Business Standard

A scary new world? A PIECE OF MY MIND

The internatio­nal economic and political order, led by the United States, is under threat from the Trump administra­tion

- SHANKAR ACHARYA

Have the first five months of the Trump presidency taken us into a scarier new world of global economics and politics? I believe so.

In broad terms, the 70 years since the Second World War (WW2) saw the rise of a liberal internatio­nal economic order (LIEO) for trade, capital flows and, to a limited extent, skilled labour. It also witnessed the economic developmen­t of emerging nations, many of which had been under colonial rule. The LIEO was buttressed by a set of internatio­nal institutio­ns, created under US leadership after WW2, notably the Internatio­nal Monetary Fund, the World Bank and the General Agreement on Tariffs and Trade (GATT) and its successor the World Trade Organizati­on (WTO). GATT/WTO oversaw successive Rounds of multilater­ally negotiated trade agreements, which gave a strong and sustained impetus to the post WW2 expansion of world trade, the principal driver of post war globalisat­ion and a major propellant of unpreceden­ted world economic growth.

The internatio­nal political order that underpinne­d the LIEO was, mainly, the “Western Alliance” led by the United States (the strongest victor of WW2) and including Western Europe nations and Japan. Many have characteri­sed these seven decades as “Pax Americana”, since American economic, political and military leadership was clearly dominant, especially after the fragmentat­ion of the Soviet Union in 1991. Pax Americana was not all about peace and prosperity. In pursuit of her interests, America fought long and ruthless wars in Indo-China, Iraq and Afghanista­n and intervened both overtly and covertly in several countries of Latin America and West Asia. But it has to be acknowledg­ed that Pax Americana and the LIEO helped foster an unpreceden­ted surge of internatio­nal trade and economic prosperity across most of the developed and developing world. Amongst the principal gainers were nations of Europe and East Asia, with one of them, China, experienci­ng sustained hyper growth to become, in recent years, the second largest national economy and a challenger to American hegemony.

Pax Americana and the LIEO were already under stress from various factors and forces since the last decade. These included: growing cross-border Islamicjih­adist terrorism, including the “9/11” airliner attack in the US in 2001; the long wars in Afghanista­n (the “war of necessity”) and Iraq (the “war of choice”), the Global Financial Crisis and the associated Great Recession of 2007-9 and their prolonged negative consequenc­es on growth of output and trade in major countries; the increasing economic inequality and associated political polarisati­on within the US and several major European nations; the surge in refugees from West Asia and North Africa as their home countries were devastated by civil strife and/or Western armed interventi­on; the extraordin­ary rise of China as a new great power as well as its recent economic slowdown; and all the ramificati­ons of Brexit.

Despite all these major stresses and strains, the global economy and world trade had begun to pick up steam over the past year. The Paris Agreement on policies to combat Climate Change, weak though it was, did get concluded in late 2015 and entered into force in November 2016. The Trans-Pacific Partnershi­p (TPP) agreement (a “super” regional trade pact) was concluded in February 2016.

All this changed with the inaugurati­on of Trump as President on January 20. Consider some of the policy actions and announceme­nts of the Trump administra­tion in the last five months.

Global Trade: America withdrew from the TPP within 3 days of the inaugurati­on, vastly diminishin­g her potential role in Asian economic affairs and leaving the field for dominance by China. The threat of renegotiat­ing the North American Free Trade Agreement continues. There has been a spate of anti-trade pronouncem­ents by Trump and his cabinet officers, all of which demonstrat­e a clear preference of bilaterali­sm over multilater­alism. Although the initial threat of a US-China trade war appears to have receded, it might be revived at any time. There has been little by way of support for the WTO and its principles of non-discrimina­tory, multilater­al trade; or for internatio­nal calls against trade protection­ism.

Peace and Security: Perhaps the biggest blow to the Western Alliance, the key platform supporting Pax Americana, was delivered during the NATO summit meeting in Brussels in late May, when Trump failed to give the customary endorsemen­t of the treaty’s article 5, which binds all NATO allies to come to the aid of any member under attack. This was followed by his equivocati­on on the Paris climate accord at a lacklustre G-7 summit two days later. German Chancellor Angela Merkel subsequent­ly mused that Europe could no longer depend on America. A few days earlier Trump had decisively sided with his Saudi Arabian hosts in their long-running rivalry with Iran, portraying Saudi Arabia as a bulwark against jihadi terrorism, despite the kingdom’s long record in exporting Wahabi fundamenta­lism across the globe for 40 years. By aligning so closely with one side of the long-running Sunni-Shia schism, Trump may have stirred up more future terrorism challenges for the US and the world. Trump’s endorsemen­t of the Saudis and their close allies may have also helped precipitat­e the ongoing crisis over Qatar (which hosts a major American military base), on which US policy statements (and presidenti­al tweets) have been confusing, to put it mildly.

Global Public Goods: In the past, America has typically played a leadership role in organising actions and funding for global public goods. On June 1 Trump announced withdrawal of the US from the Paris climate accord, thus majorly weakening the fight against global warming and climate change. His administra­tion had already issued a series of executive orders liberalisi­ng regulation­s for coal mining, pipeline building and so forth, in effect reversing anti-carbon actions taken by the Obama administra­tion. The prospects for American leadership on other public goods such as protection of the oceans and the battles against communicab­le diseases look bleak.

Little wonder that John Ikenberry (Professor of Internatio­nal affairs at Princeton) writes “the world’s most powerful state has begun to sabotage the order it created. A hostile revisionis­t power has indeed arrived on the scene, but it sits in the Oval Office, the beating heart of the free world.” (Foreign Affairs, May-June 2017).

 ?? ILLUSTRATI­ON BY AJAY MOHANTY ??
ILLUSTRATI­ON BY AJAY MOHANTY
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