have started to look like losers, the left-wing populism of more authentic politicians such as Senator Bernie Sanders in the US and Labour Party leader Jeremy Corbyn in the UK has become increasingly popular.
The Trump and May governments also share striking similarities in international outlook. Both want to renegotiate international deals, such as trade treaties or, in the British case, the relationship with Europe. But the basis for such renegotiation is as unclear as it is contradictory.
As American and British workers have come to associate globalization with job losses and inequality, they have demanded more protection. But protectionism usually comes at a high cost to consumers, and especially to low earners. In fact, a great deal of statistical evidence suggests that lower-income groups tend to benefit the most from trade liberalization.
Against this backdrop, any effort to change existing arrangements will probably entail striking narrow deals and severely penalizing select imports. The risk is that retaliatory measures by other countries will trigger a vicious circle of protectionism and deglobalization.
In the post-war period, countries became increasingly linked through government and administrative agencies, multinational corporations, and financial institutions, all of which created an environment that was conducive to cooperation. Today, however, the mechanisms of globalization are already being eroded. Professional bureaucracies – not least the US Foreign Service – are being cut back. Corporations and media outlets are routinely admonished to be more patriotic. Finance is being segmented and renationalized. And soft-power institutions such as Hollywood and universities are now mired in culture wars.
American and British universities have long topped world rankings, and regard themselves as global institutions with a global responsibility. The president of Harvard University, Drew Faust, often enthuses about her institution’s international role; and Princeton University recently changed its motto from “In the nation’s service and the service of all nations” to “In the nation’s service and the service of humanity.”
But, in recent years, cosmopolitanism and global outreach have provoked a backlash. Consider May’s memorable words before the Conservative Party Conference last October: “If you believe you’re a citizen of the world, you’re a citizen of nowhere. You don’t understand what the very word ‘citizenship’ means.”
With the post-war spirit of universality in retreat, the old globalization will need new leadership and a new approach to multilateralism and soft power. This realization has, inevitably, led China and Europe – specifically, Germany – to see themselves as the new defenders of the global order.
In fact, China and Germany are increasingly aligned on many key issues. Both have reaffirmed their commitment to reducing carbon dioxide emissions under the Paris accord, and both object to Trump’s obstructive crusade on behalf of the coal industry. There is also a clear Chinese-German alliance forming to oppose trade protectionism. Recently, after Chinese President Xi Jinping described protectionism as akin to “locking oneself in a dark room,” German Chancellor Angela Merkel praised his words as “very memorable.”
Now that Germany’s G20 presidency is underway, German leaders have been exploring how their country might promote globalization in America’s stead. But Germany is simply too small to act as a hegemon, and its position within the eurozone is still being strained by the legacy of the 2008 financial crisis.
China, too, would encounter obstacles in pursuit of global leadership. Its financial sector is still relatively underdeveloped and prone to crises. Its large infrastructure initiative, One Belt, One Road, will create new dependency problems and exacerbate existing rivalries in Asia. And, finally, the prospect of Chinese leadership will raise fears about the fate of democracy. At the heart of anti-globalization critiques in rich countries has been a call for more democracy, not less.
To be sure, some of the ingredients for a new form of global leadership are there: China has great universities that are rapidly improving; and Germany has a strong democracy, built on federal principles and anchored in a vision of European integration. But without every ingredient, the recipe will not be complete. The American century was based on strong domestic institutions, shared values, and a vibrant cultural life. Globalization based on economic logic alone will never work.