Apr 13th 2016

The Domestic Threat to US Leadership

by Jeffrey Frankel

Jeffrey Frankel is Professor of Capital Formation and Growth at Harvard University.

CAMBRIDGE – US President Barack Obama has racked up a series of foreign-policy triumphs over the last 12 months. But one that has gained less attention than others was the passage last December of legislation to reform the International Monetary Fund, after five years of obstruction by the US Congress. As the IMF convenes in Washington, DC, for its annual spring meetings on April 15-17, we should pause to savor the importance of this achievement. After all, if the United States had let yet another year go by without ratifying the IMF quota reform, it would have essentially handed over the keys of global economic leadership to China.

The IMF reform was crucial: The allocation of monetary contributions and voting power among member countries had to be updated to reflect the shifts in global economic power in recent decades. Specifically, emerging-market economies like Brazil, China, and India gained a larger role, primarily at the expense of European and Persian Gulf countries.

Obama managed to persuade the leaders of the other G-20 countries to agree to the reform at a 2010 summit in Seoul. The deal’s subsequent approval should have been a no-brainer for Congress, as it neither increased America’s financial obligations nor took away its voting dominance. More important, the reform represented a golden opportunity for the US to demonstrate global leadership, by recognizing that the existing international order must accommodate changing economic-power dynamics.

Instead, Congress attempted to block IMF reform, effectively denying China its rightful place at the table of global governance. “Moving the goal posts” could succeed only in driving the Chinese to establish their own institutions. In this sense, Congressional intransigence may have undermined America’s position in its competition with China for global power and influence.

To most Asians, the US is a more attractive regional hegemon than a China that has been aggressively pursuing territorial claims in the East and South China Seas. But recent US behavior has caused some Asian countries to begin to question America’s commitment to supporting regional security and prosperity.

Against this background, many countries, both inside and outside Asia, were happy to join the China-led Asian Infrastructure Investment Bank, which promised to meet some of the region’s financing needs. The AIIB’s establishment in December was widely viewed as a severe diplomatic setback for the US.

Fortunately, thanks to Obama’s recent string of successes in terms of global engagement, the US now has a chance to get back into the game. Last April, his administration oversaw a breakthrough agreement with Iran over its nuclear program. Moreover, in October, Congress was persuaded to give it Trade Promotion Authority, enabling the completion of the 12-country Trans-Pacific Partnership (TPP). More recently, the US has reestablished diplomatic relations with Cuba, ending a 55-year policy of isolation that succeeded only in giving Cuba’s leaders an excuse for economic failure and handicapping America’s relationships throughout Latin America.

Finally, representatives of the 195 parties to the UN Framework Convention on Climate Change reached an agreement in Paris last December to reduce greenhouse-gas emissions, spurred in no small part by earlier action by Obama and Chinese President Xi Jinping. The two leaders are scheduled to sign the Paris agreement on April 22 on behalf of their respective countries, the world’s two largest emitters of greenhouse gases. Add to that the ratification, at long last, of IMF reform, and the US does seem to be on a global winning streak.

None of these five achievements could have been predicted a year ago. With the Republicans having taken full control of the Congress in November 2014, the overwhelming conventional wisdom was that the administration would be blocked from accomplishing much in its final two years.

Making matters worse, internationalism attracts opposition from the far left as well as the far right. Though trade is the most obvious example, it is not the only one. Beyond opposing the TPP, US presidential candidate Bernie Sanders has historically joined with congressional Republicans in trying to block efforts to rescue emerging-market countries in Latin America and Asia at times of financial crisis. These rescues are invariably called “bailouts,” even when they cost the US nothing – the US Treasury actually made a profit on the 1995 loan to Mexico that Sanders opposed – and help sustain economic growth. Similarly, New York Senator Chuck Schumer joined the Republicans in trying to block the Iran nuclear agreement.

Obama’s recent international successes are not unassailable. Although the IMF deal is done, Obama’s other key initiatives could still be derailed by US politics, especially if the political extremes unite. Congress could reject the TPP, in effect telling Asia it is on its own. It could undermine the emerging relationship with Cuba; after all, it has yet to repeal the embargo. As for the Paris agreement, a federal appeals court will first hear a challenge to the administration’s implementation strategy, the Clean Power Plan, on June 2.

The Republican presidential campaign adds another element of uncertainty. The two leading candidates for the party’s nomination, Donald Trump and Ted Cruz, both say that they would tear up the Iran nuclear deal, if elected. It is worth recalling the outcome of President George W. Bush’s analogous decision to tear up Bill Clinton’s “framework agreement” with North Korea: the Kim regime promptly and predictably developed a nuclear bomb.

Whether the US will continue to lead the world remains unclear. What is clear is that US politics, not global developments, will be the main determinant.




Copyright: Project Syndicate, 2016.
www.project-syndicate.org



TO FOLLOW WHAT'S NEW ON FACTS & ARTS, PLEASE CLICK HERE!

 


This article is brought to you by Project Syndicate that is a not for profit organization.

Project Syndicate brings original, engaging, and thought-provoking commentaries by esteemed leaders and thinkers from around the world to readers everywhere. By offering incisive perspectives on our changing world from those who are shaping its economics, politics, science, and culture, Project Syndicate has created an unrivalled venue for informed public debate. Please see: www.project-syndicate.org.

Should you want to support Project Syndicate you can do it by using the PayPal icon below. Your donation is paid to Project Syndicate in full after PayPal has deducted its transaction fee. Facts & Arts neither receives information about your donation nor a commission.

 

 

Browse articles by author

More Current Affairs

Mar 18th 2024
EXTRACT: "....the UK’s current economic woes – falling exports, slowing growth, low productivity, high taxes, and strained public finances – underscore the urgency of confronting Brexit’s catastrophic consequences."
Mar 18th 2024
EXTRACTS: Most significant of all, Russia’s Black Sea fleet has suffered significant losses over the past two years. As a result of these Ukrainian successes, the Kremlin decided to relocate the Black Sea fleet from Sevastopol to Novorossiysk on the Russian mainland. Compare that with the situation prior to the annexation of Crimea in 2014 when Russia had a secure lease on the naval base of Sevastopol until 2042." --- "Ukrainian efforts have clearly demonstrated, however, that the Kremlin’s, and Putin’s personal, commitment may not be enough to secure Russia’s hold forever. Kyiv’s western partners would do well to remember that among the spreading gloom over the trajectory of the war."
Mar 8th 2024
EXTRACT: "As the saying goes, 'It’s the economy, stupid.' Trump’s proposed economic-policy agenda is now the greatest threat to economies and markets around the world."
Mar 8th 2024
EXTRACT: "Russia, of course, brought all these problems on itself. It most certainly is not winning the war, either militarily or on the economic front. Ukraine is recovering from the initial shock, and if robust foreign assistance continues, it will have an upper hand in the war of attrition."
Mar 8th 2024
EXTRACT: "...... with good timing and good luck, enabled Trump to defeat [in 2016] political icon Hillary Clinton in a race that appeared tailor-made for her. But contrary to what Trump might claim, his victory was extremely narrow. In fact, he lost the popular vote by 2.8 million votes – a larger margin than any other US president in history. Since then, Trump has proved toxic at the ballot box. " -----"The old wisdom that 'demographics is destiny' – coined by the French philosopher Auguste Comte – may well be more relevant to the outcome than it has been to any previous presidential election. "----- "Between the 2016 and 2024 elections, some 20 million older voters will have died, and about 32 million younger Americans will have reached voting age. Many young voters disdain both parties, and Republicans are actively recruiting (mostly white men) on college campuses. But the issues that are dearest to Gen Z’s heart – such as reproductive rights, democracy, and the environment – will keep most of them voting Democratic."
Mar 8th 2024
EXTRACTS: "How can America’s fundamentalist Christians be so enthusiastic about so thoroughly un-Christian a politician?" ---- "If you see and think outside the hermeneutic code of Christian fundamentalism, you might be forgiven for viewing Trump as a ruthless, wholly self-interested man intent on maximizing power, wealth, and carnal pleasure. What your spiritual blindness prevents you from seeing is how the Holy Spirit uses him – channeling the 'secret power of lawlessness,' as the Book of 2 Thessalonians describes it – to restrain the advent of ultimate evil, or to produce something immeasurably greater: the eschaton (end of history), when the messiah comes again."
Mar 1st 2024
EXTRACT: "The lesson is that laws and regulatory structures are critical to state activities that produce local-level benefits. If citizens are to push for reforms and interventions that increase efficiency, promote inclusion, and enable entrepreneurship, innovation, and long-term growth, they need to recognize this. The kind of effective civil society Nilekani envisions thus requires civic engagement, empowerment, and education, including an understanding of the rights and responsibilities implied by citizenship."
Feb 9th 2024
EXTRACT: "Despite the widespread belief that the global economy is headed for a soft landing, recent trends offer little cause for optimism."
Feb 9th 2024
EXTRACT: " Consider, for example, the ongoing revolution in robotics and automation, which will soon lead to the development of robots with human-like features that can learn and multitask the way we do. Or consider what AI will do for biotech, medicine, and ultimately human health and lifespans. No less intriguing are the developments in quantum computing, which will eventually merge with AI to produce advanced cryptography and cybersecurity applications."
Feb 9th 2024
EXTRACTS: "The implication is clear. If Hamas is toppled, and there is no legitimate Palestinian political authority capable of filling the vacuum it leaves behind, Israel will probably find itself in a new kind of hell." ----- "As long as the PLO fails to co-opt Hamas into the political process, it will be impossible to establish a legitimate Palestinian government in post-conflict Gaza, let alone achieve the dream of Palestinian statehood. This is bad news for both Israelis and Palestinians. But it serves Netanyahu and his coalition of extremists just fine."
Jan 28th 2024
EXTRACTS: "According to estimates by the United Nations, China’s working-age population peaked in 2015 and will decline by nearly 220 million by 2049. Basic economics tells us that maintaining steady GDP growth with fewer workers requires extracting more value-added from each one, meaning that productivity growth is vital. But with China now drawing more support from low-productivity state-owned enterprises, and with the higher-productivity private sector remaining under intense regulatory pressure, the prospects for an acceleration of productivity growth appear dim."
Jan 28th 2024
EXTRACT: "When Chamberlain negotiated the notorious Munich agreement with Hitler in September 1938, The Times did not oppose the transfer of the Sudetenland to Germany without Czech consent. Instead, Britain’s most prestigious establishment broadsheet declared that: “The volume of applause for Mr Chamberlain, which continues to grow throughout the globe, registers a popular judgement that neither politicians nor historians are likely to reverse.” "
Jan 4th 2024
EXTRACTS: "Another Trump presidency, however, represents the greatest threat to global stability, because the fate of liberal democracy would be entrusted to a leader who attacks its fundamental principles." ------"While European countries have relied too heavily on US security guarantees, America has been the greatest beneficiary of the post-war political and economic order. By persuading much of the world to embrace the principles of liberal democracy (at least rhetorically), the US expanded its global influence and established itself as the world’s “shining city on a hill.” Given China and Russia’s growing assertiveness, it is not an exaggeration to say that the rules-based international order might not survive a second Trump term."
Dec 28th 2023
EXTRACT: "For the most vulnerable countries, we must create conditions that enable them to finance their climate-change mitigation" ........ "The results are already there: in two years, following the initiative we took in Paris in the spring of 2021, we have released over $100 billion in special drawing rights (SDRs, the International Monetary Fund’s reserve asset) for vulnerable countries.By activating this “dormant asset,” we are extending 20-year loans at near-zero interest rates to finance climate action and pandemic preparedness in the poorest countries. We have begun to change debt rules to suspend payments for such countries, should a climate shock occur. And we have changed the mandate of multilateral development banks, such as the World Bank, so that they take more risks and mobilize more private money."
Dec 27th 2023
EXTRACT: "....if AI causes truly catastrophic increases in inequality – say, if the top 1% were to receive all pretax income – there might be limits to what tax reforms could accomplish. Consider a country where the top 1% earns 20% of pretax income – roughly the current world average. If, owing to AI, this group eventually received all pretax income, it would need to be taxed at a rate of 80%, with the revenue redistributed as tax credits to the 99%, just to achieve today’s pretax income distribution; funding the government and achieving today’s post-tax income distribution would require an even higher rate. Given that such high rates could discourage work, we would likely have to settle for partial inequality insurance, analogous to having a deductible on a conventional insurance policy to reduce moral hazard."
Dec 21st 2023
EXTRACT: "Shocks are here to stay, and our task is not to predict the next one – although someone always does – but to sharpen our focus on resilience. Staying the course of politically mandated policies while minimizing the inevitable dislocations is easier said than done. But that is no excuse to fall for the myth of being victimized by the unprecedented."
Dec 21st 2023
EXTRACTS: "A new world is indeed emerging. It will be characterized not only by more interdependencies, but also by more insecurity, danger, and war. Stability in international relations will become a foreign concept from a bygone age – one that we did not fully appreciate until it was gone."
Dec 14th 2023
EXTRACT: "Yet one must never forget that Putin is first and foremost an intelligence officer whose dominant trait is suspicion."
Dec 2nd 2023
EXTRACTS: "In a recent commentary for the Financial Times, Martin Wolf trots out the specter of a 'public-debt disaster,' that recurrent staple of bond-market chatter. The essence of his argument is that since debt-to-GDP ratios are high, and eminent authorities are alarmed, 'fiscal crises' in the form of debt defaults or inflation “loom. And that means something must be done.' ----- "If, as Wolf fears, 'real interest rates might be permanently higher than they used to be,' the culprit is monetary policy, and the real risk is not rich-country public-debt defaults or inflation. It is recession, bankruptcies, and unemployment, along with inflation." ---- "Wolf surely knows that the proper remedy is for rich-country central banks to bring interest rates back down. Yet he doesn’t want to say it. He seems to be caught up, possibly against his better judgment, in bond vigilantes’ evergreen campaign against the remnants of the welfare state."
Nov 27th 2023
EXTRACT: "The first Russia, comprising those living in Russia’s two biggest cities, Moscow and Saint Petersburg, can pretend there is no war at all." ---- "Then there is the other Russia, the one you find in small towns and villages scattered across the country’s massive territory. Here, the Ukraine war is a source of patriotic pride,"