Opinion

Can Multilateralism Adapt?

Global governance requires rules, because flexibility and goodwill alone cannot tackle the hardest shared problems. With multilateralism under attack, the narrow path ahead is to determine, on a case-by-case basis, the minimum requirements of effective collective action, and to forge agreement on reforms that fulfill these conditions.

By: Date: July 3, 2018 Topic: Global Economics & Governance

This opinion piece was also published on Project Syndicate

FLORENCE – Rewind to the late 1990s. After an eight-decade-long hiatus, the global economy was being reunified. Economic openness was the order of the day. Finance was being liberalised. The nascent Internet would soon give everyone on the planet equal access to information. To manage ever-growing interdependence, new international institutions were developed. The World Trade Organisation was brought to life. A binding climate agreement, the Kyoto Protocol, had just been finalised.

The message was clear: globalisation was not just about liberalising flows of goods, services and capital but about establishing the rules and institutions required to steer markets, foster cooperation, and deliver global public goods.

Now fast-forward to 2018. Despite a decade of talks, the global trade negotiations launched in 2001 have gotten nowhere. The Internet has become fragmented and could break up further. Financial regionalism is on the rise. The global effort to combat climate change rests on a collection of non-binding agreements, from which the United States has withdrawn.

Yes, the WTO is still there, but it is increasingly ineffective. US President Donald Trump, who does not hide his contempt for multilateral rules, is attempting to block its dispute settlement system. The United States pretends against all evidence that imports of BMWs are a threat to national security. China is brutally ordered – outside any multilateral framework – to import more, export less, cut subsidies, refrain from purchasing US tech companies, and respect intellectual property rights. The very principles of multilateralism, a key pillar of global governance, seem to have become a relic from a distant past.

What happened? Trump, for sure. The 45th US president campaigned for the job like a bull in a china shop, vowing to destroy the edifice of international order built and maintained by all of his predecessors since Franklin Roosevelt. Since taking office, he has been true to his word, withdrawing from one international agreement after another and imposing import tariffs on friends and adversaries alike.

Still, let’s face it: today’s problems did not start with Trump. It was not Trump who, in 2009, killed the Copenhagen negotiation on a climate agreement. It was not Trump who is to blame for the failure of the Doha trade round. It was not Trump who told Asia to secede from the global financial safety net managed by the International Monetary Fund. Before Trump, problems were dealt with more politely. But they were there.

There is no shortage of explanations. An important one is that many participants in the international system are having second thoughts about globalisation. A widespread perception in advanced countries is that the rents from technological innovation are being eroded precipitously. The US factory worker of yesterday owed his standard of living to these rents. But as the economist Richard Baldwin brilliantly shows in The Great Convergence, technology has become more accessible, production processes have been segmented, and many of the rents have gone.

A second explanation is that the US strategy toward Russia and China has failed. In the 1990s, Presidents George H.W. Bush and Bill Clinton thought that the international order would help transform Russia and China into “market democracies.” But neither Russia nor China has converged politically. China is converging in terms of GDP and sophistication, but its economic system remains apart. As Mark Wu of Harvard argued in a 2016 paper, although market forces play a strong role in its economy, coordination by the state (and control by the Communist Party) remains pervasive. China has invented its own economic rules.

Third, the US is unsure that a rules-based system offers the best framework to manage its rivalry with China. True, a multilateral system may help the incumbent hegemon and the rising power avoid falling into the so-called “Thucydides’ trap” of military confrontation. But the growing perception in the US is that multilateralism puts more constraints on its own behavior than on China’s.

Finally, global rules look increasingly outdated. Whereas some of their underlying principles – starting with the simple idea that issues are addressed multilaterally rather than bilaterally – are as strong as ever, others were conceived for a world that no longer exists. Established trade negotiation practices make little sense in a world of global value chains and sophisticated services. And categorising countries by their development level is losing its usefulness, given that some of them combine first-class global companies and pockets of economic backwardness. But inertia is considerable, if only because consensus is required to change the rules.

So what should be done? One option is to preserve the existing order to the greatest extent possible. This was the approach adopted after Trump withdrew the US from the Paris climate agreement: the other signatories continue to abide by it. The advantages of this approach are that it contains the damage from one country’s peculiar behavior. But, to the extent that the US attitude is a symptom, the conservationist approach does not address the disease.

A second option is to use the crisis as an opportunity for reform. The EU, China, and a few others – including, one hopes, the US at some point – should be the ones to take the initiative, salvaging those aspects of the old multilateralism that remain useful, but fusing them into new arrangements that are fairer, more flexible, and more appropriate for today’s world.

This strategy would have the advantage of identifying and absorbing the lessons offered by the exhaustion of traditional arrangements and the emergence of new ones. But is there enough leadership and enough political will to go beyond empty, face-saving compromises? The downside risk is that failed reform could lead to a complete unraveling of the global system.

In the end, the solution is neither to cultivate the nostalgia of yesterday’s order nor to place hope in loose, ineffective forms of international cooperation. International collective action requires rules, because flexibility and goodwill alone cannot tackle hard problems. The narrow path ahead is to determine, on a case-by-case basis, the minimum requirements of effective collective action, and to forge agreement on reforms that fulfill these conditions. For those who believe that such a path exists, there is no time to lose in finding it.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint.

Due to copyright agreements we ask that you kindly email request to republish opinions that have appeared in print to communication@bruegel.org.

View comments
Read article Download PDF More on this topic

External Publication

Europe – the global centre for excellent research

This report, requested by the European Parliament's Committee on Industry, Research and Energy, analyses the EU’s potential to be a global centre of excellence for research as a driver of its future growth in a complex global S&T landscape, and how EU public resources can contribute to this.

By: Michael Baltensperger and Reinhilde Veugelers Topic: Innovation & Competition Policy Date: May 22, 2019
Read article More on this topic

Blog Post

India in 2024: Narendra Modi once more, but to what end?

Even with the recent economic slowdown, India still boasts Asia’s fastest growing economy in 2018. But beneath the veneer of impressive GDP expansion, uneasiness about India’s economic model clearly tempers enthusiasm.

By: Alicia García-Herrero and Trinh Nguyen Topic: Global Economics & Governance Date: May 17, 2019
Read article More on this topic More by this author

Blog Post

What is in store for the EU’s trade relationship with the US ?

If faced with a resurgent President Trump after the next US election, the EU will have some difficult decisions to make as it is compelled to enter a one-sided negotiation. Failure to strike a deal will imperil the world’s largest trade relationship and contribute to the progressive unravelling of the rules enshrined in the World Trade Organization – although the changes required of Europe by Trump’s demands may ultimately turn out to be in the interest of Europeans.

By: Uri Dadush Topic: Global Economics & Governance Date: May 16, 2019
Read article More on this topic More by this author

Podcast

Podcast

Director's Cut: Evolution of US-China relations amid trade-tariff conflict

Bruegel director Guntram Wolff and Bruegel fellow Uri Dadush welcome William Alan Reinsch, senior adviser and Scholl chair in international business at the Center for Strategic and International Studies, for a discussion of how China-US relations are developing in the context of unfolding trade war.

By: The Sound of Economics Topic: Global Economics & Governance Date: May 14, 2019
Read article More on this topic More by this author

Blog Post

Implications of the escalating China-US trade dispute

If allowed to escalate, the trade dispute between China and the United States will significantly increase the likelihood of a global protectionist surge and a collapse in the rules-based international trading system. Here the author assesses the specific impacts on the Chinese and US economies, as well as the strategic problems this dispute poses for Europe.

By: Uri Dadush Topic: Global Economics & Governance Date: May 14, 2019
Read article More on this topic

Opinion

Will China’s trade war with the US end like that of Japan in the 1980s?

The outcome of the US-China trade war is anticipated to be quite different from the experience of Japan in the 1980s and 1990s, due to China’s relatively lower dependence on the US and having learned from the Japanese experience.

By: Alicia García-Herrero and Kohei Iwahara Topic: Global Economics & Governance Date: May 13, 2019
Read article More on this topic More by this author

Opinion

Trade war: Is the U.S. panicking due to China's big hedge?

U.S.-China trade war has suddenly taken centre stage following Donald Trump’s unexpected announcement to ramp up tariffs if no deal is reached. U.S. is in desperate need for a comprehensive victory, and China is ready to make concessions, but not to the extent of transforming its state-led economic model into a market-based economy.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: May 9, 2019
Read article More by this author

Blog Post

Spitzenkandidaten visions for the future of Europe's economy

What are the different political visions for the future of Europe’s economy? Bruegel and the Financial Times organised a debate series with lead candidates from six political parties in the run-up to the 2019 European elections.

By: Giuseppe Porcaro Topic: European Macroeconomics & Governance, Global Economics & Governance, Innovation & Competition Policy Date: May 8, 2019
Read article More on this topic

Opinion

Life after the multilateral trading system

Considering a world absent a multilateral trading system is not to promote such an outcome, but to encourage all to prepare for the worst and instil greater clarity in the mind of policymakers as to what happens if compromise fails.

By: Uri Dadush and Guntram B. Wolff Topic: Global Economics & Governance Date: April 25, 2019
Read article More on this topic More by this author

Opinion

What else China can do to support growth in the short term

Recent data shows the downward spiral in the Chinese economy has somewhat eased on a cyclical basis, but it is still too early to cheer for a full stabilization.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: April 23, 2019
Read article More on this topic More by this author

Podcast

Podcast

Director's Cut: Resuming the EU-US trade talks

Maria Demertzis sits down with Bruegel senior fellow André Sapir to break down the news, discussing the events leading up to the renewed EU-US trade talks, and the likely future course.

By: The Sound of Economics Topic: Global Economics & Governance Date: April 23, 2019
Read article More on this topic

Blog Post

The next step of the Belt and Road Initiative: Multilateralisation with Chinese characteristics

The increasingly broad objective of China's Belt and Road Initiative has attracted the attention not only from the BRI members, but also from other major players such as the United States and the European Union.

By: Alicia García-Herrero and Jianwei Xu Topic: Global Economics & Governance Date: April 18, 2019
Load more posts