Multilateralism Is Dead. Long Live Multilateralism!
Adelina Marini, 27 June 2018
The decision of President Donald Trump to take the United States out of the Paris climate agreement, from the Pacific trade partnership, the re-negotiation of the North-American free trade agreement, then the introduction of tariffs on aluminium and steel, including against the until recently closest allies - Canada and EU - the withdrawal from the UN Human Rights Council, the failure of the latest G7 summit are all manifestations of a systemic destruction of the world order established after World War II on the basis of multilateralism. Some analysts, mainly in the US, see Mr Trump's actions as American isolationism but, in fact, this is a much more global and very dangerous process.
What is multilateralism?
Generally speaking, this is a form of global governance based on creating common rules, the purpose of which is to avoid bilateral and, therefore, discriminatory agreements. And the world has a pretty bad experience with bilateralism, the most notorious example of which was Nazi Germany. Its trade policy was to strike bilateral agreements with other countries which specify the exact goods and services that will be traded, their price and quantities. The world exited the World War II with the ambition to create a new world order which would be controlled by international organisations to ensure that no single country would take advantage of the others.
This is what was behind the creation of the United Nations, the International Monetary Fund, the World Bank, NATO, the World Trade Organisation, and ad hoc formats such as the group of most developed industrial countries (G7 and later the G20), free trade areas. The founders of the post-war international economic system thought that multilateralism is a preferable system not only because it reduces and eliminates the possibility of a repetition of the Great Depression from the 1930s but also because they hoped this would help eliminate discrimination in international relations, explains in an article on the issue Anne Krueger back in 2006. At the time, she was a special adviser to the IMF managing director.
Her article, though 12 years old, is much more actual today than it was back then. She recalls that before multilateralism countries imposed tariffs hoping this would boost their own economic activities by reducing imports. Sound familiar? This system failed because, in order for such measures to make sense, other countries should refrain from striking back. As a result of the mass introduction of tariffs, the volume of global trade shrank significantly, Ann Krueger recalls. In the first 25 years after the introduction of multilateralism in trade relations, global economy was growing at large paces, incomparable to previous periods. Most European countries succeeded to restore their pre-war economic condition as early as the beginning of the 1950s.
One of the reasons for the strong economic performance was post-war reconstruction but another, not less important reason, was the gradual lifting of tariffs, combined with other liberalising measures. According to Anne Krueger, by the end of the 20th century tariffs on manufactured goods dropped from over 40% in the end of the 1940s to less than 5%. All this, she says, was possible thanks to the IMF, the World Bank and the predecessor of the World Trade Organisation, who successfully handled crises that emerged in the mean time. To her, the strongest example of success, caused by abolition of trade barriers, is the European single market. Her arguments point to the conclusion that the European success is the strongest trump card in defence of multilateralism.
Donald Trump's behaviour globally, his unpredictability, irrationality, and his devotion to the principle of saying "No" to everything, have turned multilateralism into EU's most important mission. Without it, the Union's survival is threatened not only because of developments globally but also because of internal problems, as the Union itself was built on the basis of multilateral cooperation. That is why the word "multilateralism" is constantly in the statements of French President Emmanuel Macron, German Chancellor Angela Merkel, EU institutional leaders, Canadian prime minister, and many others for whom it is a guarantee that the diktat of big states over smaller ones would never return.
A new cult for the nation state
The global financial crisis, which transformed into a severe debt crisis in the euro area, questioned the benefits of liberalisation of economies and created fertile ground for populists and eurosceptics who gradually started to gain support with ideas of a return to the nation state as the only solution against global processes. Although the EU exited the crisis thanks to unique multilateral cooperation, manifested in much deeper integration in the euro area, coordination of economic and fiscal policies, risk-sharing and common rules in the fight against unemployment, eurosceptics kept expanding their support with promises to leave the eurozone, even the EU, for a return of national sovereignty. And after the 2015 refugee crisis, there is talk (and work) about closing borders, both external and internal, about national and religious identity (meaning purity).
Brexit was first to crash the firewall of multilateralism. The referendum on Britain's leaving the EU was entirely based on the claim that the national state would prosper much better individually than being a member of a multilateral format. "Multilateral organisations are effective when they explicitly oblige member states to surrender some degree of national sovereignty for the sake of collective goals", wrote in the Foreign Affairs Christopher Sabatini in 2014. Brexiteers promised a heaven for the UK, the conclusion of many, far more lucrative, bilateral trade deals with great global powers than the comprehensive EU trade agreements offer.
Two years after the Brits said "Yes" to leaving the EU, Britain is in a labyrinth that is difficult to exit. Negotiations are painful mainly because the British government, and society, disagree on how to do that. The dilemma is impossible - have the cake and eat it. The clash with reality shows that Britain cannot live in sterility in a highly integrated global environment where capital flows and goods move faster and easier than ever. Moreover, the time of individual states is over. Now the world is being governed by blocks and unions, competition among which requires solid bargaining power which even the biggest single states find it hard to exert unless they have the support of another big ally.
Germany, France, Italy, and Great Britain may be sitting in the G7 or the G20 as individual states, which in the past represented huge power against the backdrop of the so called Third World, or the developing countries, but their bargaining power today would not have been as strong if EU's market of more than 500 million consumers wasn't behind them, also combining countries with dynamically growing gross domestic product. The new reality is that many countries from the former developing world are among the strongest global economies today. And those are all big countries.
Excitement with Brexit poured a lot of water into Donald Trump's mill, who won the elections on the "America first" promise. Currently, he is emerging as the leader of a nationalist movement which promotes bilateral deals in every area - from trade, through security, to foreign policy.
This approach blows wind onto the wings of nationalistic movements across Europe which were quite weak and fragmented before. One of the prominent representatives of this movement on the Old Continent is Hungary's Prime Minister Viktor Orban. In the beginning, he was alone and isolated, but today he has supporters. Not all of them agree with him on everything but it is a matter of time to start agreeing if European multilateralism continues to erode. The biggest risk for Europe at the moment is Germany. If the government in Berlin falls under the pressure of the small but vocal coalition partner under the leadership of Horst Seehofer this could bring continuous instability in Germany - a country that has always been one of the most powerful guarantors of multilateralism.
Without Angela Merkel (or another German leader who supports multilateralism), France's President Emmanuel Macron would be a lonely voice in a constantly growing cacophony of various and often clashing interests. Undermining multilateralism in the EU is a serious risk for peace on the continent. Hence, it is very important to do everything possible to maintain it within the Union and in parallel to this, globally. Brussels should forget about Washington. Until Donald Trump is in power, the US is not an ally or a friend but an opponent. This requires a new approach to multilateralism. Even without Donald Trump's actions the G7 has turned into a group which exists on inertia. It no longer represents the most powerful economies in the world.
Another problem is that there is an alternative to the West-led multilateralism, which is based on a much broader foundation than trade, including also freedom, democracy, human rights. With the sharp rise of authoritarianism and illiberalism, this range will dramatically shrink. French President Emmanuel Macron, but also the German chancellor, have shown since the beginning of the year that they are aware that from now on the future is of ad hoc alliances on separate issues. The interest clubs will be dynamic and their members will constantly change depending on interests. The EU is trying to work with Russia to put an end to the war in Syria and to keep the nuclear deal with Iran, while in the same time it is keeping sanctions against Russia because of the annexation of Crimea.
The Union, too, has issues with China's tariffs but is working with it on various fronts. Brussels is in a process of opening new negotiations on trade deals which, in fact, too, undermine the 20th century multilateralism but in the same time they are establishing the framework for the 21st century multilateralism. If the EU wants to be an adequate interlocutor to the biggest economies in the world at the moment, united in alternative groupings like the Shanghai Cooperation, ASEAN, BRIC (Brazil, Russia, India, China), etc., it has to be united. But this is exactly the biggest challenge it is facing.
The US's withdrawal from Europe will certainly bring some instability and disturbances with gravity but it is also a chance for the Union to emancipate itself from dependence on external guarantors for its own security and unity. Britain's growing problems stemming from Brexit, the economic consequences from Donald Trump's policies for the US could be a strong boost for restoring trust in multilateralism as an instrument to balance among global extremities. In order for the EU to be its promoter, however, it has to put an end to solo actions. Emmanuel Macron's failure to tame Donald Trump and bring him back to the "drove" of the West, as well as Angela Merkel's, who thought that rationality would prevail in an irrational mind, are very sobering events.
The upcoming change next year of leaders of EU institutions is a good occasion for the EU to re-think its approach toward the world and to bet on strong personalities, especially for the position of the high representative for foreign and security policy. Federica Mogherini's (Italy, S&D) successor should enjoy more trust by the member states and be given a broader mandate to act on behalf of the Union. Otherwise, the EU risks losing the reins of multilateralism which will be taken by players such as China. And this means that these, in their essence illiberal, players will impose the rules of global trade and their own views about world order which will have huge and potentially negative consequences for the EU.
The solution to today's problems cannot be found in the past, as the euro area crisis showed very well. The economy books that studied past big crises were not an adequate source of answers. In the same way, return to nationalism and bilateral deals from the beginning of the 20th century does not hold answers to the challenges of today's globalised world. We need innovative solutions not testing old and failed recipes that led to destruction and annihilation. Therefore, the EU has a historic mission. Let's hope it would not fail.