Key Takeaways:
- The global economy is facing a potential "US-shaped hole" due to the country’s disengagement from international institutions and agreements.
- The impact of this disengagement is being felt in areas such as trade, global governance, and climate change.
- Other countries are finding ways to adapt and work around the US, including forming new agreements and institutions.
- The US is increasingly using aggressive tactics to undermine international cooperation, but other countries are pushing back.
- The future of global governance will depend on the level of unity among other countries and the extent to which the US is willing to confront and undermine multilateralism.
Introduction to the Global Economic Policy Debate
The article discusses the potential consequences of the US disengaging from the global economy and the institutions that govern it. With the start of the holiday break, the newsletter will be taking a pause, but before that, it’s essential to reflect on the recurring topic of what the global economy could look like with a US-shaped hole in it. The question arises in areas such as trade, where most countries are less dependent on exports to the US than one might think, and global governance, where the US’s withdrawal could have significant implications.
The Effect on Global Governance
The article highlights the potential for salvaging the global institutional framework that the US built. Two important international agreements struck during the first few months of Trump’s second presidency, one on pandemic preparedness and the other on taxing carbon emissions from shipping, demonstrate that the rest of the world can keep using the international governance structures of the erstwhile US-led order to their advantage. However, the US’s ability to sabotage these efforts is also evident, as seen in the case of the Multi-Party Interim Appeal Arbitration Arrangement (MPIA), a parallel dispute resolution mechanism set up by a subset of World Trade Organization members.
Recent Developments in Global Governance
The article examines recent developments in global governance, including the IMO vote to charge a levy on carbon emissions, the agreement on a binding pandemic treaty, the "High Seas Treaty," and the COP30 climate talks. These examples illustrate the US’s increasing use of aggressive tactics to undermine international cooperation, such as twisting arms and threatening delegates’ ability to get US visas. However, they also demonstrate the willingness of other countries to push back and find ways to work around the US, such as forming a "coalition of the willing" to phase out fossil fuels.
Lessons Learned
The article tentatively interprets the recent developments as teaching three lessons: the US has moved from withdrawal to confrontation on the postwar system of global governance, the US has limited bandwidth and has to choose its battles, and many opportunities remain for other countries to bypass the US in global governance if they are willing to bear the sometimes increased cost of doing so. The level of confrontation is expected to rise, and the future of global governance will depend on the level of unity among other countries and the extent to which the US is willing to confront and undermine multilateralism.
Conclusion and Future Outlook
In conclusion, the global economy is facing a significant challenge due to the US’s disengagement from international institutions and agreements. While the US’s withdrawal and aggressive tactics pose a threat to global governance, other countries are finding ways to adapt and work around the US. The future of global governance will depend on the level of unity among other countries and the extent to which the US is willing to confront and undermine multilateralism. As the world moves into a new year, it’s essential to continue monitoring these developments and exploring ways to maintain and strengthen international cooperation.
