In an interview in 2018, Henry Kissinger, former US Secretary of State and doyen of international diplomacy, made a provocative observation about President Donald Trump:

Whether he realises this or not, Trump, in his own mercurial way, is essentially undoing the very liberal international economic and political system that the United States created from the ashes of World War II  (WWII) and has led ever since. With the United States serving as the “benevolent hegemon” or, in John Ikenberry’s (2011) evocative words, the “liberal Leviathan”, the liberal international order provided the framework under which sovereign states agreed to follow a rules-based system of economic and political cooperation and shared multilateral governance (Deudney and Ikenberry 2018). Despite flaws, this postwar order has played an instrumental role in managing geopolitical competition (including winning the Cold War), and promoting global peace and prosperity for the past seven decades.

However, with the election of Donald Trump as the President of the United States, this quintessentially cosmopolitan liberal international order has come under sustained assault. After all, Trump has in no uncertain terms made it clear that

Not surprisingly, many fear that the liberal international order may not survive if Trump is re-elected (Ikenberry 2017), thereby making the urgency to defeat Trump in November 2020 even greater (Sachs 2018).

However, because the postwar liberal international order has been seen as synonymous with the US national interest and has long enjoyed strong bipartisan support in Washington, it is not easy for its supporters to appreciate Kissinger’s caution that, even if Trump is defeated, his successors’ efforts to rectify the damage inflicted by his administration and turn the clock back to the familiar postwar order will not be easy. This is because both the domestic and the geopolitical conditions which gave rise to and nurtured the postwar consensus on liberal internationalism in the United States (and in the West) have weakened greatly, eroding the broad support liberal internationalism once enjoyed.

In fact, nothing underscores this more than the election of Donald Trump. Not since the 1930s was an individual elected President of the United States on an explicitly protectionist and nativist platform with an undisguised animus for liberal internationalism. Indeed, as affluent industrialised countries turn inward, retreating into economic protectionism and the politics of nationalism and populism, the hostility towards liberal internationalism (and its inevitable manifestation, that is globalisation) has amplified. Viewed in this light, it would be naïve to dismiss the Trump administration’s claims and policies (tendentious as some are) as an aberration or some sort of temporary interlude, with the equilibrium restored after he leaves office. Rather, as Kissinger notes, Trump may prove to be the harbinger of things to come – in his own audacious way serving as the beginning of the end of an era.

Thus, Trump can be seen as both a symptom and a cause of the seeming unravelling, if not destruction, of the liberal international order, which the United States and its Western allies so assiduously built and have championed for the past seven decades.

The unravelling

The Bretton Woods system which laid the foundations for liberal internationalism was the product of both national and geopolitical changes following WWII. In this system, the most powerful nation, the United States, not only set the rules, it also committed itself to complying broadly with the agreed rules and protocols, especially in areas of trade and commerce with the commitment to facilitate market access via non-discriminatory treatment of foreign goods and services. These commitments remained, even after the Bretton Woods system fell apart in 1971 with the US’ unilateral termination of the convertibility of the dollar to gold. Today, however, the United States, with some justification, believes that these rules and regulations are stacked against it. After all, many large emerging market economies, in particular China and India, do not provide reciprocal market access to US goods, services and businesses. To the contrary, they generously subsidise their own businesses and, in the case of China, often unscrupulously infringe US intellectual property rights, requiring American companies to transfer advanced technology as a precondition for doing business in the Middle Kingdom.

In the name of ‘America First’, the Trump administration in words and deeds has served notice that Washington is no longer prepared to accept these violations passively. Shortly after assuming office, Trump directed the Office of the United States Trade Representative (USTR) to conduct investigations into China’s trade- and technology-transfer policies and practices under Section 301 of the Trade Act. Based on the USTR’s findings (released on 22 March 2018: Office of the USTR 2018), President Trump in a signed memorandum formally rebuked Beijing for “economic aggression”, ordered the imposition of tariffs on Chinese products and restrictions on Chinese investment in key technology sectors in the US, and undertook actions against China by filing a case at the World Trade Organisation (WTO).

However, in an unprecedented move, Trump also lashed out at the referee, the WTO, for its failure impartially to uphold the rules undergirding the global trading system (Brands 2018). Although Washington had formally filed a complaint with the WTO, it then simply bypassed the organisation (not waiting for a WTO ruling to confirm its claim) and authorised the imposition of tariffs to penalise China for the violation of several rules. Even more unceremoniously, although parties to the WTO had long agreed that tariffs cannot be raised above negotiated levels, except in specified circumstances (such as national security concerns) (WTO 2020), in March 2018, President Trump arbitrarily invoked “national security” to impose new import tariffs on a number of US trading partners. Trump also threatened to pull the United States out of the WTO, rejecting WTO decisions that have gone against the United States as an example of judicial overreach by an out-of-touch, unelected and un-American body, and denouncing the organisation as “the worst trade deal ever reached” (Irwin 2019; see also Drezner 2019).

These unprecedented developments, in which the most important country in the system has repeatedly disparaged and acerbically expressed its contempt for the order it was pivotal in creating, spells doom for the order. After all, the liberal international order’s resilience has depended not only on the principles of mutual trust and reciprocity – that all states respect both the spirit and the letter of the agreed rules and conventions – but also, and more fundamentally, on the intrinsic benevolence and support of the world’s preeminent liberal democracy, the United States.

Arguably, the United States’ unwillingness to continue to play by the rules is due to at least five interrelated factors. First, Trump is not your run-of-the-mill mercantilist who simply wants to erect walls to “protect” the American economy from the rest of the world. Rather, his intention is to use the US’ enormous power and leverage, in particular, the comparative advantage the United States enjoys with its large and diverse market, to force other countries (in particular, China) to agree to his/America’s terms. For example, Trump in his notoriously bombastic manner has repeatedly stated that the US will win the tariff war with China because China exports about four times more to the US than to any other country in the world and that China is far more dependent on exports than the United States (China’s merchandise exports to the US in 2017 totalled USD 505 bn, while US exports to China totalled only USD 130 bn – even if the US advantage in services reduced the balance slightly). Hence, the US is uniquely positioned to impose a bigger burden (that is, punishment) on China (Drezner 2019; Lawrence 2018; Liu and Woo 2018).

In order to further enhance US economic power (or ‘Make America Great Again’), the Trump administration has gone to some lengths to make the US economy more competitive and less dependent on China and the US’ other trading partners. Specifically, claiming that the United States has unduly burdened itself with an array of contradictory (and unnecessary) domestic regulatory and administrative measures, putting the national economy at a competitive disadvantage vis-à-vis competitors in emerging markets who are not bound by (or simply ignore) such strictures, the Trump administration has simply jettisoned these measures. To Trump, less dependence on China and other players means addressing the distortions in the “asymmetric” global supply chain. In practice, this has meant reversing and restructuring the US’ global trade integration via supply chains. Trump has repeatedly stated that his goal is to repatriate the international supply chains into which many US companies are deeply integrated by encouraging/forcing them (either by cutting corporate taxes and removing regulations or by imposing tariffs) to source domestically, that is, to reshore their production back to the United States.

Second, in the Trumpian world view, international trade is a zero-sum game, and the multilateral agreements and rules governing global trade are akin to the ropes that tied down Gulliver. Trump’s animosity towards the so-called “disastrous” trade agreements and organisations to which the US is a party, such as the North American Free Trade Agreement (NAFTA) and the WTO, among others, is rooted in his belief that the United States has been ‘taken for a ride’ (Hoekman 2020), as it opened its market without being reciprocated by its trading partners (in particular, China) and, worse still, that China engages in unfair and predatory trade practices. Echoing Trump, US Ambassador to the WTO Dennis Shea (2018) bluntly blamed China’s “trade-disruptive economic model” and the ‘unfair’ trade practices that undergird it for the huge US trade deficit with China, which reached USD 419.2 billion (47.7 percent of the total US trade deficit) in 2018.

Compounding these is the WTO’s inability to address these concerns. Indeed, deadlock in the WTO – the result of large developing countries, in particular China and India, demanding that the Doha Round of trade negotiations (launched in 2001) be completed before new issues can be considered – is one of the underlying reasons for the current global trade tensions. Moreover, the much-touted by policymakers and academics (see for example Bhagwati 2008) alternative of preferential trade agreements (PTAs) has turned out not to be a viable solution as they do not address the sources of trade frictions, since they are often with like-minded partner countries, while emerging economies such as China are unwilling to participate in “deep PTAs” as that would require accepting reciprocal rules and disciplines.

The inability of the WTO’s Appellate Body (appeals court) to impose effective multilateral discipline on the activities of emerging economies, notably China’s state-owned enterprises (which benefit from favourable domestic policies), and the ‘unfair advantage’ developing countries enjoy under the WTO’s “special and differential treatment” (SDT) provisions, has only served to diminish the WTO further in the eyes of economic nationalists like Trump.¹ Indeed, Trump’s refusal to be part of the Trans-Pacific Partnership (TPP) was in part because, with some justification, he considered the TPP as inadequate as the WTO in addressing the concerns of the United States and other advanced economies.

Third, certainly the unprecedented advancements in communications, transportation and information technologies and the resultant deeper integration or convergence between national economies have made the global economic system more interdependent and reciprocal. However, they have also made it more difficult to control and dominate by any single player, including the United States. This has meant that the unintended outcomes or the downsides of global integration on national economies can be both abrupt and volatile, and the fallout difficult to address. In other words, the growing inability of the United States to control, regulate and dominate the global economic system in this era of deep integration not is only something the US is not used to and finds unsettling, but also has severely constrained the United States’ ability to shield itself from global economic shocks and contagion (Sharma 2014). As popular attitudes towards globalisation have hardened, politicians find it convenient to blame globalisation, in particular, “‘free riders’ further rigging an already unfair” global trading system, for the real and imagined woes facing their economies. This underscores Thomas Wright’s (2017) observation that although unprecedented levels of interdependence have constrained the policy flexibility previously enjoyed by relatively autonomous states, it does not mean they have become passive or fatalistic actors. On the contrary, they continue to engage in intense power competition and, although they may be unwilling to engage in direct conflict, they nevertheless continue to employ “all measures short of war”.

Fourth, the fruits of economic globalisation (the result of some seven decades of liberal internationalism) have been far more unevenly distributed than its proponents had either predicted or promised. In fact, economic globalisation has produced sharply differentiated groups of ‘winners’ and ‘losers’ in the advanced economies – not only in the so-called ‘liberal market economies’, such as the United States and the United Kingdom, but also in the more redistributive ‘coordinated market economies’, such as Germany and Japan.

Exacerbating this has been the failure of the established political orders in many affluent democracies, including the United States, to address adequately the socioeconomic anxieties of those adversely impacted by the dislocating and disruptive forces of globalisation (Gryzmala-Busse 2019). For example, even as industries and businesses exposed to cheap foreign (mostly Chinese) imports have either eliminated jobs or depressed wages, the predicted rapid growth of higher-skilled knowledge-based employment to offset the loss of lower-skilled labour-intensive jobs has, on balance, not materialised. Similarly, the often ad hoc reskilling and retraining of displaced workers have made it difficult for many to find productive employment. In turn, this has contributed to the groundswell of popular opposition to globalisation which non-mainstream parties (especially on the right) and non-conventional and non-establishment politicians espousing populist and economic nationalist themes and policies, such as Trump, have been able to exploit. It is noteworthy that, in the last election, Trump took Pennsylvania, Michigan and Wisconsin (which had voted Democratic in previous elections and where an overly confident Hillary Clinton did not even bother to campaign) by winning over large numbers of unionised workers hurt by deindustrialisation. Predictably, Trump promised them that he would make America great again by bringing back the lost manufacturing jobs – and with it a sense of purpose and stability in their lives.

Last but not least, few now believe in the long-accepted extravagant and triumphalist claim that the liberal international order would serve as catalyst for the spread of liberal democracy around the world. On the contrary, an increasingly contentious geopolitical environment marked by challenges to US hegemony and the rise of a revisionist and authoritarian peer competitor in China with the wherewithal to challenge American power have generated anxieties about the future of the liberal international order.

With reference to trade, as mentioned earlier with respect to technology transfer, China has been free-riding the liberal international order by strategically adopting mercantilist practices to advance its national ambitions. Past efforts to resolve this either through bilateral negotiations or via multilateral interstate negotiations under the auspices of the WTO dispute resolution process have proven unsuccessful. In fact, contrary to Trump’s boast, Beijing has hardly caved in to pressure, and shows no intention of doing so. At best, China has expressed a willingness to buy more US goods, allow US companies greater access to the Chinese market and improve protection of US intellectual property (Choudhury 2020; see also Lawrence 2018). Although this may allow the two parties to reach some sort of truce, it hardly means that the current US-China trade conflict would be ‘resolved’, nor does it provide the basis for long-term cooperation and sustainability of the liberal international order.

The new illiberal order

In the United States (and other rich economies), both the right and the left are united in their opposition to globalisation. Trump (like Democratic Party Senator Bernie Sanders of Vermont) made hostility to free trade and globalisation the core tenet of his platform during the 2016 US presidential campaign – with oft-repeated threats to introduce a 45 percent tariff on Chinese imports, and require US companies to bring jobs back to the US. Even Hillary Clinton, who staunchly supported the TPP as US Secretary of State, jumped on the bandwagon and opposed it as the Democratic Party’s presidential candidate. Both Trump and Sanders were able successfully to gain broad popular support by effectively blaming the real and imagined failures of economic globalisation for the problems facing the American economy – indeed, American society writ large (Moore and Laffer 2018).

In the case of Trump, whether you call him a ‘nationalist’ or a ‘mercantilist’, what is clear is that his ‘America First’ and ‘Make America Great Again’ mantras resonate with sizable portions of the US population, in particular, those living outside the cloistered coastal metropolitan hubs. In fact, with that simple slogan, Trump has been able, with relative ease, to discredit the long-accepted view that unfettered markets, free trade and deepening economic ties promote economic prosperity and cooperative (and harmonious) relations between nations. Today, the core promise and premise of the liberal rules-based trading system – that global economic integration is a ‘win-win’ situation for all – is no longer in vogue.

How to explain this? It is understood that free trade has never been an easy political sell in representative democracies. This is because, although it raises aggregate living standards in a country, it also generates winners and losers. The benefits of trade are not always directly evident as they are spread across large and diverse constituencies of companies and consumers. In contrast, the costs are usually highly concentrated, falling disproportionately on particular groups, sectors and communities made painfully visible in the shuttered factories and shattered communities that litter the landscape in the American ‘rust belt’.

Moreover, the claim that the US is being unfairly ‘ripped off’ by other countries (in particular, China) prima facie rings true as the United States has progressively built up an enormous trade deficit with the rest of the world (about USD 800 billion in 2019 or 4 percent of US GDP). The flip side – that the trade deficit reflects the reality that the US has been spending more than it produces, forcing the United States to make up for the difference through net imports, and that imposing tariffs is not the answer as it is a tax on the goods purchased by American consumers – generally falls on deaf ears. Trump in keeping his message selective – that the US’ large and growing trade deficit with China is a blatant sign of American weakness and political incompetence – has been able to link the two issues together (Medeiros 2019; Fettweis 2018). In order to reduce its trade deficit, the United States must actively challenge and contain China. For Trump, the US bilateral deficit with China (which was roughly half of the total US trade deficit in 2018) amounts to a direct transfer of wealth from the United States to China, in the process strengthening China at America’s expense.

To the more sanguine observers, the Trump administration’s approach to reducing the US trade imbalance with China may lack finesse, but it is nothing to get overly worried about. If, to some, Trump’s approach is simply a tactical ploy to gain negotiating leverage and extract concessions for a ‘great deal’, to others, Trump’s audacious approach in dealing with China (and other trade partners) is predictable as it has been preceded by some two decades of failed negotiations with Beijing (by both Republican and Democratic administrations) aimed at establishing a more balanced and equitable trade relationship between the two countries (Navarro 2017; see also Navarro and Autry 2011). Indeed, the Obama administration’s many high-level meetings with China on a whole range of issues – from Chinese barriers to US imports, to the widening trade imbalance because of Beijing’s manipulation of the RMB, subsidies to favoured industries, investment restrictions and violations of intellectual property rights – remained inconclusive. Thus, Trump is doing what Reagan did in the 1980s – playing hardball to force the (then) Japanese market to open up to imports from the United States.

Arguably, the nature of current US-China trade tensions is eerily similar to US-Japan trade relations in the 1980s.² At that time, stagflation, job losses (particularly in the automotive and manufacturing sectors) and growing trade deficits (partly the result of competition from Japan and partly the result of a slump in postwar productivity growth) were taking their toll, and the United States was facing a crisis of competitiveness. As relations between Washington and Tokyo became increasingly acrimonious, the Reagan administration retaliated (with threats of even more punitive retaliation), if Tokyo did not change its behaviour. The Reagan administration’s strategy of ‘aggressive unilateralism’ against Japan was tough as the US justified trade restrictions by invoking national security concerns rather than the usual accusation of the other engaging in unfair trade via dumping, and imposed countervailing duties. In the end, good sense and self-interest prevailed and the two sides eventually made the necessary adjustments to cooperate – at least, before the costs became prohibitively high. Will the same take place in US-China relations?

Not necessarily. There are real differences between the two cases. First, and perhaps most importantly: although Trump is hardly different from his predecessors in using the formidable power of his office and that of the United States to extract concessions, or in Trump’s worldview, ‘to get the best trade deal possible’, unlike previous US Presidents, who used various protectionist measures during economic hard times, Trump has made a virtue of tariffs (proudly proclaiming on Twitter “I am a Tariff Man”) by adopting them (or threatening to adopt them) at a time when the US economy is robust with sustained growth, low unemployment, low inflation and a strong stock market to boot.

In fact, the Trump administration has liberally used the Section 232 national security provision of US trade law to impose tariffs on several trading partners (interestingly, the last time this provision was used was by the Reagan administration in 1983) (Nelson 2018). More specifically, since early 2018, the Trump administration has introduced tariffs on imports of steel, aluminium, paper products, solar panels, automobiles and a broad range of goods from China, impacting not only China, but also the EU, Canada and Mexico, among others.

Second, during the postwar period (at least up to the 1980s), the rich OECD countries (each with its particular comparative advantage) mostly traded with each other, resulting in an overall win-win situation for all stakeholders. In other words, trade between the United States and Japan (indeed among high-income countries) was generally complementary with intra-industry competition, inducing innovation, greater efficiency and lower prices for consumers. More importantly, it did not generate sharp variations in wages and employment within the OECD countries. However, with more and more developing and emerging market countries becoming part of the global trading system (accelerated with the establishment of the WTO), comparative advantage and terms of trade have shifted in favour of the large emerging economies like China and India, with real implications for employment and wages in the rich countries.

More specifically, China’s accession to the WTO in 2001 was a huge boon for it, as membership removed the risk that China would face tariff increases from the United States and its other major trading partners. This helped boost domestic and foreign investment further in China’s manufacturing sector, in the process making ‘Made in China’ goods ubiquitous worldwide. Indeed, China’s rapid integration into the global economy and transformation into a ‘global factory’ (China’s share of exports of manufactured goods worldwide skyrocketed from 2.3 percent to 18.8 percent between 1991 and 2013, and its share of world manufacturing value added increased by a factor of six, from 4.1 percent to 24 percent) overwhelmed the manufacturing and related sectors in the advanced economies (World Bank 2018). The sheer magnitude and range of Chinese exports – covering primary, intermediate and advanced manufactured goods – was simply too much to absorb and resulted in adverse consequences for manufacturing employment and in economic inequality in the rich countries. China has, in the meantime, accumulated huge trade surpluses with almost all of its major trading partners, in particular, the United States. It is no coincidence that the downward pressures on the earnings of American factory workers and the sharp decline in US manufacturing employment began in 2000 – just as Chinese imports took off.

China’s rapid integration into the global economy has had a far reaching impact on the US economy, indeed the global economy, and has turned the hallowed theory of comparative advantage upside down. As the dissonance between economic models and the ground reality in US-China trade is largely due to China’s unprecedented comparative advantage, given the very different levels of development and sharp differences in wages between the two countries, its broader socioeconomic impact has been significant. It has debunked the long-held assumption that trade adjustment is mostly frictionless and that industry and labour can adjust quickly and effortlessly to market changes. Instead, labour market adjustment in the face of unprecedented trade with China has been difficult and protracted for American workers. Because manufacturing is geographically concentrated (in the Midwest), the abrupt and near total collapse of the manufacturing base in the American industrial rust belt and the absence of a viable economic alternative triggered a veritable chain reaction. This has not only weakened regional economies, but undermined the local service industries, thereby limiting their ability to absorb the displaced labour.

In their seminal research examining the impact of US-China trade on the US labour markets, David Autor et al. (2016) provide compelling evidence that sustained exposure to foreign competition, in particular, the intense competition from China (and other large emerging economies), can and have produced adverse effects, such as a sharp contraction or elimination of jobs and depressed and stagnant wages for at least a decade in the advanced economies. The authors find that US regions or industries with exposure to Chinese imports experienced sustained job losses and conclude that Chinese imports directly eliminated nearly one million American manufacturing jobs between 1999 and 2011, and about 2.4 million jobs indirectly – if related industries and suppliers are included. In the United States, “deindustrialisation” has negatively impacted not only blue-collar and low-skilled workers, but also the middle class, and has exacerbated income and wealth inequalities to unprecedented levels.³

Third, by the mid-1980s, the Japanese economy had begun to slowdown, losing steam to the emerging-economy competitors in the value chain. Beginning in 1981, Japan’s growth rate began its precipitous decline, with real GDP ‘growing’ at an anaemic 0.5 percent annually between 1980 and 2018 (World Bank 2018) As Japan’s export competitiveness weakened (and job losses in the United States could no longer be blamed simply on Japanese exports), it made US-Japan trade compromises much easier. Compromises with Beijing will, however, be far more challenging.

Although China’s GDP growth has seen a sharp decline from 14.2 percent in 2007 to 6.6 percent in 2018, it is still a fast growing economy compared to the developed countries. Moreover, China’s export-dependent economy, already under pressure from value-chain competitors, will not yield easily to American pressure and threats. Indeed, China will not only fight hard to maintain (and expand) its already formidable market share in manufacturing exports, it is also making significant gains in closing the gap in both services and advanced technologies – like robotics and artificial intelligence (AI) – and in the process directly competing with the United States (and other advanced economies) in sectors in which the West traditionally enjoyed a huge comparative advantage. As the complementarity in Chinese and US exports further erodes and the two economies become more competitive, the animosity and conflict between Washington and Beijing will only intensify.

Finally, unlike Japan, which is an ally of the United States, China is a rival and strategic competitor. Not surprisingly, exacerbating Sino-American bilateral economic relations is the so-called ‘securitisation’ problem (Brown and Singh 2018; Schell and Shirk 2019). More specifically, Beijing’s economic statecraft which earlier was seen in Washington as a national security concern for China is now viewed as posing a national security threat to the United States. In particular, Beijing’s concerted effort to acquire advanced technologies, such as AI and robotics – often via a combination of mercantilist policies, cyber-espionage and illicit backroom deals – has caused alarm, given its potential to erode the military advantage the United States currently enjoys in second-generation defence technologies. It is mainly for this reason that the Trump administration has sought both to limit and regulate the ongoing integration of cutting-edge US technologies in global supply chains in which Chinese corporations are deeply embedded.

In sharp contrast to its predecessors, the Trump administration’s National Security Strategy (NSS) bluntly asserts that, since economic security is the foundation of national security and given Chinese (and Russian) behaviour, both countries should be viewed as strategic competitors (White House 2017). As a result, the Trump administration has gone to some lengths to curb the transfer of advanced technology to China. In addition to imposing about USD 250 billion worth of duties on Chinese goods in 2018 because China’s ‘theft of US technology’ poses a strategic threat to the United States, the administration has more rigorously applied national security provisions regarding inward foreign investments. By placing tighter restrictions and oversight on US companies doing business with a number of Chinese high-tech companies, most notably Huawei and ZTE, and making it more difficult for China to obtain certain technologies indirectly by acquiring US companies, the administration has sought to limit technology transfer to China.⁴

The case of Huawei can be seen in this light. On 15 May 2019, the US added Huawei and 68 affiliates to its ‘Entity List’ (which includes individuals and entities “subject to specific license requirements for the export, re-export, and/or in-country transfer of specified items”) (White & Case 2019; see also Inkster 2019), thereby greatly limiting Huawei’s ability to purchase technology from US companies without prior US government approval. In addition, US companies are barred from using telecommunications equipment made by Chinese firms as they pose a potential national security risk.

Competing futures?

Over half a century ago, Karl Polanyi (1944) warned that the expansion of capitalism and the integration of markets in the global economy had the unintended impact of weakening democracy and helping the rise of fascism in Europe. This was because markets were poorly regulated and weakly embedded in society, thereby limiting the ability of elected officials to address adequately the problems associated with socioeconomic dislocation and displacement. To some, like Harvard economist Dani Rodrik (2011), the current phase of globalisation is eerily similar. Rodrik claims that “hyper-globalization” or the elimination of essentially all barriers to the movement of goods and money has greatly limited the ability of governments to address pressing socioeconomic challenges. This is because globalisation has been built on a faulty asymmetry – with trade agreements and global regulatory regimes designed to protect and advance the interests of capital, in particular, multinational corporations, while the interests of labour (such as good wages and employment security) are left to market forces, on the assumption that the gains to owners of capital will spill over or “trickle down” in the form of higher-paying and better jobs and increases in tax revenues to support social welfare.

Exacerbating this, the fact that capital and corporations are free to move relatively unhindered across national borders while labour faces numerous (and punitive) restrictions means that economic risk and uncertainty are borne disproportionately by the immobile factor – labour. This in turn explains why economic downturns and recessions have severely impacted workers; owners of capital are partially protected by their global financial diversification. Although it remains to be seen if large numbers of those negatively impacted by globalisation in the developed economies will turn to either right- or left-wing anti-globalisation political organisations, preliminary evidence does point towards a trend: the negatively impacted constituencies not only have strong incentives to mobilise against free trade and deepening global integration, but indeed tend to oppose them vociferously. In the United States, for example, districts negatively affected by job losses due to Chinese imports tend to replace more moderate members of Congress with more populist and nationalist candidates. Similarly, in Western Europe, support for Brexit in the UK was strongest in areas hit hardest by unemployment (Colantone and Stanig 2018a; Colantone and Stanig 2018b; Goodwin and Heath 2016).

These trends, coupled with the possibility of an economic impasse and conflict, do not bode well for the future. As Henry Farrell and Abraham Newman (2020) have warned, although the US and Chinese economies are too interdependent and entwined to be “decoupled”, this does not necessarily portend cooperation. On the contrary, such “chained globalization […] will tempt them [states] to strangle their competitors through economic coercion and espionage, even as they try to fight off their rivals’ attempts to do the same” (71).

Yet, another future is also possible. Over the past seven decades, the postwar liberal order has fundamentally remade national economies by intimately embedding them in a large, complex, asymmetric and inextricably intertwined global economic system. Withdrawing from this system, even for the most consequential player, the United States, will hardly be painless. Given the fact that, together, the US and Chinese economies constitute almost two-fifths of global GDP, the collateral damage by leaving would also be extensive. All this could be avoided if a basic truth were understood: that economic globalisation is paradoxical.

Take, for example, the Trump administration’s claim that trade with China has been a zero-sum game for the United States. Autor et al. (2016) note that, whilst overall US gains from trade with China have been quite modest, some of the related costs have been offset by consumers who have benefitted from ‘cheap’ Chinese imports. Furthermore, workers in the United States and other advanced economies will benefit ‘over the long run’ from trade with China as firms and businesses become more competitive by reducing costs and reallocating labour and capital away from inefficient and uncompetitive manufacturing industries to newer and more productive ones. The reality is that international trade includes more than just goods and services – and focusing simply on the trade deficit (that is, primarily goods and services) means overlooking the issue of balance of payments and national savings and investment. Specifically, investment in US assets allows US businesses to grow and expand, while the purchase abroad of US government bonds allows the United States to finance its growing national debt. Of course, if US consumers were to save more (that is, spend less on foreign imports), the US trade deficit would be much smaller.

Similarly, the division of production in global value chains makes it difficult to “accurately” measure the size of trade deficits between nations – a problem compounded by the fact that China is usually the final destination of assembly for the products of multinational companies that source goods from several countries in an ever-expanding and complex supply chain. To some extent, this explains the sharp discrepancy between the official trade statistics of China and the United States. For example, according to US figures, the 2014 bilateral trade deficit with China was USD 342.6 billion. However, China has long claimed that its actual trade surplus with the United States was USD 237.0 billion.⁵ The USD 105.6 billion gap can be explained by whether the trade surplus in measured in value-added terms or in gross exports terms. Given that the foreign content share of China’s exports is around one-third (significantly above the levels of other large economies), this discrepancy is not surprising.

Furthermore, in the case of US-China bilateral trade, the discrepancies are also due to the differences in the “list value of shipments” when they leave China and when they enter the United States, including different attributions of both origin and destination of Chinese exports that are shipped through a third location (such as Hong Kong) before arriving in the United States. Also, the United States imports a large volume of goods from US companies based in China because of China’s advantage in low-cost assembly. Yet, once these goods are shipped back to the United States they are labelled as “imports”. In short, the US has a much larger trade deficit in terms of gross trade than in terms of value-added trade. Given these problematics, restricting imports from China via tariffs or other forms of trade protectionism means that US consumers will have to spend more for purely ‘made in USA’ goods.

Thus, to protect the significant savings American consumers derive from lower priced Chinese imports, it is often argued that both US federal and state governments should help mitigate some of the adverse effects of cheap imports on the US labour market by strengthening protections for workers – something they have not done well. In this way, workers made redundant by imports could improve their skills and re-enter the labour market, while millions of consumers continue to benefit from low-priced imports from China and other emerging economies.

It is important to keep in mind that tens of millions of US workers are employed in industries and businesses that export a wide range of manufactured goods and services around the world, including China. Indeed, Beijing often reiterates that General Motors (GM) sold more vehicles in China than in the United States each year from 2010 to 2016 (in 2016, GM sold 3.9 million vehicles in China, compared to 3.0 million in the United States) (General Motors 2016; 2017). In addition, growing numbers of American businesses and service providers are inextricably tied to global supply chains – without which they would lose their competitive edge.

Nobel Laureate Michael Spence and his co-authors caution the United States and other rich countries against “retreating into protectionism” (Lund et al. 2019, 121). They warn that

Although the liberal international order is in trouble, it is clearly still too early to write its obituary. There is no coherent alternative. To paraphrase Ben Franklin, it remains to be seen if the venerable order can be kept.

Postscript: the COVID-19 pandemic

On the eve of the pandemic outbreak, two broad views have been offered regarding great-power relations. On one hand, Aaron L. Friedberg (2020) argues that “The Covid-19 pandemic has highlighted the need for a more coordinated approach to dealing with China, and it appears also to have created the conditions that make such an approach feasible, both at home and abroad”. On the other hand, Ashley J. Tellis (2020) notes that “After almost two decades of conflicted hesitancy, the United States finally acknowledged that it is involved in a long-term strategic competition with China. This rivalry, almost by definition, is not merely a wrangle between two major states. Rather, it involves a struggle for dominance in the international system”. It seems that Tellis’s view is holding sway.

With the spread of the deadly coronavirus pandemic, relations between the United States and China have reached an all-time low. To his credit, President Trump has been among the very few Western leaders prepared to hold Beijing accountable – repeatedly pointing out the Chinese government’s “irresponsible behaviour” and lack of transparency, first, in deliberately concealing (indeed, suppressing) the severity of the initial outbreak in the city of Wuhan and, second, in failing to “tell the truth” about the human-to-human transmission, thereby preventing the international community from taking preventive actions that might have more effectively contained the virus (Mason et al. 2020; Atwood and Collinson 2020). Trump’s warning that China should face consequences if it was “knowingly responsible” for the coronavirus pandemic has received broad public approval in the United States.

Trump’s critique (a point that is underscored in the administration’s National Security Strategy) explodes the myth that China’s party-state has become a “responsible global stakeholder”. Rather, authoritarian China is a strategic competitor whose actions are designed to seek advantage and maximise its power. More importantly, it confirms that countries are the decisive players in the international system and effective response to domestic and global crises depends upon them (in particular, powerful ones), rather than international organisations. Indeed, the stark inability of the five permanent members of the UN Security Council, who have failed even to hold a summit (including a virtual one) on how to respond to the pandemic; the failure of the much-vaunted G20 and G7 to reach even a basic understanding on how to address the economic fallout; and above all, the complete failure of the World Health Organisation (WHO) to lead a transparent and effective international response to the virus, sadly underscore that the United States, like other states, stands alone in the international system.

Finally, Trump’s claim that the United States has become too economically dependent on China, including its dependence on production and supply chains that mostly go through China, is now resonating more, not only in the United States, but globally. Indeed, the pandemic has highlighted the risks and dangers associated with the world’s dependence on Chinese goods, including, among other things, essential drugs, face masks and thermal cameras needed to test people for fevers. The Trump administration, including the US Department of Commerce and other governmental agencies, is already engaged in helping US companies (using carrots such as tax incentives and reshoring subsidies, as well as sticks) to move their sourcing and manufacturing out of China. Trump’s statement about

underscores how his ‘America First’ agenda will shape US policy if Trump is re-elected.