The flurry of executive orders that President Biden has signed since he took office on 20 January illustrates the urgency and eagerness of his administration to undo key Trump policies and mend strained relationships with U.S. allies. On his first day in office, Biden rejoined the Paris Agreement, revised immigration enforcement policies and sought to promote racial equity, as well as began to coordinate a government-wide COVID-19 response. The stream of executive orders has not stopped since. To reclaim a central position in the world community will, however, take more than flipping back a switch.
Strained International Relations
The four years under the previous presidential administration made clear that the United States was willing to ignore its allies and act unilaterally in global business and international affairs. In those years, we withdrew from the Paris climate agreement, the World Health Organization (WHO) and the Trans-Pacific Partnership (TPP). Admittedly, the U.S. is large enough to move and shake international relations. We have waged a trade war with China, initiated tariffs on global imports including those from the European Union and Canada, challenged the North Atlantic Treaty Organization (NATO) members and encouraged the United Kingdom to leave the European Union, in addition to dropping out of the Iran nuclear deal and engaging the denuclearization of North Korea on our own. While these unilateral actions have displayed leverage, they have accomplished little in terms of solving problems in the U.S. and the world.
Global trade in a multilateral world can flexibly adjust to unilateral tariffs. Contrary to the objective of cutting the trade deficit, the gap between our exports to and our imports from the rest of the world rose to a historical record deficit of $904.9 billion in 2020, a 23 percent jump compared to 2016.1 In particular, in 2020 the U.S. trade deficit with China still hovered around $310.8 billion, and the deficit with Mexico jumped to $112.7 billion, a historical high that nearly doubles the $63.3 billion deficit of 2016. Justified concerns around rebalancing our relationship with China and addressing intellectual property issues are best addressed with Europe, Japan and other trading partners within the World Trade Organization (WTO).
Unilateral actions outside the established international organizations have strained international cooperation and incentivized countries to move on without the United States. The rest of the world has continued to fight climate change without us. China has signed the Regional Comprehensive Economic Partnership (RCEP) with 14 other Asia-Pacific countries, which together account for 30 percent of the world population and 30 percent of global GDP as of 2020. Europe and China have also agreed to negotiate a Comprehensive Agreement on Investment (CAI), which would grant the EU enhanced market access in China, including in sectors such as health services, electric vehicles and telecoms. Increasingly, there is a perceived need in Europe to decouple from the United States economically and militarily.
G7 Share of World Income, 1820–2018 (in Percentage)
A Reality Check
While returning to more active multilateralism is clearly desirable, we encourage a reality check. An effective multilateral framework has to take into account the changed reality on the ground, which is no longer the Pax Americana we have known since World War II. The share of world gross domestic product (GDP) generated by the G-7 largest advanced economies (Canada, France, Germany, Italy, Japan, the U.K. and the U.S.) has dropped significantly, from its high of over 65 percent through the 1990s to a current level of about 45 percent (see Exhibit). China and other emerging economies have grown tremendously in the past 30 years compared to rest of the world, and so has their influence. The disastrous COVID-19 response in the U.S. has only underscored this sea change. In 2020, the U.S. experienced a GDP contraction of 3.5 percent, its worst crisis since World War II, and more than 400,000 COVID-19 deaths, while China managed to still grow 2.3 percent with minimal loss of life.
The existing multilateral organizations at the heart of our global economy (the International Monetary Fund [IMF], World Bank, WTO, WHO, etc.) reveal the outsized influence of the United States and other developed countries in the past. These organizations do not reflect the rising stature and economic capacity of the emerging markets. While there is legitimate concern about antidemocratic tendencies in and heavy government interventions by China, our inability to engage China on equal terms threatens a slew of bilateral agreements between China and our allies, such as the recent EU-China CAI deal and the RCEP agreement involving Japan and Australia. The U.S. strategy of decoupling Chinese tech companies from American business could result in a new cold war in future innovations and a bifurcation of the international community. An alternative approach is multilateral collaborations with Europe, Japan and other countries. One area of strategic importance is the writing of international rules and standards for emerging technologies. China has led the way on proposing global standards for such fields as 5G and artificial intelligence2 — the United States should take an active role in such negotiations, rather than adopting policies designed to isolate China that will create two parallel systems of international standards. Instead of starting a cold war, the U.S. should leverage its leadership position to help define the rules of future technologies.
Domestic Issues and a Return to the Global Stage
The Biden administration’s efforts to return to the global stage are laudable. The United States has, however, lost some credibility in the international arena. How can the international community trust that we will not relinquish international engagements and commitments in future administrations? The past four years have shown how widespread the America First movement is in the United States and how deep the anti-globalization sentiment in trade and immigration policies. The riots at the U.S. Capitol have underscored how challenged America’s once cherished institutions are.
The best way to reengage effectively with our allies and regain our footing on the global stage is through a successful domestic agenda. At the heart of our domestic challenges lie deep inequities in terms of income, wealth, and access to education, technology, health care and the justice system. To credibly reengage requires addressing these inequities. De-globalizing is not a realistic alternative for the United States. Our prosperity depends on our companies’ continued engagement with the world, and in particular with the fast-growing middle-income and emerging economies. At the same time, it is essential that the long-term benefits (and costs) associated with international trade, immigration and global climate agreements are shared equally. We must assure that those adversely affected by international engagements are compensated and that those without an adequate safety net are protected. Our unwillingness to face the many sources of domestic inequality and redistribute — and our propensity to blame inequality mostly on globalization — will stand in the way of credible engagement and provide fodder for a next wave of populism. The same is true with respect to technological change. Our inability to acknowledge the technological progress made by emerging economies such as China and India — and our reluctance to admit our own domestic challenges in terms of equal access to education and the internet (access that shields against the adverse effects of technological change) — stand in the way of engaging the emerging markets on equal terms. We hope the Biden administration will succeed in addressing the inequities we face and that its policies will help alter the narrative so that globalization is no longer blamed for our own challenges and failings. The Biden administration’s success is critical for our long-term standing in the world.