Trade Wars

A crisis of multilateralism and the rise of Asia

Multilateralism, or a rules-based international order, was a late comer in the panoply of means by which countries interacted with each other. Its roots can be found in the Pragmatic Treaty of Munster-Westphalia signed in 1648 to avoid wars of attrition between militarily paired states that arose after the break-up of the Roman Empire. Global peace and prosperity were the main fallout, though both weakened during the interludes of heightened nationalism. This dynamic is at work to this day.

Starting from the principle that states were free to choose their official religions without outside interference, it gradually turned into an acceptance of “Westphalian sovereignty”: the inviolability of international borders and non-interference in the internal affairs of others. . There have been two main phases of multilateral cooperation. The first was dominated by Westphalia, followed by the Concert de l’Europe. Economic cooperation dominated the second phase with the reconstruction of war-torn economies in Europe and Japan, the repair of the international monetary system and the revival of world trade. Centered on the Bretton Woods system, multilateralism has spread to newly decolonized developing countries.

The G-7, an informal steering group of seven major world powers (bit.ly/3kOe3cO), organized political and economic cooperation. World peace has been maintained despite the impotence of the United Nations and the cold war. Economic cooperation has borne fruit thanks to global prosperity. World growth, which averaged 2% per year between 1870 and 1950, doubled to 4% between 1950 and 2000, aided by a boom in trade, whose share of world production doubled to over 60%.

The acceleration in growth has been heavily skewed in favor of emerging and developing economies (EMDE; bit.ly/2XY66Jt), shifting the relative economic weight of advanced economies (EAs) and EMDEs, with emerging Asia at the heart of it. This asymmetry has sown the seeds of the post-war crisis of multilateralism that threatens both global growth and peace. On the one hand, EAs have become disenchanted with globalization, having once been its most ardent advocate. On the other hand, the failure of the Bretton Woods system to adapt to changes in weight caused it to lose its legitimacy. History seemed to have come full circle. The former colonies, initially suspicious of globalization because of their imperial experience, defended it even as the West’s commitment weakened. Beyond this divide are nongovernmental organizations and transnational corporations (TNCs), whose resources, global reach and influence are increasing (fam.ag/3zPo65v) compared to nation states. Their interests appear to be more aligned with those of EMDEs on globalization.

The loss of legitimacy led to the emergence of alternative EMDE institutions that attempted to emulate the G7 (BRICS), IMF (CMIM) and World Bank (NDB, AIIB, BRI), and resulted in an initiative aimed at reviving multilateralism through a new governance structure. multilateral economic cooperation. The G-20 (g20.utoronto.ca/), raised to the top after the 2008 global financial crisis, welcomed emerging powers, especially China, and effectively replaced the G7.

The G-20 was successful in coordinating policies aimed at averting a second Great Depression, but it was less successful in addressing long-standing issues as old North-South fault lines resurfaced after the crisis. More than willing to engage in the G-20 on issues addressed by institutions such as the IMF and the World Bank, where they were in a subordinate position, EMDEs were reluctant to engage on issues addressed by the G-20. ‘WTO and others where they had equal voting power. The Parent Forum remained their platform of choice on issues such as trade and climate change, as their numerical strength allowed for special exceptions.

The G-20 has been reduced to issuing platitude statements, with the emphasis on bilateral meetings on the sidelines and a resurgent G-7. The commercial and geopolitical rivalry between the United States and China has now taken center stage. Brexit weakened multilateralism in Europe and Trumpism in the United States. Plurilateralism has beaten it thanks to agreements such as the CPA-TPP, TTIP and RCEP. None of these include both the United States and China, raising dystopian visions of a new Cold War and the Thucydides trap (on.ft.com/3ulR8IL). Average annual economic growth declined after 2010 to 3.5%, in line with a decline in trade. The growth differential between EAs and EMDEs has also narrowed.

Asia, closely linked to China through supply chains but wary of its imperial ambitions, and dependent on the West for export markets and security, finds itself between a rock and a hard place. A rapid revival of multilateralism is in its interest. This renewal is likely to be shaped by resolving four major frictions. First, the reinvention of the G-20 by harmonizing pressure groups so that globalization is seen to work for all major stakeholders. Second, China’s accommodation in global governance, through the G-20 or something similar. Third, by bridging fundamental ideological divisions, as several rising powers like China, India, Russia and Brazil have taken anti-liberal and nationalist turns, despite their open markets. And finally, by reworking the Westphalian notion of sovereignty to deal with dangerous externalities such as climate change, migrations from failed states and pandemics on the one hand, and by including non-state actors (including TNCs) d on the other hand in a new multiparty paradigm. multilateralism. Neither can be swept under the rug anymore.

Alok Sheel is RBI Professor of Macroeconomics, Indian Council for International Economic Relations Research

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