War, economic turmoil and politics challenge the world order

Burning down the house. Illustration: Carolyn Ridsdale

War, recession and increasingly reactionary politics are shaking the international order. As the UK exits the European Union and the US baulks at multilateral trade and security agreements, the world is changing rapidly, further shifting power to giants China and India.

The liberal international order – the collection of institutions, agreements and conventions that has fostered economic development, political stability and security for the past 70 years – is under threat.

It has endured wars, recessions, the collapse of the Soviet Union, the rise of China and the spread of terrorism, but there are mounting concerns it will not survive the tide of nationalism and protectionism sweeping much of the developed world, which helped push Donald Trump into the White House and the UK out of the European Union.

Since its inception, the legitimacy and merit of the international order – comprising organisations such as the United Nations, the World Trade Organization, the North Atlantic Treaty Organization (NATO) and the International Monetary Fund, a host of multilateral and regional trade deals, the use of the skies and the internet, as well as ideals of democracy and liberalism – have rested on its ability to deliver prosperity and security – and deliver it has.

World Bank Data released in February 2017 shows that between the 1989 fall of the Berlin Wall and 2014, global GDP per capita virtually trebled to US$15,464; trade as a percentage of GDP jumped from less than 40 per cent to 60 per cent; and war, though depressingly persistent, has not engulfed the globe as it once did. As a result, in the last 25 years about 1.3 billion people have been lifted out of extreme poverty and life expectancy has marched steadily upward.

However it may turn out, the pre-Brexit European Union (EU) represents the high-water mark of international institution building and political and economic integration.

Michael Mazarr, associate director with the RAND Corporation think tank, says belief in the international order has been badly shaken by a number of economic and social events, particularly the global financial crisis (GFC).

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While the benefits of economic growth under the liberal international order have always been shared unequally, Mazarr argues that until now people were prepared to accept that, as long as their own prosperity had improved. 

However the severe and prolonged economic downturn caused by the GFC, which has thrown millions out of work, held down wages and crippled government budgets, has left disillusioned electorates receptive to populist and nationalist ideas that reject the legitimacy of the international order.

“The Trump presidency is creating a void in international leadership that China is primed to fill.”

The mood of voters has been soured further by a massive upsurge in immigration from war-torn and impoverished regions, and the deteriorating international environment, marked by conflict in the Middle East and North Africa, a resurgent and aggressive Russia, and huge uncertainty about what the Trump-led US will do.

As a result, says the UK-based Chatham House think tank, discontent in hard-hit parts of the European Union has spread beyond purely economic concerns to “include dissatisfaction with the EU’s policies on issues such as migration, the Union’s elite-led political culture, and the balance of political and economic power within it.”

Burn the house down

At such a turbulent time, it is hardly surprising that the international order finds itself under challenge. President Trump is hostile to multilateral trade and what he calls “bad deals” such as the North America Free Trade Agreement (NAFTA) and the Trans-Pacific Partnership (TPP). He initially dismissed NATO, the bedrock of western European security, as “obsolete”, and has questioned the value of institutions such as the United Nations (UN).

In Europe, voters are increasingly disenchanted with the EU. While they are not rushing en masse towards anti-EU populists preaching intolerance such as Geert Wilders in the Netherlands and France’s Marine Le Pen, polls suggest fewer than ever before think that EU membership is a good thing.

Russia, under President Vladimir Putin, has thumbed its nose at the US-led international order, acting with impunity to seize Crimea on the Black Sea and sponsor a violent Ukrainian separatist movement. Similarly, China has pushed ahead with claims on the strategically vital South China Sea in the face of international protests and an adverse ruling by a UN tribunal.

The challenge of choice

There is nothing new in countries ignoring tribunal rulings or refusing to submit to the authority of a multilateral agency. The US, for example, has never signed up to the International Criminal Court or ratified the UN Convention on the Law of the Sea. Numerous countries such as Japan, the US and several in Europe, pursue agricultural policies at odds with the spirit of multilateral trade agreements.

Mazarr says the international order has always been able to cope with considerable picking and choosing by countries regarding what they will subscribe to or observe. 

“If China is outside the bounds on a couple of issues, like the role of state-owned enterprises and intellectual property protections, the international order can sustain that,” he says.

However, such variation has always taken place within a general acceptance of the order’s legitimacy because of its ability to foster growth and prosperity. The danger now is that many are calling this legitimacy into question – most significantly the order’s long-standing champion, the US.

In its 2015 National Security Strategy, the White House said: “Strong and sustained American leadership is essential to a rules-based international order that promotes global security and prosperity as well as the dignity and human rights of all peoples.”

This is why Trump’s arrival in the White House poses such a threat, Mazarr says.

The US president has made clear his dislike of big agreements encompassing broad agendas and multiple trade partners. Axing America’s involvement in the TPP was one of his big pre-election promises, and one of his first actions in office. Instead, Trump says his country can get a better deal bargaining with countries one-on-one.

While the US has many bilateral trade deals, walking away from multilateralism altogether would be a seismic shift in its trade policy that would have enormous repercussions for the international order, says Mazarr.

“If the US signals that it no longer sees value in these kinds of multilateral approaches to problems and believes that the US can adequately satisfy its interests in a disaggregated world with self-interested and transactional approaches, that will very quickly eat away at the consensus that we are talking about,” he says. 

“The international order really is just a manifestation and a development of the very long-term process of neoliberal modernisation that has been going on, and if that model becomes discredited, then the order that is built on that model is going to collapse too.”

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The end of the affair

Will it come to this? Tim Harcourt, former Austrade chief economist and JW Nevile Fellow in Economics at the University of New South Wales, is not so sure.

“I don’t think Trump thinks a lot about whether it is a bilateral or multilateral or regional trade deal. He just thinks that they [his predecessors] did bad deals and ‘I am a good deal-maker, I wrote The Art of the Deal. Let me take over and I will do a good deal’,” Harcourt says.

Trump has already convinced some manufacturers into retaining or repatriating factory operations in the US, and Harcourt thinks it will be a long time, if ever, before Trump tears up the trade policy playbook and delivers on his threat to slap a 45 per cent tariff on Chinese imports.

“It is important to remember the golden rule of US trade policy,” he says. “Trade policy is made by Congress, not by the White House, so the Trump administration will see the limitations to executive orders it makes in trade.”

Whether or not Trump delivers on much of his tough trade rhetoric, around the globe his posturing is prompting a reappraisal of the international order – nowhere more so than in China.

Prominent academic Yan Xuetong, dean of the Institute of International Relations at Tsinghua University, Beijing, says the Trump era opens up an unprecedented opportunity for China to increase its international reach and influence.

“Markets like China and India will be much more influential in five years’ time, and there will be a complete realignment of Western politics around issues of openness and trade.” Tim Harcourt

His peer, Yeh-Chung Lu, assistant professor in the Department of Diplomacy at the NCCU College of International Affairs, says that US policies during the Obama administration – such as its pivot to Asia and the negotiation of the TPP – left the Chinese leadership feeling hemmed in by what it saw as an encirclement strategy.

Yan says the Trump presidency is creating a void in international leadership that China is primed to fill. For instance, the scrapping of the TPP (at least in its US-led incarnation) is a chance for China to promote its own Regional Comprehensive Economic Partnership, as well as negotiating a network of military alliances in East Asia.

There are already ample signs of the Chinese leadership stepping up. In a pointed contrast to the protectionist rhetoric of Trump, President Xi Jinping championed globalisation and economic liberalism in a speech to the World Economic Forum in Davos in January 2017.

It has also established its own World Bank-like Chinese Infrastructure Development Bank and is investing billions in roads, bridges and other infrastructure across Asia, the Middle East, Africa and Europe under its One Belt, One Road scheme.

Former CPA Australia chief executive Alex Malley says there are also opportunities for smaller players such as Australia. He believes that the unpredictability of Trump means long-term American trade partners such as Mexico are “crying out for deals with partners other than the US”.

The Central American country, whose economy is a similar size to Australia’s, is “a market rich in opportunity, with real synergies for Australian businesses,” says Malley, and it could help to broaden access to other markets in Latin America.

Polar opposites

However events pan out, Harcourt says it’s clear that the international order as we know it will have to change. Tinkering with the rules, including reforming institutions such as the International Monetary Fund to increase the voice and representation of developing countries, is no longer enough. 

“Markets like China and India will be much more influential in five years’ time, and there will be a complete realignment of Western politics [around issues of openness and trade],” Harcourt says.

Mazarr is among those who are deeply concerned about what might come next. The system that has been in place for the last 70 years was born out of a desire to avoid a repeat of the damaging protectionism in the 1930s that exacerbated the Great Depression and helped plunge the globe into World War II, the most destructive war in history.

“If the US were to fundamentally back out, we would see a collapse into multiple competing orders,” Mazarr warns, predicting that the US, China, Russia and Europe would each rush to establish their own sphere of influence.

“You would have much more of a fragmented picture, which would have extremely negative results for trade and for conflict. That’s a hugely dangerous future to go into,” predicts Mazarr.

Such a future may not be inevitable

China’s advocacy for the benefits of a shared order, alongside polling showing public opinion in many countries still favours participation in multilateral institutions, is giving some cause for hope that the international order will persist, albeit in a different form.

However, Mazarr warns, this comes down to American leadership, which is a particularly uncertain quantity under Donald Trump.

“We have to refashion the order for a more shared and multipolar future, and also lead in developing ideas to address areas of disaffection such as inequality and excessive control from impersonal institutions,” Mazarr says.

“To save the order, we may need to reform it, which will demand an incredibly difficult balancing act for US diplomacy and grand strategy.”

Whether America under Trump’s leadership is willing and able to carry this off, the world is yet to find out. 

The world order

United Nations (UN)
Formed: 24 October 1945
Members: Security Council permanent members – China, France, Russia, the UK and the US. Other current members are  Bolivia, Egypt, Ethiopia, Italy, Japan, Kazakhstan, Senegal, Sweden, Ukraine and Uruguay. Non-permanent members are elected for two-year terms by the General Assembly.
Key function: To discuss, debate, and make recommendations on a range of subjects pertaining to international peace and security – including development, disarmament, human rights, international law, and arbitration between disputing nations.

European Union (EU)
Formed: 1 November 1993
Members: Austria, Belgium, Bulgaria, Croatia, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain and Sweden. The UK is currently exiting the EU.
Key function: To make policies concerning the members’ economies, societies, laws and, to some extent, security.

North Atlantic Treaty Organization (NATO)
Formed: 4 April 1949
Members: Albania, Belgium, Bulgaria, Canada, Croatia, Czech Republic, Denmark, Estonia, France, Germany, Greece, Hungary, Iceland, Italy, Latvia, Lithuania, Luxembourg, the Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Turkey, the UK and the US.
Key function: To safeguard the freedom and the security of its members through political and military means.

North American Free Trade Agreement (NAFTA)
Formed: 1 January 1994
Members: Canada, Mexico, the US. 
Key function: To reduce barriers to trade and promote economic growth between Canada, Mexico and the US.

World Trade Organization (WTO)
Formed: 1 January 1995
Members: The WTO has 163 member nations representing 98 per cent of world trade.
Key function: The WTO is the only global organisation dealing with the rules of trade between nations. Its goal is to ensure that trade flows smoothly and freely between member nations.

International Monetary Fund (IMF)
Formed: 27 December 1945
Members: The IMF is governed by and accountable to the 189 countries that make up its near-global membership.
Key function: Securing financial stability, fostering global monetary cooperation, facilitating international trade, promoting high employment and sustainable economic growth, and reducing poverty around the world.

Trans-Pacific Partnership (TPP)
Formed: 4 February 2016
Members: Original signatories were Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, Peru, New Zealand, Singapore, the US and Vietnam. The US withdrew in January 2017.
Key function: To promote economic growth, support the creation and retention of jobs, enhance innovation, productivity and competitiveness, raise living standards, reduce poverty and promote transparency, good governance, and enhanced labour and environmental protections.

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