Abstract
This chapter analyzes an interrelated set of key economic policy debates since the late twentieth century, concerning issues of globalization, inequality, and trade. This demonstrates, in particular, how the policymaking consequences of recent international politics are influencing the global economic architecture. The core claims of much of the discourse on economic globalization were brought into question by the GFC, further undermining confidence in financial deregulation. Another aspect of this discourse, the emphasis on trade liberalization, also was undermined by the growing influence of ‘populist’ politicians in America and Europe. Rising inequality in many of these countries contributed to the populist political surge in 2016, which has also increased the relative authority shift between some politicians of those states.
Keywords
- Global Economic Architecture
- Transatlantic Trade And Investment Partnership (TTIP)
- Donald Administration
- NAFTA North American Free Trade Agreement (NAFTA)
- Liberal International Order
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.
The preceding chapters assess some key organizational and policymaking shifts in the global economic architecture since the GFC. This chapter demonstrates how these developments have been predicated partly on political-economic aspects of domestic and international politics since the late twentieth century, plus influenced by more recent events, especially the perceived rise of populism . The latter possibly reached its zenith in 2016, with the UK’s ‘Brexit’ referendum and Donald Trump’s election victory. These events increased international concerns about the political consequences of the GFC, including among influential figures such as Christine Lagarde (IMF 2016) and Angela Merkel (German G20 P residency 2016, 2).
The present chapter is divided into five parts, focused on policy contestation related to globalization, inequality, and international trade. The first part examines the social constructions and normative contestation of ‘globalization’, a key signifier in recent political debate. This particularly concerns the political consequences of alternative understandings of globalization. The second focuses more narrowly on issues of free trade, assessing whether recent heightened policy contestation raises valid concerns or, instead, indicates populist political scapegoating and ‘nativism’. The third part examines the apparent populist challenge to conventional policies and global governance , evaluating how this could shape the future of global economic governance . The fourth section considers the recent policy effects of decentralizing authority in international trade. The final section then considers how political and policy effects of the GFC could influence the global economic architecture.
Despite the efforts in recent years from leading states and multilateral bodies, such as the G20, the IMF , and the WTO , to sustain global trade, there is substantial evidence of a political backlash against international openness—often conceived as ‘globalization’—in many parts of the world. This has raised concerns about the resurgence of trade protectionism and extreme expressions of populism , including anti-immigrant racism and jingoistic nationalism. This chapter examines how rising inequality has contributed to such political circumstances, while considering the effects of policymaking on the international authority of key actors in global economic governance.
Social Constructions and Normative Contestation of ‘Globalization’
‘Globalization’ ha s been one of the key signifiers of international political discourse since the 1980s. The topic has also been important and controversial for domestic and international politics since the GFC. This section analyzes the social constructions and recent normative contestation of ‘globalization’, hence focusing on alternative understandings of it, while also analyzing the normative contestation of its perceived political-economic consequences.
There have been various social constructions of globalization over recent decades. Colin Hay and Ben Rosamond (2002) analyzed, several years ago, what they considered the main ‘discursive constructions’ of economic globalization and European integration. Rosamond (2003, 662) also argued that the ideational content of globalization studies should be analyzed more by scholars of International Political Economy, due to the importance of ideational factors for shaping policy responses to assumed ‘globalization’. My own focus on economic globalization approached the topic in this sense (Luckhurst 2010). Others have contested the conceptual meaning, but as Robert Keohane (2002, 14) once admitted:
When globalization became the buzzword of the 1990s, my first reaction was to regard it as journalistic hype… But it is frustrating to try to row against a strong tide, or to sail directly into the wind. To be heard, the scholar has to speak to the concerns of his era in the language of his era.
Paul Hirst and Grahame Thompson shared this skepticism, but refused to bow to such pressure. They argued (1999, 1) that globalization had become, by the late 1990s, ‘a fashionable concept in the social sciences, a core dictum in the prescriptions of management gurus, and a catch-phrase for journalists and politicians of every stripe’. Reinforcing the point, Marion Fourcade (2006, 171) and Paul Krugman (1995, 36) also note the potential career advantages of accepting such conventional wisdom, as a marker of professional acceptability.
‘Globalization’ is a signifier of dubious content; some of the core claims commonly associated with it are flawed. The articulation of both valid and flawed claims in globalization discourse should be analyzed to distinguish those that accurately reflect what is happening in the world economy from those that do not, but also to evaluate the political content of the discourse. For example, Hay and Rosamond (2002, 149) note the effects of the prevalent assumption, in the 1990s, that economic globalization increased ‘tax competition’ between states due to the ‘mobility of capital’. As a consequence, governments were encouraged to reduce corporate tax rates to encourage FDI. However, this claim was contradicted by the evidence that lower tax rates were less significant for attracting FDI than other factors that tax revenues enhance, such as skills training and education, infrastructure, and public securit y (WTO 2005, 19–20). Despite the contrary evidence, ‘if governments believe it to be true, or find it to their advantage to present it as true, they will act in a manner consistent with its predictions, thereby contributing to an aggregate depreciation in corporate taxation—whether they are right to do so or not’ (Hay and Rosamond 2002, 149).
Hay and Rosamond (2002, 148, original emphasis) summarize the wider policy consequences of globalization discourse, stating that ‘policymakers acting on the basis of assumptions consistent with the hyperglobalization thesis may well serve… to bring about outcomes consistent with that thesis, irrespective of its veracity and, indeed, irrespective of its perceived veracity.’Footnote 1 As Nick Bisley (2007, 59) noted, shortly before the GFC, ‘Market discipline’ was widely perceived in international policy circles to have ‘reduced the range and character of economic policy-making’. He further asserted, ‘Gone are the Keynesian and corporatist policy tools of demand management, industry policy and ownership of strategic industries. In their place we find that only monetary and fiscal policies are available for states to influence their economic well-being.’Footnote 2 A year after that sentence was published, there was a dramatic shift in public-policy discourse, leading to a ‘Keynesian revival’ that would influence subsequent debate on national and global economic governance. Bisley’s (2007, 49) assertion that speculative and risky financial practices had become key aspects of globalization indicated a crucial subsequent shift during the GFC, as the G20 and the BCBS combined to decrease such practices and create the new Basel III Accords. This indicated that the global governance élite had learnt some important lessons, by understanding the benefits of trying to constrain some of those financial market activities. This discussion is not meant simply to critique the pre-2008 claims from Bisley, some of which were valid when written. The key point is that the GFC crucially altered the global political-economic context, to the extent that common beliefs about globalization were subsequently undermined.
Other aspects of the hyperglobalist or neoliberal claims about globalization were dubious. Some of the changes that had occurred since the 1980s—such as growing economic interdependence, increased cross-border capital flows, currency- and stock-market liberalization, and the gradual growth of trade—broadly indicated a continued concentration of much of the international economy within the three core regions of North America, Europe, and East Asia, rather than a genuine globalization (Bisley 2007, 89–92; Hay 2007, 139–141; Hirst and Thompson 1999, 70–75; Rugman 2008, 99–100; OECD 2008; World Bank 2009). The se reg ions also were the locations of the main international reserve currencies, the US do llar, the euro, the yen, and pound sterling. The assumption that domestic economic policymakers could no longer act independently, because of the supposed constraints from globalized markets, also had been dubious. Such claims often seemed politically motivated, rather than supported by the evidence. The GFC indicated to the contrary that states, especially when cooperating multilaterally, could still play a significant role through domestic and global economic governance (Cooper and Thakur 2013, 75; Luckhurst 2016a, 26–30).
The inaccuracy and inconsistency of claims about economic globalization meant the signifier was open to different political interpretations. It also indicated that this was not purely a technocratic discourse about how to achieve the best results in economic governance, but rather there were important politico-normative issues at stake. The 1990s and early 2000s discourse had often emphasized the implications of economic ‘globaliz ation’ for international investment and capital flows. This scholarly and policy debate underpinned former IMF managing director Camdessus’ failed attempt to rewrite the IMF’s articles of agreement, to endorse capital account liberalization; and the OECD’s failed MAI initiative, both discussed in Chap. 2. This indicated the continued cognitive, normative, and political contestation on these issues in the 1990s, despite the influence of neoliberal arguments associated with globalization discourse. In this sense, as noted earlier, the lack of a truly hegemonic discourse in global economic governance weakened attempts to adjust policies to match the rhetorical claims associated with globalization, especially in line with the assumptions of neoliberal and New Classical-influenced globalization discourse.
The GFC undermined many erstwhile common assumptions about economic globalization , which brought further into question the neoliberal claims associated with it. The loss of prestige for ‘Anglo-Saxon’ neoliberalism, blamed for the deregulation and financial market failures that caused the GFC, led to a renewed scholarly interest in the ‘varieties of capitalism ’ literature (see Crouch et al. 2009; Hall and Soskice 2001; Hall and Thelen 2009). This indicated how the events had diminished the cognitive authority of those who had advocated laissez-faire liberalism , relative to those who had endorsed and implemented alternative approaches. The GFC had underlined the potential for an effective public role in economic governance, in domestic politics and through multilateral coordination. This increased the cognitive authority derived from more interventionist approaches to economic governance, for policymakers in places such as China and the Republic of Korea.
This discussion indicates that the politico-normative contestation of ‘globalization’ and ‘globalism’ since the GFC broadly constituted a rejection of precrisis policies that had been implemented voluntarily, sometimes using ‘globalization’ as a justification; economic globalization was not a necessary external constraint on policymakers (see Hay and Rosamond 2002). This signifies that policies commonly associated with globalization were consequences of political decisions. They were sometimes influenced by the rules of multilateral organizations, such as the IMF or WTO , but even in such instances, the policies resulted from interactions between domestic and international political actors. In some cases, this indicated the effects of peer pressure leading to a ‘norm cascade ’ in conformity (Finnemore and Sikkink 1998, 902–904), rather than the consequence of an unstoppable global economic force.
Political Scapegoating and Genuine Concerns About the Effects of Free Trade
The domestic effects of the international or ‘global’ economy became more controversial during the GFC. The increased domestic and multilateral economic policy intervention, though more restricted than the Bretton Woods compromise (Luckhurst 2016a, 87–90), nonetheless indicated growing concerns about managing the international effects on domestic economies. Influential policymakers and political leaders argued that key economic issues, such as global imbalances and the problem of low growth, should be addressed, especially multilaterally (IMF 2016; German G20 Presidency 2016, 2; Xi 2017). The G20 managed to cooperate on international commerce, especially through its anti-protectionism commitments (G20 2009, 2013, 11, 2016). International trade ratios subsequently declined less than FDI flows and quickly recovered, despite the GFC (see Figs. 5.1, 5.2, 5.3, 5.4, 5.5, 5.6, 5.7, and 5.8.), though there is evidence that trade growth has subsequently slowed ag ain (WTO 2017).
Despite multilateral cooperation since the GFC, the weak global recovery increased concerns about the political consequences of insufficient policy measures to raise global economic growth (Luckhurst 2016b, 166–172). The most dramatic political-economic developments associated with globalization and the intensification of economic interdependence occurred in areas such as capital flows, currency markets, and financial-sector deregulation since the 1980s. These were often the targets for anti-globalization activists and left-wing politicians at the turn of the millennium, in addition to their opposition to free-trade agreements. The growth in international trade had been less dramatic, and started before the intensification of global financial interdependence. However, as noted by Dani Rodrik (2012, 51–66, 159–183), the WTO’s trade liberalization agenda in the 1990s arguably weakened the industrial growth potential of developing economies, while free trade has undermined some sectors of domestic employment in industrialized states.
Left-wing and right-wing populists have criticized the effects of international trade on domestic employment (Judis 2016, 67–68, 83; Narlikar 2017). The issue of international trade became the main economic target, especially for right-wing populists (Kriesi 2014, 369; Narlikar 2017), combined with their claims about the consequences of immigration for domestic workers in their critique of ‘globalization’. One interesting aspect of their political focus on trade was that it had not been the core characteristic associated with economic globalization , which mainly involved issues of global financial liberalization. The rhetorical emphasis on trade was perhaps due to public sensitivities and awareness of the issue; what appeared to be an obvious indicator of international economic imbalances enabled politicians like Donald Trump to capitalize on commonplace, zero-sum beliefs about the employment effects of international trade and the politically linked issue of ‘outsourcing’ (Judis 2016, 67–68). Studies indicate, to the contrary, that trade openness generally has a positive net effect on employment ( IMF, World Bank and WTO 2017, 26), but public opinion and populist politics are not necessarily guided by expert analysis.
A recent joint report from the IMF, World Bank and WTO (2017, 6) notes that free trade has often been unpopular and argues that mainstream politicians should try harder to explain its benefits (see Rodrik 2012, 51–52). Some defenders of ‘globalization’ and liberal international trade have argued that other factors were responsible for the recent populist trend, including fears about immigration and loss of sovereignty to the EU or other multilateral organizations (Gros 2016). There are also analysts who emphasize the changing economic circumstances, particularly the effects of automation on manufacturing jobs in industrialized countries (Economist 2016; Lehmacher 2016). There are studies that indicate this argument has been exaggerated, while noting, however, that the consequences of automation are felt disproportionately higher among low-skilled workers (Arntz et al. 2016; IMF, World Bank and WTO 2017, 24, 27). Another key economic factor has been austerity policies, which, as noted previously, stifled economic recoveries and also disproportionately burdened lower-income citizens. These were key reasons for the public perception of economic malaise, influenced by insecure employment, cuts in welfare benefits, and declining real wages among low- and middle-income groups in the United States and the EU . This indicates the domestic policy decisions that increased inequality, rather than attribute these effects to ‘globalization’ (Helpman 2016; Alvaredo et al. 2017). The political consequences of economic malaise and heightened uncertainty, due to the weak global economic recovery since the GFC, should not be underestimated.
There are different perspectives on the linkage between populist politics and economic insecurity, and on how this influences international trade relations. The fact that policymakers have felt the need to address these concerns indicates the shifting political dynamics since the GFC, especially that international trade issues have become increasingly controversial. ‘Globalization’ became a convenient catchall phrase and sometimes a scapegoat for domestic policy failures, for those stoking the populist challenge to the perceived ‘global’ and ‘globalist’ élites. This was despite the fact that some populists , especially President Trump , did not reject financial deregulation, which had been the policy catalyst for the GFC and also often considered a key indicator of economic globaliz ation.
The politics of international trade has been influenced by other concerns about recent agreements and negotiations. The apparent decline of WTO leadership on trade liberalization, indicated by the failure to complete the Doha Trade Round , encouraged governments and regional actors to seek more ‘plurilateral’, regional, or ‘mega-regional’ agreements (Brown 2016; Hufbauer and Cimino-Isaacs 2015). Two high-profile cases were the TPP agreement and the ongoing TTIP trade negotiations, both of which raised public, scholarly, and political concerns about their potential effects. The formal rejection of TPP by Trump , at the start of his administration, was no doubt intended to emphasize his prioritization of American jobs over multilateral trade. The future of both deals is now in doubt, especially due to th e US government’s skepticism.
Beyond some of the political symbolism of Trump’s rejection, other critics have indicated the likely negative consequences of aspects of TPP and TTIP . The expert and scholarly literature stresses that recent free-trade agreements have tended to include much wider issues than simply trade in manufactured goods, potentially with significant effects on environmental regulations, labor law, civil rights, investment rules, government procurement, service industries, product standards, and other repercussions for societies and national legal norms (Dent 2010; Hufbauer and Cimino-Isaacs 2015; Orbie and Khorana 2015; Tham and Ewing 2016; Wouters et al. 2014). This could potentially lead to improvements in domestic standards; however, there are concerns that agreements such as TPP and TTIP give too much influence to multinational corporations, especially enhancing their capacity to dilute labor, environmental, and other regulations they consider harmful to their business activities in participating states (Henckels 2016). These critiques indicate that contemporary concerns about free-trade agreements are not limited to pop ulist protectionism, but also have been raised by others, including CSOs and politically moderate voices (see De Ville and Siles-Brügge 2015; Garcia-Duran and Eliasson 2017; Higgott and Stubbs 2016), due to their perceived negative effects on societies in both developing and wealthy states. The potential for resolving these concerns could have significant effects on international trade, especially the content and consequences of future free-trade agreements.
Recent developments in trade relations, including obstacles to the implementation of TPP and TTIP , could have important consequences for international political, strategic, and cognitive authority. The Obama and G.W. Bush administrations both emphasized US le adership through such trade negotiations, while endorsing the broader importance of multilateral economic cooperation, despite Bush’s unilateralism on climate change and security issues. Bush and Obama prioritized multilateral cooperation during the GFC, particularly through the G20 (Luckhurst 2016a). This underscores the significant shift in international policy principles, norms, and practices under the Trump administration. This effect is indicated by the unilater al US objection that prevented a recent G20 Finance ministerial communiqué from reaffirming the G20’s opposition to trade protectionism (Jones and Fleming 2017; Koranyi and Heller 2017; see G20 Finance 2017), pl us by Trump’s withdrawal from the TPP agreement. The Trump administration has already discarded some of the American president’s election campaign pledges, but its perceived hostility to recent multilateral norms and practices undermi nes US credibility and authority in international relations and global economic governance.
The ‘Populist’ Challenge to Conventional Trade Policies and Global Governance
It might be tem pting t o co nsider policy reversals of the Trump administration’s first 100 days as indicative it could become more conventional than some anticipated (Foran 2017; Timm 2017). Dramatic policy shifts have been evident, on domestic issues such as the proposed American Health Care Act, as well as international ones, such as the April 2017 Tomahawk missile attack on a Syrian airbase, recently deteriorating relations with the Russian government, and even the current improvement in relations with the Chinese. The experience of some populist movements in office, such as the left-wing Syriza government in Greece, reinforces the point that officeholding could have a moderating effect (Judis 2016, 118). However, this has not been the case in Hungary and Poland, where right-wing populist governments have maintained some controversial, and clearly populist, aspects of their policy agenda (Greven 2016, 3).
It is unclear whether the aforementioned policy shifts will endure, and which parts of Trump’s campaign agenda will be dropped or implemented by his administration. Consequently, we cannot judge how radical ‘Trumpian populism’ will be, or even how ‘populist’ in terms of policymaking. Many of the contemporary European populists, both left wing and right wing, have limited experience in government. Even ‘Brexit’ is still in its hypothetical stage, though the UK government’s activation of Article 50 in March 2017 has started the two-year countdown on negotiations. This indicates that any current appraisal of the populist challenge to conventional policies and global governance is necessarily partial and incomplete. There have already been some important effects, though, on international authority, as well as increasing global political and economic uncertainty. The Trump administration has received strong international criticism over its rejection of the UNFCCC Paris climate agreement, in addition to its rejection of the G20’s pledge to avoid protectionism . The UK’s referendum decision to leave the EU arguably could have more drastic long-term effects, further heightening uncertainty and raising concerns about the economic and political consequences for the EU and the international economy. This heightened uncertainty could inhibit global economic growth and further undermine international trad e (World Bank 2017, 3, 6–10).
Dani Rodrik (2017) notes there has been a growing international consensus, among business leaders and policymakers, that the best response to growing populism should be to compensate the ‘losers’ of globalization through policy measures. He is skeptical about the current feasibility of this objective, instead concluding, ‘To bring the losers along, we will need to consider changing the rules of globalization itself.’ Rodrik (2012, 184–206) has indicated what these adjustments might entail, arguing that to overcome a ‘political trilemma ’ in the world economy, it would be necessary to introduce some of the types of rules that previously existed under the postwar Bretton Woods compromise.Footnote 3 Multilateral economic cooperation since the GFC has not been as comprehensive, or radical, as the 1944 agreements at Bretton Woods (Luckhurst 2016a, 87–90). However, as argued in the present study, there have been significant recent shifts in global economic governance , particularly on the governance of finance through macroprudential regulation.
The rules of international trade could potentially undergo a similar revision, though this did not happen in the immediate post-GFC period, by contrast with global financial regulation. Trump certainly has advocated a rethink, even questioning whether the United States would continue to accept the WTO’s role in international trade relations (Donnan 2017; Gros 2017). The Trump administration has also advocated a shift from multilateral to bilateral trade deals, which would also reverse the postwar trend until now. This seeming willingness to abandon traditional US su pport for the core multilateral economic institutions undermines confidence in US gl obal leadership and in the future of the global economic architecture . There is little evidence that other states will adopt this ‘Trumpian’ preference for bilateralism, especially since policymakers outside the United States might consider it a threat to some of their legal protections and other gains from multilateral agreements, for example, as WTO members (Gertz 2017; Talley and Mauldin 2017; Shaffer 2017). The Trump administration’s surprise move to impose punitive tariffs on Canadian softwood lumber exports, in April 2017, indicates the benefits for relatively weaker states of keeping the protection of multilateral rules (Dewey 2017; Ikenson 2016). A proliferation of bilateral trade deals could increase inefficiency by causing legal and practical obstacles to global supply chains, the latter arguably increasing the benefits from multilateral rules for the world economy (Gertz 2017). Critics argue that the White House National Trade Council members simply misunderstand the complexities of international trade relations, and even the basic economic factors that influence trade deficits (Noland 2016; Smith, A. 2017; Worstall 2016). Trump’s rejection has ended American involvement in the TPP , but although the TTIP has been stalled for months, recent indications are the latter could be revived. This is despite Trump administration’s concerns about what they perceive to be unfair competition from their main trade partners, due to US tr ade deficits with those states (Donnan and Beesley 2017). The potential revival of TTIP could indicate another shift in Trump policies, so while US m ultilateral authority has been undermined, there could be further American adjustments on trade, including a return to more conventional multilateralism.
The Brexit case appears different, since the UK government has consistently claimed to support the principle of international free trade; however, in practice, it seems possible that Brexit might result in the UK’s withdrawal from the EU single market, potentially to be followed by a reliance on basic WTO rules to guide EU–UK trade relations. This would likely result in a significant reduction of EU–UK trade, plus substantial economic damage, particularly to the UK econo my (OECD 2016). The UK government has been trying to seek alternative trade partners, with the eventual goal of expanding bilateral trade with countries such as China , India , and the United States, in preparation for the potential challenge of replacing a significant proportion of the half of UK international commerce represented by trade with the EU (Cable and Yu 2017; Singh and Connolly 2017; see Dhingra et al. 2016). The UK government has also threatened to turn the UK into something approaching a corporate tax haven, as noted in Chap. 4. This would constitute an aggressive, unilateralist tax strategy, designed to enhance the UK’s inward investment partly at the expense of the EU . These policies indicate the current UK government’s willingness to violate international economic agreements and norms, thereby damaging its relations with ot her G7 and EU states. This does not bode well for the future UK role in multilateral cooperation.
These developments underscore the political and economic challenges in contemporary international relations and global economic governance . The influence of populism has received a lot of attention, which possibly exaggerated its significance. The perceived populist ‘rise’ does not just signify Trump and ‘Brexit’ , though they have increased uncertainty over the future of international trade and global governance. Right-wing European populists, such as Geert Wilders in the Netherlands, Marine Le Pen in France , and Frauke Petry in Germany , also could dramatically affect the prospects for multilateral cooperation and global economic governance . There has been much speculation about whether the Russian government has been aiding such political actors (Netesova and Taussig 2017; Oliker 2017; Wesslau 2016), perhaps to weaken ‘western’ or transatlantic security and economic alliances. Regardless of the accuracy of such assertions, it has sometimes seemed that the EU faces a potential threat to its very existence. The concerns that Le Pen could win the 2017 French presidential election induced strong fears about the potential European and global economic consequences (Davies 2017; Fuest 2017). The Trump administration might revert to a more conventional Republican approach to international relations (Herb 2017; Montanaro 2017), but, as the UK Independence Party’s Nigel Farage demonstrated, if they manage to gain enough votes, the EU’s populists could have a more radical political and policymaking effect, potentially by dismantling the EU and leading to the kind of international protectionist tariff competition that was evident in the 1930s. The fact that this seems a realistic possibility has increased international political and economic uncertainty, undermining the potential for global economic growth and increased international trade ratios.
These ominous political and economic circumstances constitute a significant opportunity for the Chinese government to augment their leadership role in global economic governance . This could also extend to other actors from leading developing or ‘emerging’ states. In policy terms, there is greater uncertainty about whether multilateral trade ties will continue to be governed in line with recent norms and practices. The sense of uncertainty about the Trump administration’s willingness to sustain American leadership in world affairs has increased the focus on other actors, especially Germany’s Angela Merkel and China’s Xi Jinping in recent months. This could indicate a further acceleration in the decentralizing of authority in global economic governance , with significant consequences for the global economic architecture and the multilateral governance of trade.
Policy Effects of Decentralizing Authority in International Trade
The previous secti on underscores the possibly dramatic consequences of international political and economic developments since the GFC. These circumstances have undermined confidence in conventional international policy norms and practices. There is also heightened uncertainty about the future, despite the potential return to normalcy in US p olitics and even in the EU , notwithstanding the apparent probability that ‘Brexit’ will happen. This has further contributed to decentralizing authority in multilateral trade relations and other contexts of global economic governance .
President Trump’s election increased concerns about whether the United States would continue to play its traditional leadership role in global economic governance , due to his tendency to ignore conventional norms of US in ternational relations. In the context of US trad e relations, this included a series of Trump administration complaints and diplomatic disputes, both with perceived strategic allies and competitors, particularly the governments of Canada, China , Germany , Japan , and Mexico . There could still be significant effects on trade relations, though most of these disputes seem to have dissipated since the first few weeks of Trump’s tenure in the White House. Even on Trump’s demands to renegotiate NAFTA , recent comments from its three members indicate adjustments could be more modest than Trump’s campaign rhetoric had suggested (Blanchfield 2017; Davis and Mauldin 2017; Mayeda et al. 2017). The American president has also indicated that his government is open to having good relations with the Chinese government, again, rather contrary to his campaign rhetoric. This includes the politically and economically sensitive issue of labeling China a currency manipulator, which Trump had promised to do, yet now suggests it is unlikely to happe n (Lawder 2017; Trump 2015; Ydstie 2017).
Tru mp’s actions and rhetoric could significantly affect the international trade policies of other states. The Canadians and Mexicans will no doubt consider how to diversify their trade relations. The trade of both states is heavily focused on the United States, which leaves them highly exposed to negative effects from current and future populist or confrontational US a dministrations. The long-term repercussions could include heightened suspicions, which might have damaging strategic and economic consequences for the North American ‘allies’—even if Trump backtracks from some of his threats, for example, over a ‘border adjustment tax’ and the proposed wall along the southe rn US frontier with Mexico . Trump’s perceived ill-treatment of German Chancellor Merkel , during her first White House visit to see him, indicated that ev en US ties with Germany and the EU could deteriorate. His meetings with Japanese prime minister Shinzo Abe, by contrast, seemed to have gone much better (Tan and Hussain 2017; Weaver and Sevastopulo 2017). The summit between Trump and Chinese president Xi also apparently went well (Chandler 2017; Wang 2017; Huang 2017). This might reduce concerns about the potential for a series of trade disputes, though there could be further reversals in Trump’s international trade policies and diplomatic relations.
The consequences for broader international trade relations are already being felt. TPP was predicted to boost global trade growth, so the apparent, or at least temporary, collapse of the agreement will not improve international trade ratios. This US p olicy reversal seems to have wasted several years of effort from the parties to the negotiations, including their investment of substantial political, institutional, human, and financial resources. The TPP was led by American negotiators and the final agreement actually reflected many of their preferences (Allee and Lugg 2016), which further indicates why the 11 other TPP participant states might find the Trump decision to withdraw rather perplexing. Other governments could be much more reluctant to get involved in multilateral trade negotiations with the United States in future, as even substantial American gains do not seem to guarantee success. The consequences of this could be long term; in particular, governments in the Asia-Pacific and other regions will likely be less willing to trust American leadership or commitments on multilateral trade. This indicates the likely decline of US aut hority and capacity to influence multilateral economic relations, both within and beyond North America (see Acharya 2014, 79–105).
Trum p’s rejection of the TPP agreement has been interpreted by some as signaling an American strategic withdrawal from the Asia-Pacific region (Chong 2017, 32; Liow 2017; Smith, D. 2017; Tan and Hussain 2017). It constitutes a significant shift from President Obam a’s ‘rebalancing’ to Asia (see Lin 2016; Ratner 2013; Saunders 2014), indicative that American influence in the region, especially on economic issues, is diminishing, by contrast with the growing Chinese influence. In this sense, the prospect for RCEP to replace TPP as the key Asia-Pacific trade agreement could reinforce Chinese leadership in the region. This arguably raises doubts about the futu re US security role, though a decline in this aspect of its authority in the Asia-Pacific is not yet as apparent. It should also be noted that TPP is not necessarily completely lost; the 11 other participating states could find a way to revive the agreement, although the absence of the United States reduces its impact (Liow 2017; Reynolds and Heath 2017; Schott 2016).
There are risks to the future of multilateral trade, especially since US g overnments have often been the key architects of postwar international trade agreements. However, there are also opportunities for others to increase their influence. The Chinese government, in particular, could benefit in terms of its Asia-Pacific regional economic leadership (Bremmer 2012, 193–194; Wilson 2017). As noted already, the Chinese-led RCEP trade negotiations could result in an agreement that in some ways would substitute it for TPP , potentially to become the basis for a future FTAAP . The accession of China and India to the WTO , since 2001 and 1995, respectively, combined with the switch in Asia-Pacific multilateralism to focusing on the RCEP, which also includes those two BRICS states, could reinforce a turn to less comprehensive trade agreements (Ravenhill 2016; Xie 2017).
The WTO has been crucial for decentralizing authority in international trade governance since the 1990s, especially for increasing the influence of developing states, such as Brazil , China , and India (Hopewell 2015; Hurrell and Narlikar 2006). This led to heightened contestation of EU and US pr oposals at the WTO from coalitions of developing states, reaching a new level of importance at the Cancún Ministerial of 2003, when Brazilian and Indian representatives effectively led a developing-state rebellion against the competing G7 tr ade agendas, which arguably ended the former WTO ‘Quad’ leadership from Canada, the EU , Japan , and the United States. The Brazilians and Indians subsequently shifted the focus of the Doha Round negotiations to wealthy-state agricultural subsidies and market access, while seeking exemptions to help protect the developing states from competition (Hopewell 2015). One particularly significant issue was when the Indian government blocked the WTO’s proposed Trade Facilitation Agreement (TFA) in July 2014. The Indians’ intention had been to increase their leverage on the issue of food security (Miles 2014). This indicated how decentralizing authority, in this case through the expansion of WTO membership, had increased the capacity of leading middle-income states to influence the international trade agenda.
This section shows how decentralizing authority in international trade governance has affected policy norms and practices. The Trump administration has not yet had time to influence global trade significantly, in substantive terms, though it has increased uncertainty. This alone provides opportunities for others, especially leading middle-income states such as Brazil , China , and India , to gain greater influence over the trade agenda. This could lead to weaker or less comprehensive rules for future agreements, especially the exclusion of labor, environmental, and government procurement issues from trade negotiations. This is indicated by the potential for RCEP to replace TPP as the main focus and template for trade relations in the Asia-Pacific region.
Effects of Post-GFC Policy Shifts on the Global Economic Architecture
This final sect ion considers the broad effects of recent international policy shifts on global economic governance . It integrates evidence from the present and previous chapter, to assess how policy adjustments since the GFC have influenced the global economic architecture. One key consideration is whether this ‘architecture’, by which I mean its organization, policies, and actors, could adapt to contemporary challenges. This concerns the governance of core issues such as international trade, finance , currency values, and capital flows.
I prefer to focus on the ‘global economic architecture’ rather than, for example, the notion of a ‘liberal international order’. Acharya (2014, 33–58) notes the conceptual ambiguities and terminological variants of the latter. The liberal scholar John Ikenberry (2011, 7) indicates how the ‘liberal international order’, or, in my usage, the global economic architecture, could be renegotiated to account for the preferences of key emerging states. This could improve the capacity to integrate states such as China and India , as stakeholders, to avoid them becoming revisionist challengers to a perceived American-led liberal order. In this conceptualization, the notion of ‘liberal international order’ does not depend o n US hegemony or even American leadership. My own analysis concurs with Ikenberry’s (2011, 342–349) emphasis on the potential significance of Chinese international authority for the future, though I stress more the capacity of the Chinese government to influence global policy norms and practices.
The second and third chapters of this book demonstrated the organizational shifts that indicate this decentralizing authority. The fourth and fifth chapters, plus the following, sixth chapter, specify the policy evidence for this decentralizing authority. The current chapter points to key policy issues linked to economic globalization and international trade. The shifting perspectives on economic globalization indicate the weakening influence of the ‘hyperglobalization’ narrative, an effect that has arguably strengthened global economic governance . Contrary to earlier assumptions about the benefits of market efficiency, the role of national and multilateral public policymaking to meet key economic challenges has increased since the GFC. The evidence so far of ‘cooperative decentralization’ in multilateral governance (Helleiner 2016a, b), rather than purely conflictual relations, is compelling. The cooperation across diverse policy areas, especially on macroprudential financial regulation, plus the fiscal and even monetary policy coordination in response to the GFC, reinforces the case for cooperative forms of decentralizing authority in the global economic architecture.
The evidence from international trade issues, combined with the international uncertainty caused by the Trump administration and European rightwing populism , indicates some of the key political factors influencing this decentralizing authority. This relative shift is likely to provide opportunities for the former outsiders of global economic governance , including the Brazilian, Chinese, and Indian governments, to assume greater leadership roles and responsibilities. The Chinese government, in particular, gained greater authority in terms of their augmented strategic, political, and cognitive authority since the GFC. This has influenced the norms and practices of international and, especially, Asia-Pacific trade relations. The Chinese preference for weaker trade agreements could become the template for future multilateral trade negotiations, unless the Chinese opt for more comprehensive rules, particularly if that suits their own economic development goals. This relative shift in influence and authority has been reinforced by the Trump administration’s voluntary withdrawal from the TPP , plus its rhetorical threats to withdraw the United States from NAFTA and even to ignore WTO rules (da Costa 2017; Landler and Applebaum 2017; Paletta and Swanson 2017; United States Trade Representative 2017). There is evidence that this behavior is undermining the US gov ernment’s authority on multilateral trade and other global governance issues (Hundal 2017; Semple and Villegas 2017).
These political and policy shifts have significant consequences for the global economic architecture. Contemporary political and economic challenges, due to low global growth since the GFC, have exacerbated economic inequality and increased international uncertainty (Alvaredo et al. 2017; Helpman 2016; Luckhurst 2016b, 166–167, 170). This has influenced international authority in diverse policy areas, including in the context of multilateral trade. The potential for a lasting swing from American to Chinese global leadership, at least in terms of their relative influence, could frame the future of international trade relations. This might increase the focus on regional and plurilateral, as opposed to universal, agreements. There is a possibility that this could produce greater political and economic fragmentation, along regional political and strategic divides, just as the Roosevelt administration had feared in the 1940s (Acharya 2014, 79–80). On the other hand, according to Rodrik’s (2017) analysis, it could instead lead to a rethinking of the ‘rules of globali zation’ and global economic governance , which might be beneficial if it encouraged genuinely more sustainable and inclusive policies.
Conclusion
The chapter demonstrates how the policymaking consequences of recent international politics are influencing the global economic architecture . The political-economic effects of the GFC undermined erstwhile assumptions about the policy implications of economic globalization . The weak global economic recovery, meanwhile, increased support for populist political movements, in part due to the negative economic effects on low-income groups. This combined with a growing sense, among many citizens, that mainstream politicians had been unable to achieve sustainable and inclusive global growth.
The deficiencies of globalization discourse became clearer during the GFC. These had already undermined attempts to shift key aspects of global economic governance to fit the policy assumptions of neoliberal and New Classical-influenced globalization discourse during the 1990s. The GFC indicated that rather being the consequence of unstoppable external economic constraints, the policies associated with economic globalization were flawed and influenced by norm-entrepreneurial policy actors. This was particularly the case concerning the deregulation of financial markets since the 1980s, though recent populist political discourse often emphasizes more the negative effects of global free trade.
Much of this chapter analyzes the policy effects of recent political and economic issues of international trade. Populist complaints about foreign imports, often deploying a zero-sum logic that assumes the benefits of trade should be measured in terms of the overall balance , could yet undermine international trade ratios, especially if the Trump administration introduces more protectionist policy measures. Notwithstanding the dubious economic claims from populists , mainstream politicians and the G20, especially, should do more to reduce the negative consequences from international commerce on those most affected, particularly low-skilled workers. This has been exacerbated by the disproportionate effects from austerity policies on low-income groups, which has reinforced the perception of many that conventional politicians in the EU and the United States have not done enough to improve their economic prospects.
The international political consequences of the Trump administration’s trade policies, and the potential weakening effects from ‘Brexit’ on the EU and the UK , might increase the relative global shift in strategic, political, and cognitive authority to the Chinese and other influential developing-state governments and policy actors. UK and US pol iticians have recently questioned some of the core norms of multilateral economic cooperation, which has undermined the political and cognitive authority of those governments. The strategic authority of the UK , particularly, has been further undermined as its EU membership appears to be ending. American strategic authority also has declined, especially relative to China . This has significant consequences for global trade governance, indicated by the potential Asia-Pacific shift from the formerly American-led TPP to the China -led RCEP, with its less comprehensive regulatory framework. The shifting authority has extensive policy effects on the global economic architecture.
This and the previous chapter indicate how decentralizing authority has influenced policy norms and practices in diverse contexts of global economic governance . This includes analysis of the risks and opportunities, including the potential for more fragmented and conflictual international economic relations, but also the possibility that the flaws of pre-GFC global economic governance might be avoided in future, due to the increased influence and authority of policy actors from developing states, plus the input from non-state actors and stakeholders. The next chapter demonstrates the importance of this shifting international authority for policymaking in the context of global development governance.
Notes
- 1.
Their reference to ‘hyperglobalization’ indicates what might be considered a ‘strong version’ of globalization discourse, that is, the most radical interpretation of its perceived political-economic effects.
- 2.
- 3.
Rodrik’s (2012, 184–206) conception of a ‘political trilemma of the world economy’ builds on earlier analysis, from economists Robert Mundell (1963) and Marcus Fleming (1962), of the so-called impossible trinity. Rodrik’s (2012, 200–205) ‘trilemma’ model indicates that states must choose between three options in their international economic relations, either: (1) combine ‘hyperglobalization’ with the nation-state, which compels governments to adhere to a narrow set of orthodox, market-friendly policies; (2) combine ‘hyperglobalization’ with democratic political flexibility, by replacing national with global governance or even ‘world government’; or (3) combining the nation-state with democratic political flexibility, implying a return to something like the Bretton Woods compromise. He (Rodrik 2012, 205) notes many governments have attempted to combine the three dimensions, namely democratic choice, the nation-state, and hyperglobalization. The effect, he argues, has been to increase economic instability and the frequency of financial crises.
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Luckhurst, J. (2018). Globalization, Inequality, and Challenges to Free Trade. In: The Shifting Global Economic Architecture. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-63157-8_5
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