If getting America’s fiscal house in order is about US competitiveness, strengthening the global economic system is about leveling the playing field on which we compete. As new economic powers such as China, India, and Brazil have risen in the world, challenges to the foundations of the liberal economic order have grown. For one, major state-run or state-subsidized enterprises have become dominant players in much of the world, especially in the energy sector.
Monetary policy and non-tariff regulations have been employed to tilt the trading playing field. Intellectual property is often not protected effectively. Poor labor and environmental conditions in some countries have contributed to jobs flowing there from more developed countries with higher standards, while exerting downward pressure on wages on those jobs that remain.
These are not new phenomena. What is new is the lack of determined leadership from the developed economies to reinforce the global economic order that has produced the very opportunities developing nations are now exploiting. Today’s rising economic powers are themselves changing over time – aging, moving into higher tech- and service-driven industries, increasing their interdependence within the global economic system, even reforming politically.
As a result, their interest in a well-functioning liberal economic order is rising. The next US administration needs to use a combination of penalties and opportunities: tougher counter-measures on unfair trade, labor, and currency practices where they exist, particularly through the World Trade Organization, while simultaneously renewing a drive toward freer global trade.