The great statesmanship and leadership that the United States showed during and after World War II is well known. America was the world's preeminent political, economic, and military power, and instead of using its position to penalise the losers and demand reparations, it helped plan and found multilateral global-governance institutions that would give all countries a seat at the table.
Under this new international order, postwar reconstruction and economic development was to be financed through the World Bank, while the international trading system was to be underpinned by the rule of law through the General Agreement on Tariffs and Trade and its successor, the World Trade Organization (WTO). The International Monetary Fund (IMF) was charged with ensuring global financial stability, and organisations such as the United Nations and Nato offered frameworks for addressing geopolitical tensions.
This rules-based world maintained peace and boosted prosperity. These achievements were all the result of multilateralism. To be sure, the US was and still is the de facto leader of this global order. But since it accounts for less than 5% of the world's population and only about one-fifth of global GDP, it is not large enough simply to dictate matters to everyone else. Instead, it relies on support from its allies to advance its goals and interests on the world stage.
After 70 years of relative peace and rising prosperity, the Trump administration rejected multilateralism as a matter of principle. Accordingly, it scrapped the Trans-Pacific Partnership, a fully negotiated, US-centric free-trade agreement concluded by 12 Pacific Rim countries. It launched a trade war against China, unilaterally imposing high tariffs on Chinese imports in violation of WTO rules. And it weakened the WTO further by hobbling the organisation's dispute-settlement body and introducing additional protectionist measures on dubious national-security grounds.
By pursuing all these measures unilaterally, the Trump administration shot itself in the foot. If it wanted to counter China, it would have had greater success by working multilaterally through the WTO.
Unfortunately, Joe Biden's administration has continued down the same path. Not only do most of the Trump tariffs against China remain in place, but the US has now introduced a sweeping industrial policy to subsidise specific domestic industries.
While Russia's invasion of Ukraine intensified the need for multilateralism, it also reinforced the Biden administration's efforts to shield the US economy from foreign competition. Obviously, these two impulses are in conflict. The US needs its partners and allies to ensure that its support for Ukraine and sanctions against Russia are effective. Yet by pursuing economic self-sufficiency, it is discriminating against these countries' exports.
Among other things, the Biden administration has sought and obtained congressional approval to finance the production and consumption purchases of semiconductors, batteries, electric vehicles, and much more in the US. American consumers are entitled to a US$7,500 (261,630 baht) tax credit for purchasing an EV, provided that it meets requirements for US-made content; and the federal government will be subsidising new EV-battery production to the tune of $7 billion. Likewise, $39 billion has been allocated for the construction of new semiconductor facilities in the US.
Since these subsidies will give US producers an artificial cost advantage over their foreign counterparts, the Biden administration is reproducing the protectionist policies that the US has long complained about when other countries adopt them. Moreover, foreign companies are already signalling that they may site their new factories in the US, where they can avail themselves of the extra perks. America's allies and trade partners naturally view these moves as inimical to their own interests and WTO rules. As matters stand, the US is running the risk of starting a new trade war.
Of course, some technology must be withheld from other countries, because it has obvious military significance. But the way to keep these products out of the wrong hands is to work with friendly countries through multilateral channels.
Multilateral rules based on the principle of free trade still represent the best approach to managing international flows of most commodities. And multilateral policies would ultimately be much more successful and less costly, both in maintaining diplomatic support from allies and in promoting US economic objectives. ©2023 Project Syndicate
Anne O Krueger, a former World Bank chief economist and former first deputy managing director of the International Monetary Fund, is Senior Research Professor of International Economics at the Johns Hopkins University School of Advanced International Studies and Senior Fellow at the Center for International Development at Stanford University.
