U.S. abdicates international leadership role at its peril

At the end of World War II, the U.S sought to establish a free and open international trading system. While this was done ostensibly to rebuild war ravaged economies, it was also a response to geostrategic concerns. By promoting free trade and multilateralism, the U.S. was hoping to prevent another war by tying the western economies together, and to stave off Soviet communism from spreading west from eastern Europe. At the outset, officials realized that international trade and trade agreements involved more than just economics — they also affected international relations and alliances.

The Bretton Woods agreement signed by 44 allied nations created an international monetary system that created the International Monetary Fund (IMF) and the precursor to the World Bank, which leads international development efforts. The agreement also required countries to peg the value of their currencies to gold at a set exchange rate to prevent competitive currency devaluations, and set the U.S. dollar as the international reserve currency. A few years later the U.S. would help formalize efforts to lower trade barriers through the creation of the General Agreement on Tariffs and Trade (GATT), which in 1995 became the World Trade Organization (WTO), a forum to adjudicate trade disputes. This type of coordination and multilateralism would have been impossible without U.S. leadership.

The U.S. has led the world’s efforts in sustaining a global multilateral trading system for over 70 years. Unfortunately, the U.S. has abdicated its role as lead defender of the liberal trade order because the Trump administration is obsessed with bi-lateral trade deficits and economic nationalism. In just its first week in office, the Trump administration abandoned the U.S. commitment to free trade and multilateralism when it withdrew from the Trans-Pacific Partnership (TPP), a 12-nation international trade pact that included the U.S. that excluded China. The pact would cover 500 million people and $10 trillion in economic output.

When the Obama administration negotiated the pact, it realized that sometimes international trade policy is not just about international trade policy. While Obama’s team felt the deal would increase U.S. exports, they also knew the economic benefits for the U.S. would be fairly small. However, the deal’s true importance lay in its geostrategic importance; the pact would allow the U.S. to write international trade rules rather than China and serve as a counterweight to Chinese influence.

China had been making more strident territorial claims in the South China Sea, and it successfully founded the Asian Infrastructure Investment Bank, much to the chagrin of the United States. The U.S. had furiously lobbied its allies not to join because the U.S. was concerned the bank would help China exert undue regional influence due to its economic heft. Most joined anyway.

U.S. policymakers saw its regional influence waning, so they hoped a successful TPP would bolster American power by reasserting its economic leadership. However, the Trump administration’s withdrawal from the deal has forfeited all the advantages this trade pact was designed to produce. What’s worse, China will eagerly step into the leadership void.

The U.S. is becoming increasingly isolated. The other 11-member nations of the TPP are poised to finalize negotiations so they can ratify the TPP early next year without the U.S. Meanwhile, other nations are moving forward with multilateral trade pacts rather than succumb to U.S. pressure to sign separate bilateral trade deals.

Sometimes a trade deal is more than a trade deal. The U.S. forgets this at its peril.