The world order seems to be fraying before our eyes. Russia’s war against Ukraine, US-China tensions, America’s shameful failure to provide Ukraine with more weaponry, Donald Trump’s threats of an isolationist US pullback from the globe, Israel and tensions in the Middle East. It’s time to reinvest in the bricks and mortar of the global order, but the prospects are dim, especially in America.
At the end of the second world war, the US created a strong military and security framework to contain the Soviet bloc at a time when European allies were far too weak to protect themselves. But assembling the bricks of the foundation was not enough. The US needed mortar to cement them. It did so via its remarkable post-war recovery: the Marshall Plan, trade liberalisation, the G7 and the creation of the International Monetary Fund, World Bank, the General Agreement on Tariffs and Trade and the World Trade Organization.
Decades of growth and prosperity followed in the ‘West’ (which I use to refer to the Transatlantic relationship, but also Japan, Korea, Australia and New Zealand). Of course, there were flaws. The US fell prey at times to an overly black and white Manichean world view and cowboy behaviour. Europe became a free-rider on American security. Many parts of the world – the global South – were long left out of rising global prosperity.
With the collapse of the Soviet Union and China’s remarkable economic rise, the global landscape fundamentally changed. The US remains the world’s largest and dominant economy, but it feels insecure, especially as it looks at China’s growing might, and fails to grapple with inequality and polarisation at home. Europe is prosperous, but growth has levelled off and the continent feels vulnerable standing next to a bellicose Russia, watching America step back from globalism. Many emerging markets have established sound fundamentals and prospered. The global South wishes to maintain its neutrality between US and China tensions, while on the whole welcoming Chinese economic assistance.
Against this background, the West needs to reinvest in bricks and mortar. Don’t hold your breath.
Bricks and mortar
On bricks, Europe must quickly build up its defence capabilities. Its nations must far more uniformly treat the Nato defence spending goal of 2% of gross domestic product as a minimum. The Zeitenwende was a remarkable step forward, but mistakenly doubling down on the Schuldenbremse debt brake may vitiate its vision. Energy security must become an even greater priority, recognising the huge gains in turning off the Russian energy supply. The US ‘pause’ of liquid natural gas exports is a wrongheaded way to treat allies. Europe and the US must stay united to promulgate sensible multilateral sanctions against Russia. The US must stump up resources for Ukraine.
On mortar, the West – especially the US – must better support the global South. Led by the US, the creation of the G20 at the leaders’ level showed vision in recognising the need to go beyond the confines of a G7-dominated system, which no longer had the clout to manage the global economy. The G20 was effective at the outset, but it has fallen into disrepair amid Russia’s barbarism and US-China tensions. It is increasingly unable to tackle global challenges such as climate change.
President Joe Biden’s administration and China’s leadership have pragmatically stabilised the bilateral relationship over the last year. More open engagement is needed, devoid of hawkish cold war rhetoric. That could help to renew G20 efficacy.
While the US is increasingly veering towards protectionist sentiments – both Democrats and Republicans – many countries, particularly in Asia, view trade as essential for their economic security and a means to engage with America in the face of Chinese regional dominance. The Trump administration’s withdrawal from the Trans-Pacific Partnership was a colossal blunder. The US needs to reinvest in trade, though the prospects are dim. It could promote closer ties with Asia by at least backing off from its recent Indo-Pacific Economic Framework moves and paring back tariffs where practicable.
The US must step up financially
America could show greater leadership on international monetary policy. The US has typically been reticent in extending payments financing, outside of select cases. Given budget constraints, it could make greater use of guarantees, though they can be costly given US credit reform policies. The Federal Reserve in the past has extended swap lines to a select few emerging markets; it could codify such lines with only a limited handful of the best performers extensively involved in the dollar-based global financial system.
In the IMF, the US should be willing to support boosting China’s voting power if China adopts established principles on providing lower-income countries with meaningful debt relief. America should also mobilise subsidy resources for Fund support for Africa and the poorest countries, perhaps calling for limited IMF gold sales.
The US sees the World Bank and multilateral development banks as core institutions for fighting climate change. Beyond efforts to ensure MDB support is more efficient and to better leverage balance sheets, the US should back general capital increases to significantly boost lending.
America needs to reinvest in bricks and mortar to manage a fraying and evolving global order. Unfortunately, most of this seems like pie in the sky. US political polarisation, chaos and dysfunction, the fiscal situation and rising isolationist tendencies will most likely push in the other direction. The US needs to get its house in order. The fraying may well continue.
Mark Sobel is US Chair of OMFIF.
This is the second piece in a series on the two-year anniversary of the Russia-Ukraine war. Read the first here.
