To America’s credit, its officials, Janet Yellen, the US treasury secretary, no less, recognise that another revision to the Bretton Woods global order is overdue. At an event by the Atlantic Council in about mid-April 2022, Ms Yellen proposed a “friend-shoring of supply chains” approach to the increasing trend of nearshoring and onshoring triggered by the Covid-19 pandemic and further entrenched by the ongoing Russia-Ukraine conflict.
Her suggestion is creative but not novel: the main winners of the existing global economic order are Western, who are allied and friendly with each other, allowing exemptions to the rules for themselves when they suit them.
Ms Yellen also took on China over its seeming ambivalence to the global consensus against Russia’s aggression. “The world’s attitude towards China and its willingness to embrace further economic integration may well be affected by China’s reaction to our call for resolute action on Russia,” Yellen says.
A new global liberal axis has to be based on not just common liberal and democratic values but an equitable order where the rules apply to everyone. A dynamic global coalition, whereby membership depends on adherence to these values and compliance with the rules,…
Still, the question that should probably be asked is whether our current global institutions motivate compliance. Reluctant powers may still acquiesce to a global process that is fair, equitable, fit-for-purpose and effective.
Yes, Ms Yellen makes the point about the exigency of modernizing existing global institutions like the IMF and World Bank, which had their Spring meetings in late April 2022. But she fails to make the point that past breaches of the “trust and cooperation to improve our ability to provide the global public goods that are needed to address these challenges” are precisely what make countries like India and China continue to hedge their bets.
A new global liberal axis has to be based on not just common liberal and democratic values but an equitable order where the rules apply to everyone. A dynamic global coalition, whereby membership depends on adherence to these values and compliance with the rules, a la the move against Russia when it violates them, which should similarly be the case when the culprit is American or Western.
America under Donald Trump, the nationalist predecessor to Joe Biden, the incumbent president, proved that it is willing to ditch the global values that it quite literally forces down the throat of the world when its national interest is at stake.
And there are far too many examples of such inconsistencies by the American side. Only citizens of the developing and emerging worlds seem to be brought before the International Court of Justice at The Hague. America went to war in Iraq with fake evidence of weapons of mass destruction (WMDs) by the Saddam Hussein regime. A deal with Iran to prevent its acquisition of lethal nuclear capabilities was jettisoned ex post to the bewilderment of almost all reasonable people.
While it is to the credit of the liberal and democratic American system that these errors of judgement, exceptionalism and arrogance were in fact pointed out by Americans themselves, notable ones at that, from journalists, opposition politicans to think tanks, the costs to the United States’ prestige are undeniable. A rebuilding of global trust requires an acknowledgement that America can no longer be a cowboy on the global stage, not if it wants to maintain its global leadership, at least.
There is clearly some level of global panic about, probably best exemplified by recent varied unilateral actions by countries on foreign reserves management, food security and supply chains. The folly of such nearshoring and onshoring is well-researched. It is impossible for any country to be self-sufficient on the resources, goods and services that it needs. Thankfully, the IMF, WTO, et al. emphasize as much in recent reports.
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That said, cabinet-level speeches hardly suggest decisive action is about. In her closing remarks at the Atlantic Council event, Ms Yellen highlights how American treasury officials “began crafting proposals for the IMF, the World Bank, and the post-war international financial architecture in 1941, [even] as World War II raged in Europe”, which eventually led to the Bretton Woods Conference three years later in 1944 even “as the Allied invasion of Normandy was still underway.”
Perhaps, Ms Yellen and her officials should be doing similarly now. But Mr Biden would have to first lead the charge, as one of his predecessors did in times past. During a previously challenging era, Richard Nixon, the American president then, took groundbreaking steps towards tweaking the Bretton Woods system, “Bretton Woods I,” as some like to put it, to birth what naturally has been termed “Bretton Woods II.”
In his 2021 book, Three Days at Camp David: How a secret meeting in 1971 transformed the global economy,” author Jeffrey Garten, dean emeritus of the Yale School of Management and a former American undersecretary of commerce for international trade, chronicles the groundbreaking steps taken by the Nixon administration to salvage a global economic architecture that was quite literally about to go bust.
In Garten’s words, the United States “realised it could no longer shoulder all the burdens that were thrust on it after World War II” and thus made the momentous decision to “redistribute part of its awesome responsibilities to its allies.” Mr Nixon made the very risky decision to balk on its global commitment to exchange the US dollar for gold on demand, the so-called dollar-gold system as per Bretton Woods I. Naturally, its allies were mortified, especially as some always feared that that day would come.
The unprecedented unilateral American move led to a spiral of currency devaluations across the globe. In time, things stabilized. But clearly the lessons have not been forgotten. In fact, not only is a “Bretton Woods III” overdue, many agree its delay is increasingly proving costly.
