Donald Trump is putting global cooperation to a stress test. And the world may be better for it

The spirit of international cooperation that emerged from the ashes of World War II is under threat, after decades of global economic growth. As the US abandons multilateralism, will other nations step forward as new spiritual leaders?

David Dodwell

Published: 11:00pm, 14 Jul 2019

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Profound and alarming changes are occurring in the global economy, and nothing brings this home better this month than the 75th anniversary of the Bretton Woods conference in the United States, which laid the foundations for the international economic institutions that have driven growth, reductions in global poverty and relative political stability for most of our lifetimes.

The world was still at war when for three remarkable weeks from July 1 to 22, 1944, deep in the countryside of New Hampshire, US Treasury secretary Henry Morgenthau and British economist John Maynard Keynes arm-wrestled with representatives from 44 governments over the reconstruction of the entire global economy.

Peace would only be declared more than a year later. Yet, here were spawned an armful of institutions that remain indispensable today: the International Monetary Fund, the World Bank Group, and the General Agreement on Tariffs and Trade which in 1995 became the World Trade Organisation.

The conference was a precursor to the United Nations (in fact, the meetings at The Mount Washington hotel were formally known as the United Nations Monetary and Financial Conference). It laid the foundations for the Marshall Plan, which was proposed at Harvard two years later by US state secretary George C. Marshall and which provided more than US$12 billion (US$100 billion in present-day dollars) for the post-war reconstruction of Europe.

The spirit of Bretton Woods was clearly expressed as Morgenthau closed the meeting: “We have come to recognise that the wisest and most effective way to protect our national interests is through international cooperation – that is to say, through united effort for the attainment of common goals.”

US Treasury official Harry Dexter White (left) and British economist John Maynard Keynes at the inaugural meeting of the IMF Board of Governors in Savannah, Georgia, on March 8, 1946. The IMF was founded at the Bretton Woods conference in 1944. Photo: IMF

As Martin Wolf at the Financial Times noted last week, on the back of this cooperation, global income per capita has grown fourfold as the population has grown threefold. World trade has expanded explosively, by 39 times. The share of the world’s population living below the World Bank’s US$2-a-day poverty line has fallen sharply, from 75 per cent in 1950 to 10 per cent in 2015.

In the spirit of Bretton Woods, dozens of other valuable forums for global cooperation have sprung up, from the Inter-American Development Bank and the Asian Infrastructure Investment Bank to the Group of 7 and the Group of 20. There’s a plethora of regional organisations like the Asia-Pacific Economic Cooperation, as well as hundreds of bilateral and plurilateral trade agreements.

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But over the past decade – and in particular since the election of Donald Trump in 2016 – this global consensus on the merits of international cooperation over unilateralism has been radically threatened. As Wolf noted: “Mr Trump’s idea of “America first” and his passionate belief in protectionism are a fundamental repudiation of the animating spirit and institutional structure of the order the US created after the second world war.”

It is true that many other countries – like China and India – pay frequent lip service to the virtues of multilateral liberalisation and haven’t yet given proper substance to that lip service. It is also evident that an alarming amnesia has set in about the terrible price so many countries paid in the first half of the last century for failing to cooperate. The cynical preference in many democracies for short-term populist gains over communities’ need for long-term investment is also problematic.

But the US’ abandonment of the spirit of Bretton Woods is particularly harmful to the global economic system, and to international cooperation – at a time when the world needs to work together in battling climate change and managing technological change as well as the financial system’s stresses that have persisted right up to today.

Essentially, the Trump administration has broken what former Federal Reserve chairman Paul Volcker calls “certain basic rules of good behaviour”. Its many transgressions include abruptly withdrawing from agreements (the Trans-Pacific Partnership, the Paris climate agreement, and the Iran nuclear deal), framing trade negotiations as lists of ultimatums, invoking threats to national security to justify protectionism, and strangling the WTO’s dispute settlement mechanism.

The success of the Bretton Woods institutions has rested not just on a spirit of cooperation, but also on meticulous negotiation and a universal commitment to compromise. It has rested on the trust that agreements, once reached, are lived up to. The erosion of trust after three years of the Trump administration has undermined faith in the willingness of the US, as the architect of the Bretton Woods institutions, to ensure they continue to function as successfully as they have for the past 75 years.

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One positive is that the Trump administration has effectively given a stress test to the Bretton Woods principles that have for so long been taken for granted. Is multilateralism genuinely superior to unilateralism? Have the global manufacturing and supply chains developed during the Bretton Woods era served us well? And where they have not served us well, what should we do about it? Do the Bretton Woods institutions need to be tweaked and updated to address more effectively the challenges that have emerged and become severe recently?

And the good news is that even as the stress test continues, the great majority of members of the IMF, World Bank and WTO still believe the organisations have delivered, and continue to deliver, net benefits.

From this vantage point, the US is at an important crossroads. As other nations begin to step forward as champions of the multilateralism at the heart of a globally interconnected economy, is the US’ spiritual leadership set to decline? Will new leadership come from the European Union, Japan – or even China?

The lessons of the past 75 years tell us that Morgenthau and Keynes were right, and that Trump and his acolytes are wrong. International cooperation is still the most effective way to protect our respective national interests.

David Dodwell researches and writes about global, regional and Hong Kong challenges from a Hong Kong point of view

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