For about seventy years after World War II, America promoted and pursued a global order that was based on political liberalism and free trade. Despite its flaws, costly military interventions and the support of illiberal regimes, this policy succeeded in establishing a globalized economy that gained even greater momentum after the entrance of the countries of the former Soviet Block and especially China into the world of capitalism.
The US commitment to internationalization was made at a time America was effectively an unchallenged economic and military power. It was also fueled by a supreme confidence in the capacity of America to maintain its competitive advantages as a capitalist country. Furthermore, there was a consensus across the political spectrum that America was willing to absorb economic costs in order to pursue global strategies that were deemed to be in the national interest. Such costs were those related to securing the defense of Europe and Japan while these countries grew their economies and became serious competitors of America. One could say, therefore, this strategy was a win-win proposition.
The same strategic thinking was behind America’s decision to accept China as an economic partner and give her a seat at the World Trade Organization. The hope was that as China opened up its markets and economy and integrated itself into the global market system political liberalization would follow.
Now, we are discovering that while the strategy seemed to be sound, at least from an American standpoint, it was poorly executed and assumed too much. The catalysts that helped America come to this realization have been two cataclysmic events: the Great Recession of 2008 and the Pandemic of 2020.
The 2008 crisis focused the minds of middle- and lower-income Americans on the fragility of their finances, the insecurity of their jobs, and how much was lost to foreign competition and offshoring. It had a lot to do with the growth of the populist fervor that eventually brought Donald Trump to the White House. For its part, the Pandemic showed that at a time of a severe health crisis, America’s procurement of critical medicines and health equipment depended on supply chains it no longer controlled.
So, what went wrong with the international economic order America had pursued until recently? I believe the single most critical mistake was to ignore the inevitable loss and denigration of domestic jobs and the need to adopt policies to soften the blow. Just as in the American domestic market the pursuit of unfettered capitalism ignored the costs of creative destruction (i.e., creating new jobs that destroy old jobs), the same way American global capitalism ignored the destruction of American jobs through offshoring and foreign competition. Similar complaints have funneled public unrest in other Western countries.
The cost of globalization to America could have been less under any of the following conditions. One would have been the presence of a robust labor union system that could have put checks on economic policies that threatened the livelihoods of working-class Americans. The second condition would have been an enlightened corporate policy that would practice a more equitable sharing of the economic gains of globalization. And the third condition would have been a public policy that would have aimed at the reengineering of the skill sets and education of the labor force to fortify it against the inevitable dislocations caused by globalization.
If none of these conditions came to pass it is, I believe, because of corporate interests and money and their political allies. Growing aggregate wealth, the bulk of which went to a tiny fraction of Americans, became a more acceptable criterion of economic growth than its fair distribution. All the while, raising taxes to fund public policies to mitigate the costs of job losses became an anathema. In sum, the execution of the American global order eventually morphed from a win-win proposition to a win (for the few) – lose (for the many) reality.
The second flaw in the execution of the American global order, especially after the ascendancy of China, was the assumption that international economic partners can be trusted. Trust is of essence in any trade arrangement. I specialize in the production of good A and you in the production of good B. Whenever, I need good B, I know I can procure it from you and vice-versa. The Pandemic of 2020 exposed the risks of the trust assumption. Western nations, including the US, felt vulnerable as they came to rely on foreign, mostly Chinese, firms to secure what they needed to fight the pandemic. Trust had already become an issue, as for example, in the case of 5G technology and its applications to sensitive telecommunication systems. The central question is whether nations can trust the international division of production if they are concerned that some countries may act nationalistically to maximize their leverage.
Against these negative realities, the current American approach is exemplified in President Trump’s rhetoric for an “America First” and the lack of willingness to seriously engage in multilateral talks in order to right the course of the economic global order.
But because America is willing to live with less internationalization, it doesn’t mean the rest of the world will follow us. China, in particular, is pursuing a methodical multiprong strategy to secure a leading role in the global economic ecosystem. The “Made in China 2025” aims at placing China at the top of technology and research by 2025. The “Belt and Road Initiative” is establishing a nexus of countries across the globe where China has an economic presence and which can be used to secure supply lines for the growing Chinese economy. It is doubtful that the leading economies in Europe, Russia, India and Brazil will resist the temptation of doing business within this new emerging model.
Therefore, after seventy years of a global order led by America, we are now at a point this order is withering as America turns inward and has to compete with a new order modeled by China. American indifference to constructive global engagement has the risk of ending up with a new global order to which America will feel like an outsider.
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