I write this article in the midst of a third wave of the COVID-19 crisis. The last time the world faced a challenge as serious as this was at the end of the World War II. At that time there was an extraordinary burst of institutional creativity, supported by the United States. The IMF, the World Bank, the GATT, and indeed the UN, all emerged to foster international cooperation. We now need something similar. It is only through such multilateral innovations that tensions between the US and China can be resolved, and global cooperation managed.

Global trade liberalisation needs to stand at the centre of this cooperation. The East Asian miracle of the 1980s and 90s – in South Korea, Taiwan, Malaysia, Singapore and Hong Kong – showed that countries grow most rapidly when they open themselves to international trade and encourage domestic firms to expand by exporting into the global market. And the rise of China has confirmed this idea spectacularly.

But the rise of China has actually made an open, liberal, cooperative world more difficult to sustain. Protectionism is on the rise again. That is partly because of the increase in inequality in the developed world, which globalisation has clearly helped to cause, in the absence of domestic policies directed at raising living standards of ordinary workers. In addition, it has become more challenging for countries to pursue openness when the new issues requiring attention are in the services sector. The challenges are most severe in high-tech digital sectors, including the FAANGs (Facebook, Amazon, Apple, Netflix, Google) but going well beyond them. In these industries, economies of scale, and first-mover advantages in standard-setting, create formidable barriers to fair competition. As a result, a battle over the development of digital technology has become a feature of the US-China struggle.

Furthermore, recreating a cooperative global order will be more institutionally challenging than it was after World War II, when the United States led the way. Global power is now in the hands of at least three dominant countries or regions, and the interests of other countries matter too.

First, the position of the United States needs to change radically. In the four years under President Trump, the United States shelved the WTO dispute-settlement process, showed contempt for trade rules and trade partners, withdrew from the Paris Agreement on climate change and cut funding to the WHO. Most notably, the United States acted in a questionable manner in its actions against Huawei and other high-tech companies, possibly mixing justifiable concerns about security risks with naked protectionism. We have to put hopes on review of these things under the new Biden Administration.

Second, the position of China, today’s rising hegemon, will be critical. China has responded to the behaviour of the United States with its own form of managed trade, with the theft of intellectual property, with kinds of state support not covered by WTO rules, and with policies which entangle Chinese producers in the country’s defence industry in an opaque  manner. China needs to understand that its gains from economic exchange with the outside world will be much greater if it is understood to be honouring generally accepted principles like the UN’s Declaration of Human Rights.

Third, the position of Germany will also be crucial, as will the position of the European Union, which Germany leads. So far Europe’s focus has been almost entirely inward-looking, in terms of both macroeconomic policy and trade policy. But this needs to change.

And finally the interests of second-tier countries will need to be served if a sustainable global order is to be reconstructed. Particular challenges are facing both the UK and India, which have turned away from the mega-regional blocks that have become part of the global order.

Global coalitions will be needed to solve this jigsaw puzzle.

That is what happened after World War II, when a rising US hegemon shared global benefits with second-tier powers, including the UK, France, Canada, Australia, and, including also Germany and Japan, who had just been defeated in war. We all learned from that successful period that a workable multilateral global order always needs a framework that restrains the global hegemon in the interests of such second-tier powers. This is what Maynard Keynes sought – and achieved - at Bretton Woods. It is what Britain’s allies, including Australia, obtained when the GATT was established. And it is what the world established in San Francisco when the UN was founded. Through all of these global institutions the power of the US to exercise its hegemonic dominance was constrained. Now the task is more difficult. A twenty-first-century multilateral world will need institutions that put restraints on all of United States, Germany, and in particular China.  

In my view, the institutions of Asia’s new Regional Comprehensive Economic Partnership (RCEP) might help in managing this process. RCEP is a free-trade agreement, initiated by Indonesia nearly a decade ago, and signed just six months ago, between 15 Asia-Pacific nations: Australia, Brunei, Cambodia, China, Indonesia, Japan, Laos, Myanmar,  New Zealand, the PhilippinesSingaporeSouth KoreaThailand, and Vietnam. The member countries account for about 30% of the world's population (2.2 billion people), and about 30% of global GDP (which is around $26.2 trillion in 2020), making it the biggest trade bloc in history. It has already supplanted the Trans Pacific Partnership (TPP) which Barack Obama led, but which Donald Trump abbandoned. RCEP will enormously encourage the development of Asia-wide supply chains.

But the effects of RCEP could become much bigger than this. This is because it may become possible to bring China’s Belt and Road Initiative (BRI) under the influence of RCEP.  Doing this  will be challenging but will be helped by the fact that RCEP involves not just a once-off done-and-dusted trade agreement. It includes, instead, a set of processes which will establish a secretariat in order to manage the (gradual) liberalisation which RCEP will bring about. That secretariat will, inevitably, become a forum in which further Asia-wide liberalisation and integration is managed, working alongside the economic cooperation process which is a pillar of RCEP. And it will also, inescapably, come to deal with, and possibly manage, many BRI processes. Such an internationalisation of the BRI might even be something that China will encourage. This is partly because of the heavy indebtedness of many of the countries to which China has lent money. But it is also because China’s growth strategy is turning inward in a post-COVID, post-Trump world. The challenges which China faces because of its aging population, and its shrinking workforce, no longer require the export-led-growth strategy constructed 30 years ago, something which the BRI was initially set up to support. We can expect big changes here. RCEP could help to manage them.

The establishment of RCEP will give Asia the chance to show how cooperation should be promoted, and the multilateral order developed, at the global level. To be successful, international institutions require trust and voluntary cooperation. This is very different from the conditionality and hegemonic enforcement which was envisaged by the United States in the TPP, and which has been practiced by Germany within the European Monetary Union. For such trust to be possible, the international institutions which RCEP supports will need to become platforms in which information is exchanged, preferences are articulated and compromises are reached—but in which countries remain able to act autonomously. This may well be possible.

Unfortunately there is an elephant in the room: China’s new assertive foreign policy and the expansionist strategy which China has followed since the assumption of power by President Xi. This strategy has led to threats to Taiwan, to fighting with India in the Himalayan mountains, to territorial claims in the South China Sea, and to a clamp-down in Hong Kong. These actions are quite separate from China’s economic strategy, but they risk jeopardising international efforts to promote global economic cooperation. Let us hope that the emerging RCEP secretariat can become a place where principles of international engagement are hammered out, both for China and for the world, in a twenty-first century manner that also ameliorates these security concerns.

The global order which emerges will need to prevent conflict between China (the rising superpower), the United States (the previous hegemon) and Germany (the leader of many European nations). It is possible that Europe might come to stand between the United States and China in an important manner. It is clear that many within the European policy community already fear an overly powerful China and hope to ally themselves with the new United States Administration to cushion the effects of this. Nevertheless, the recent EU-China investment treaty appears to have driven a wedge between the US and the EU, which will make such trans-Atlantic cooperation more difficult. Europe’s aim – everyone’s aim - must now be an international coalition that enables countries to communicate and exchange information, to manage the global macroeconomic system, to continue liberalising international trade, and to build a more climate-friendly world. This is a big task. And countries must go on being able to do this, even when tensions emerge.