The liberal international order is slowly coming apart

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The liberal international order is slowly coming apart

The Economist | May 9, 2024

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At first glance, the world economy looks reassuringly resilient. America has boomed even as its trade war with China has escalated. Germany has withstood the loss of Russian gas supplies without suffering an economic disaster. War in the Middle East has brought no oil shock. Missile-firing Houthi rebels have barely touched the global flow of goods. As a share of global gdp, trade has bounced back from the pandemic and is forecast to grow healthily this year.

Look deeper, though, and you see fragility. For years the order that has governed the global economy since the second world war has been eroded. Today it is close to collapse. A worrying number of triggers could set off a descent into anarchy, where might is right and war is once again the resort of great powers. Even if it never comes to conflict, the effect on the economy of a breakdown in norms could be fast and brutal.

As the Economist reports this week, the disintegration of the old order is visible everywhere. Sanctions are used four times as much as they were during the 1990s; America has recently imposed “secondary” penalties on entities that support Russia’s armies. A subsidy war is under way, as countries seek to copy China’s and America’s vast state backing for green manufacturing. Although the dollar remains dominant and emerging economies are more resilient, global capital flows are starting to fragment.

The institutions that safeguarded the old system are either already defunct or fast losing credibility. The World Trade Organisation turns 30 next year, but will have spent more than five years in stasis, owing to American neglect. The imf is gripped by an identity crisis, caught between a green agenda and ensuring financial stability. The un security council is paralysed. And, as we report, supranational courts like the International Court of Justice are increasingly weaponised by warring parties.

The decline of the system threatens to slow that progress, or even throw it into reverse. Once broken, it is unlikely to be replaced by new rules. Instead, world affairs will descend into their natural state of anarchy that favours banditry and violence. Without trust and an institutional framework for co-operation, it will become harder for countries to deal with the 21st century’s challenges, from containing an arms race in artificial intelligence to collaborating in space. Problems will be tackled by clubs of like-minded countries. That can work, but will more often involve coercion and resentment.

2 key takeaways from the article

1. At first glance, the world economy looks reassuringly resilient. America has boomed even as its trade war with China has escalated. Germany has withstood the loss of Russian gas supplies without suffering an economic disaster. War in the Middle East has brought no oil shock. Missile-firing Houthi rebels have barely touched the global flow of goods. As a share of global gdp, trade has bounced back from the pandemic and is forecast to grow healthily this year.
2. Look deeper, though, and you see fragility. For years the order that has governed the global economy since the second world war has been eroded. Today it is close to collapse. A worrying number of triggers could set off a descent into anarchy, where might is right and war is once again the resort of great powers. Even if it never comes to conflict, the effect on the economy of a breakdown in norms could be fast and brutal.

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Topics:  Global Economy, Global Trade, Liberalization, Trade Restrictions, China, USA, Europe, Emerging Econmies, IMC, World Bank, World Trade Organization