Multilateralism is under rising pressure. As the strategic rivalry between the U.S. and China poses a further and ongoing sharp challenge to international organizations, some speak of a crisis of multilateralism. Several forces have increased pressure on the multilateral system and point to a global order in which the only solutions are transactional rather than dictated by internationally agreed upon rules.
First, as we wrote before, the world is witnessing an increased number of international sanctions to pursue foreign policy objectives. Especially the U.S. has been relying on sanctions more frequently. In light of the rise of China as a challenge to U.S. hegemony, it can only be expected that the U.S. will impose more sanctions and tariffs. But other countries are imposing a lot of sanctions as well. Think of Japan’s sanctions on South Korea, in line with the rising tensions between the countries. In general, the rule of the “game” of sanctions seems to be that stronger powers impose their will on weaker counterparts, a dynamic that should be less common in a world that is built around multilateral systems.
Second, the U.S. is paralyzing the World Trade Organization, the main arbiter in global trade. The most immediate threat to the functioning of the WTO is the stalling of the dispute settlement process in the appellate body of the organization. As the White House deliberately blocks appointments to it, no new members are approved, and the body will stop functioning by December 2019. In fact, the functioning of the WTO has been under pressure for years; take the Doha Development Round trade negotiations that began in 2001 and aimed at lowering trade barriers around the world, but never led to an agreement. As a result, the WTO is considered less and less of an effective tool by the U.S. when it comes to realizing its own trade interests, leading it to take other routes to negotiate with countries.
- Shifting from a rule-based system in governing trade disputes to one based on power and bilateral negotiations will result in more trade uncertainty in the global economy. This, in turn, will contribute to a slowdown in trade and manufacturing activity, higher financial-market volatility and currency instability, declining capital flows to emerging economies, lower investor confidence, business spending, and productivity. The World Bank and the IMF continue to revise downward their economic growth forecasts.
- The rise of China is less a sign that there is a new sole hegemon in the making than a harbinger of a future multipolar world order in which different countries will lead in different domains. National champions will become of greater strategic importance to countries. This poses a risk to countries and regions (such as the EU, Japan) that heavily depend on the functioning of the multilateral system at the end of the Atlantic era. They will have to find new allies in a more fluid world order. Even the U.S., despite its America-first rhetoric and protectionist stance, is actively creating new relationships in order to hedge against China’s rise. For instance, over the past two years, the U.S. has been actively engaging with the EU and Japan in a trilateral format on U.S. terms.
- A shift in global power relations will pose a normative challenge to the current multilateral system. Rising Asian superpowers will show contrast to normative Western frames that underlie the multilateral system as it is, such as human rights and democratic values.
RISKS MARKED ON THE RISK RADAR AS NUMBER 3: Protectionism, policy uncertainty
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