Rethinking the Global Economic Order

By Ping Wang

This article is based on a Harvard Kennedy School event with Lawrence H. Summers (Secretary of the US Treasury for President Clinton; the Director of the National Economic Council for President Obama, Charles W. Eliot University Professor and President Emeritus at Harvard), Kevin Rudd (26th Prime Minister of Australia; President and CEO of Asia Society) and Jin Liqun (President and Chair of the Board of Directors of Asian Infrastructure Investment Bank), moderated by Ping Wang (MPA 2021, Harvard Kennedy School) on April 22, 2021.

The liberal international economic order was established by the United States and its allies more than seventy years ago, but China is no longer as it used to be. China’s economic rise poses fundamental questions to the existing global economic order: Is the system still relevant? Where should China stand in the current system against the changing context?

When China opened to the world in 1978, it was still a very poor country. The per capita GDP in China was only one-fortieth of the U.S. level. When China joined the World Trade Organization (WTO) in 2001, it was hard to believe that China would soon become a major economic rival to the United States. Today in 2021, China is the second largest economy in the world, contributing nearly 35 percent of the increase in world GDP from 2015 to 2020, and China is expected to account for a similar share of growth over the five years between 2021 and 2026 (IMF World Economic Outlook, April 2021). On April 22, 2021, I moderated a seminar at Harvard Kennedy School with Lawrence Summers, Kevin Rudd and Jin Liqun on “The Evolving Role of US and China in the Global Economy,” in which they discussed the changes resulting from China’s economic rise and the future prospects for collaboration and competition in global economic relations.

The United States and China had a good time of economic cooperation. Several decades of bilateral trade and investment have boosted strong economic growth, created jobs and provided choices to consumers in both countries. As Summers, Rudd, and Jin noted, China’s rise depended on strong public policies — a change in economic policy direction which unleashed extraordinary energy and enthusiasm across the Chinese people. Yet China’s rise changed the global economic landscape and it has impacted the dominant status of the United States. The trade war and conflict with China have reduced growth and employment and hurt both economies. How can we manage the increasing competition and conflicts? Is it a time to rethink global economic order? What are the elements that should be taken into account?

The three panelists offered many insights on the future of US-China economic relations and the global economy. The following are three key messages I would like to highlight from the seminar.

We need to have mutual strategic reassurance, signal the limitations of our aspiration, and have mutual respect for each other’s strengths.

“Both countries would likely carry out a global contest for hearts and minds and take care of the rest of foreign policy, non-critical national security policy, all domains of economic policy, trade, investment, technology and the rest, as well as ideological debates, while stopping short of breaching the strategic limits of the relationship. Even amid escalating competition, the two countries will have to find room for continued strategic cooperation on critical global challenges such as climate change, combatting the pandemic and improving public health, global economic recovery, and financial stability, and nuclear arms control including limitations on AI warfare.” — Kevin Rudd

Asia Infrastructure Investment Bank headquarters. Courtesy N509FZ via Wikimedia Creative Commons license
Asia Infrastructure Investment Bank headquarters. Courtesy N509FZ via Wikimedia Creative Commons license
Wang argues that the Asian Infrastructure Development Bank represents China’s desire to leverage the current global economic system as opposed to build a new system from scratch.

Many in the West believe that China wants to overturn the existing global economic system out and establish a new system oriented around China. The creation of the Asian Infrastructure Investment Bank (AIIB) in fact is improving the current system, in which China itself is a beneficiary, rather than starting an entirely new system for the world economy. Today, AIIB plays a very important role in development lending, a gap of vital importance to many developing countries.

“China and the U.S. need to work together; competition is something different from rivalry in all confrontations. It is important for the U.S. and China to further improve the international level playing field for competition, deescalate the tension, and try to focus on the real issues such as climate change, financial stability and economic growth. Conciliation is win-win whereas confrontation is lose-lose. If these two countries can work together, huge benefits will accrue to their own peoples and to the rest of the world. It is time to reconfigure the U.S.-China relationship”. — Jin Liqun

We should regret the turn that US-China relations have taken in recent years, and hope that both countries will move forward within a stable framework. As the panelists observed, the United States and China are like two very strong, very different individuals with only a limited amount in common, who find themselves in a common lifeboat in a turbulent sea a long way from the shore, and who do not have a viable alternative to a measure of cooperation. It is a different world where we probably cannot aspire to some of the warmth that was present years ago, but that cannot be a basis for abdicated responsibility to contain and manage tensions. That will offer us the best prospects moving forward, though it is not going to be an easy time.

Globalization in the future may look very different from the globalization of the past. For those of us who believe that the major problems of the 21st century are issues like climate change, global health, and pandemic risk, and for those of us who see those challenges as central, balancing power but fostering collaboration remains a key issue in today’s world. Negotiating and finding common purposes with the international financial institutions is so profoundly important.

“We should call for a collaborative response in the global economic order. The world would be in a better place if the development banks, including AIIB, five years from now, have a lending capacity more than twice as much as the capacity today. The world would be in a better place if there is vastly more funding for global public goods than there is today.” — Lawrence Summers

About the Author

Ping Wang is a Communications Officer of the IMF and a fellow with the Ash Center of Harvard Kennedy School. The views expressed in this paper are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

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