A World-Historical Gamble: The Failure of Neoliberal Globalization

On May 24, 2022, in a coordinated action, the Russian and Chinese militaries flew nuclear bombers across the Sea of Japan while U.S. president Joe Biden was in Tokyo on a state visit. The Russian Ministry of Defense was quick to point out that the exercise was “strictly in accordance with international law,” since the military planes had not entered Japanese airspace. Japan nevertheless denounced the move as “provocative” and “unacceptable.”¹

The prompt to this nuclear posturing was President Biden’s meeting in Tokyo with other members of the “Quad” (Japan, India, Australia). He had just announced the launch of the Indo-Pacific Economic Frame­work (IPEF), a new international effort aimed at deepening ties with the region’s democracies through economic and technological engagement.² In response, Russia and China showed the world something unseen during the Cold War and most of the two decades following: their militaries united against America and its allies.

The authoritarian alliance of Russia and China was announced in February 2022 in Beijing, shortly before the Russian invasion of Ukraine. A Russian-Chinese joint statement described their new rela­tionship as one with “no limits” and with “no ‘forbidden’ areas of cooperation.”³ China has since expressed constant, if cautious, support for Russia during its invasion of Ukraine. In fact, Xi Jinping met Vladimir Putin in mid-September, amid Ukraine’s recent military surge. The Chinese Ministry of Foreign Affairs’s report on their meeting did not mention Ukraine, but welcomed Russian support for the Chinese position on Taiwan. It claimed that, since the beginning of the year, the two countries had “maintained close coordination on the international stage to uphold basic norms of international relations.”⁴

The buildup to Xi’s recent meeting with Putin was carefully man­aged. In early September, the Chinese ambassador to Russia, Zhang Hanhui, declared the United States the “initiator and main instigator of the Ukrainian crisis,”⁵ echoing Russian talking points. Li Zhanshu, the third-highest-ranking official in the Chinese Communist Party, decried Western sanctions on Russia as unacceptable “external interference,” yet ignored the ongoing bombardment of Ukrainian cities.⁶ Only the unexpected Ukrainian victories in September left Putin saying he was willing to address Chinese “questions and concerns” about the invasion, without any further specification as to what those might be.⁷

It is obvious that more than the fate of Ukraine is being determined in Ukraine. Most significantly, as the Russian forces weaken, Putin’s war talk has turned nuclear, threatening the most basic rules of international order that have prevailed since the Second World War. Beyond the possibility of nuclear strikes—which both Putin and that allegedly cooler head, Dmitry Medvedev, chair of Russia’s Security Council, have insisted is a realistic possibility—waging a war around active nuclear plants risks contaminating the whole region. Sham referenda allowing for the Russian annexation of border regions threaten to turn the Ukraine invasion into an ersatz war of “self-defense” by a nuclear Russia.

Across the world, in the Pacific, the question of Taiwan hovers ominously. Li Zhanshu reiterated gratitude for the Russian declaration that “Taiwan is an inalienable part of China” and that it “opposes any forms of independence of Taiwan.” Rumors flew all summer about a planned invasion of Taiwan from the mainland,⁸ while Chinese military planes buzzing over the island have sent an ominous message. The view of the People’s Republic is clearly hardening. Its State Council put forward a white paper in August declaring “complete national unification” a priority of the Xi government and claiming the right to use force in the service of “national rejuvenation” against “secessionist” forces in Taiwan.⁹

Meanwhile, President Biden has now suggested several times over the last year that the United States would help Taiwan defend itself militarily in the event of an attack from the mainland.¹⁰ These statements seem to have departed from the “strategic ambiguity” that was previously the American standard. Yet at a recent speech at the United Nations, Biden reiterated his support for a “One China” policy, thus increasing, however unwittingly, the overall ambiguity of the situation.¹¹

We are thus ever closer to incompatible “red lines” in the South China Sea, and the reason is not hard to ascertain. It has not escaped the notice of even the New York Times that Taiwan’s semiconductor production is worryingly essential to the global economy, more so even than Russian gas or Ukrainian grain.¹² No other country produces so many advanced microchips. Decades of careful industrial policy have leveraged the economies of scale in semiconductor fabrication to concentrate high-end global production on the island. Talk of the “global economy” to one side, the U.S. Department of Defense uses a large volume of chips annually to keep American military equipment in working order. The most essential of those chips come from Taiwan’s “silicon shield.”¹³ As Eric Schmidt, chair of the U.S. National Security Commission on Artificial Intelligence, put it at the start of a 750-page report in 2021: “given that the vast majority of cutting-edge chips are produced at a single plant separated by just 110 miles of water from our principal strategic competitor, we must reevaluate the meaning of supply chain resilience and security.”¹⁴

The World without Walls

It was not supposed to be this way. The year 2022 was not supposed to see the threat of nuclear conflict among major powers and the return of war to the European continent. Since the end of the Cold War, a world divided into hostile halves had become “one world”—or so we were repeatedly assured. Politically, the fall of the Berlin Wall supposedly signaled the “end of history.” Liberal democracy was declared a regime without rivals—and a lack of rivals meant no further need for the barriers between “economies,” perhaps even states. So strong was the assumption that nothing could change that most Western states, apart from the United States and the United Kingdom, refused to believe the obvious until Russia’s armies crossed the border into Ukraine. It would be similarly naïve to suppose China’s State Council does not believe “complete national unification” with Taiwan to be the strategic necessity and national prerogative it declares it to be.

Over the last thirty years, our unwillingness to believe the obvious has been cemented during a period of unprecedented optimism about the power of global markets to deliver freedom, wealth, and security. Reflecting on his time as director-general of the World Trade Organization (WTO) from 1999 to 2002, Mike Moore described a new “world without walls” based on the increasingly global commitment to free trade.¹⁵ British prime minister Tony Blair told the Labour Party Conference in October 2001 that globalization was simply a “fact” and that “in trade, the problem is not there’s too much of it; on the contrary there is too little of it.”¹⁶ October 2001 was a good time for Blair to be arguing in favor of more trade, because China was poised to join the WTO two months later, in December of that year, thanks in part to his enthusiasm. The following June, while receiving a prestigious award in Moscow, UN Secretary-General Kofi Annan claimed that “arguing against globalization is like arguing against the law of gravity.”¹⁷ He went on to lament that globalization’s benefits were not more widely shared, as its advocates tend to lament. He proposed that the remedy for globalization’s shortcomings would be yet more globalization, as its advocates tend to propose. As his prize augured, globalization’s benefits would eventually come to Russia too. Even as its brief experiment with liberal democracy failed tragically, the Russian Federation nevertheless pushed forward with joining the WTO. It acceded a decade later in August 2012. All the former Cold War adversaries were now nicely settled in the “world without walls.”

Just two years later, Russia invaded Ukraine for the first time, seizing Crimea. The world without walls blinked, and business carried on as usual. Over the next eight years, and despite some low-level sanctions insisted upon by the United States, Russia managed to amass foreign currency reserves worth over $600 billion, an extraordinary haul for an economy only the size of Spain’s. Europe’s consumers, in particu­lar, fed Russia’s war chest, their increasing energy dependence rationalized as the continuation of Germany’s Ostpolitik, the decades-long policy of friendly commercial engagement with the Eastern bloc. In 2018, when President Donald Trump warned at the United Nations that Germany was becoming “totally dependent on Russian energy,” the German delegation looked on and laughed.¹⁸

The leader of that smirking delegation, Angela Merkel’s foreign minister Heiko Maas, then spent the remaining Trump years warning that the United States had become unreliable and trying to create an “Alliance for Multilateralism.” The informal Franco-German initiative aimed to foster “global cooperation,” echoing the “multilateral” rhetoric coming out of China, Germany’s largest trading partner for five years running.¹⁹ The Alliance excluded the United States and functioned in practice as little more than an extended press release against the Trump administration.

In June 2021, shortly before Angela Merkel’s governing coalition lost power, and seven months before the Ukrainian invasion, Maas welcomed the change of government in Washington. Yet he still defended Germany’s dependence on Russian energy, shrugging at a press confer­ence with Secretary of State Antony Blinken: “Probably we [could] save the world at large, but people would still ask us about Nord Stream 2. Well, we’ll have to accept it and live with it.”²⁰ It remains unclear what Germany must now live with given decades of such complacency, even more so now that the Nord Stream pipelines have been blown up in an extraordinary act of unattributed sabotage.

That China is Germany’s largest trading partner reveals the dramatic ascent of the People’s Republic. From a relatively poor country in the late 1970s, it has become the world’s largest exporter and, by some estimates, the world’s largest economy. Its success has depended on trade. While Chinese exports grew approximately 5 percent annually during the 1980s, they increased to 12 percent annual growth in the 1990s and, following WTO accession in 2001, grew over 20 percent annually between 2000 and 2003, the years that have been dubbed the “China shock” by economists describing the effects on trading partners.²¹ As an IMF report from that time notes: “By 2003, China’s export growth rate was seven times higher than the export growth rate recorded by the world as a whole.”²²

Trade now makes up approximately a third of China’s economy, with exports comprising about 20 percent of GDP. China maintains a massive trade surplus with most of its trading partners, and with the world as a whole. Despite recent trade wars, it still produced 15 percent of global exports in 2020, and its trade seems to have rebounded dramatically after a brief fall owing to the global slowdown and Xi’s ruinously strict “zero-Covid” policy.²³

China’s export-led economic growth is now the most visible success of the world without walls. And while large parts of the world are now trying to reassert walls against China, economic interdependence tends to function practically like a one-way ratchet, at least up to the point of crisis. Much-discussed “decoupling” is particularly hard when you are dependent on international trade for the basic components of global supply chains, whether mechanical, pharmaceutical, or electronic (as in the case of China) or for essentials such as food and energy (as in the case of Russia). The reciprocal flows of blockbuster films, professional services, and financial “products”—often really forms of repackaged debt—seem easier to do without as the walls come back up.

The hope of previous decades was that China and Russia’s incorporation into the global economy would not only prove profitable, but would also strengthen the cause of international peace. The fear now is the opposite, and commentators like to wonder when the “end of history” ended.²⁴ Less theoretically, how much of our foreign policy remains tied to a geopolitical ideal that, if it ever held sway, was dominant for only about six years? The world without walls that Blair and Annan called inevitable began in earnest in 1995, with the inauguration of the WTO, but had already begun to crumble by the autumn of 2001, sometime between the terrorist attacks on the World Trade Center and Chinese entry into the global economy as its future anchor. The last two decades have been a drawn-out exercise in pretending otherwise.

The World-Historical Gamble

In retrospect, the world without walls is better diagnosed not as an inevitability, as so many claimed, but as a world-historical gamble. The hope was that tying the world together through commerce would deliv­er not just greater wealth, but greater security and freedom too, in a self-reinforcing manner. The economic correlative of the “end of history” view is called “neoliberalism.” The term is used to characterize a mar­ket‑oriented approach to domestic political economy, roughly synonymous with “market fundamentalism.”²⁵ But neoliberalism has an inter­national dimension as well, which assigns a market-led order pride of place in setting the terms of international relations. States are supposed to defer to and enforce the private cross-border orderings of the global market, which mainly means letting a transnational price system deter­mine where production goes globally, and thus who gets what in globalization. A lot of international agreements reflect this neoliberal commitment, and behind them stands a shared view of what markets do.

Perhaps the best way of capturing the world-historical gamble of the 1990s is that it combined liberal hopes for an international order of peaceable and cooperating states—think the UN in the best-case scenario or, equivalently, the United Federation of Planets from Star Trek—undergirded by neoliberal hopes about the contribution of free markets to wealth, security, and peace. On some views of freedom, the liberal and the neoliberal agendas flow together so readily that it is pointless even to distinguish them. My own view, as I have elaborated elsewhere, is that there was a crucial disjuncture between these two agendas, and that the neoliberal agenda for global free markets undermined, however unwittingly, the best hopes of the liberal internationalism out of which it emerged and on which it still depends.²⁶

State deference to a market-led global order requires something of states: a “hands-tied” or “hands-off” approach to the use of governmental power. Neoliberalism thus requires a political and ultimately a legal commitment reflecting what has been called a “depoliticization” of policymaking within and between countries: a suppression of collective decision-making whenever it would deviate from what private market-ordering would entail. As many scholars have noted, this “hands-off” approach sometimes requires, ironically, leveraging state power in the service of market-construction or maintenance: a precise deployment of the state’s power, not its overall abstinence.²⁷ That neoliberalism is not merely “deregulatory” is well illustrated by the work of bringing a country’s policies into compliance with international economic agree­ments. Committing to this regime requires believing that markets are good not just for growing the global economy, but also for everything else that the global economy depends on—including, ultimately, inter­national peace. If you believe markets can deliver those policy objectives, then “depoliticization” is not a dereliction of duty, as it sometimes appears in critical commentary, but a consummation devoutly to be wished.

In the United States, a foreign policy based on neoliberalism has had a strong measure of bipartisan support for several decades. It has also been reflected in the policy agendas of our allies and the leadership of the major international organizations. Important aspects of this agenda were captured in 1989 in the so-called Washington Consensus, which proposed a development agenda based on global economic integration and a corresponding hands-off role for the state. But the neoliberal agenda began well before the 1980s or 1990s, buoyed by the exceptional decades following World War II. Not only was this a period of high and widely shared economic growth, for reasons economists have begun to examine, but it reflected geopolitically what I call the “convenience” of the Cold War: the fact that the Communist bloc did not, for the most part, want to trade with the capitalist West. This meant that the logic of trade and the logic of security could be held apart—temporarily and contingently—in the making of foreign policy.²⁸

The world-historical gamble of the 1990s was undertaken, mainly by the United States and its allies, in the hope that a neoliberal foreign policy would accomplish what centuries of state-led diplomacy had failed to achieve: wealth, freedom, and security, and all in a harmonized fashion. In a more limited way, it simply supposed that each of these desiderata would best be provisioned through the market mechanism. The proposition that markets are the best mechanism for delivering wealth may seem uncontroversial, almost tautological. This view, however, has contended constantly with developmentalist ideologies that favor state policy to accomplish economic aims. These were once the special preserve of “third world” radicals, and thus easy to sideline. But the rapid rise of East Asia and recently of mainland China has put the state and its prerogatives back at the center of debates over economic policymaking.²⁹

Related to the idea that markets enable economic growth is the claim that markets deliver poverty alleviation, which transforms globalization into a humanitarian program. Since before even Adam Smith, spreading capitalism has been seen as a way of lifting people out of poverty by allowing them to sell what they have (their labor). And if we restrict our attention to the rise of the Chinese middle class—and ignore the complex market-state relation in China—it is arguable that hundreds of millions of people, perhaps nearly a billion, have escaped poverty there since the 1970s. A joint World Bank–Chinese government report esti­mates that 800 million people in China have been lifted out of poverty over the last four decades.³⁰ The picture beyond China, as I discuss briefly below, proves much murkier.

The framers of our neoliberal foreign policy hoped that markets would deliver more than just greater wealth, however. They hoped freer markets would deliver greater civil and political freedoms too, and via the same mechanism of liberalization. The idea was that liberalized commerce would lead to political liberalism, if not outright democracy. Here is Bill Clinton advocating for Chinese accession to the WTO in 2000, his final year in office:

By joining the W.T.O., China is not simply agreeing to import more of our products; it is agreeing to import one of democracy’s most cherished values: economic freedom. The more China liberalizes its economy, the more fully it will liberate the potential of its people—their initiative, their imagination, their remarkable spirit of enterprise. And when individuals have the power, not just to dream but to realize their dreams, they will demand a greater say. . . . [S]ooner or later, [the Chinese government] will find that the genie of freedom will not go back into the bottle. As Justice Earl Warren once said, “liberty is the most contagious force in the world.”³¹

Four years later, in 2005, after talks with Chinese premier Wen Jiabao about human rights, British prime minister Tony Blair described “an unstoppable momentum towards greater political freedom and pro­gress in human rights” owing to China’s open economy.³² Clinton and Blair were joined by many voices across the political spectrum, in policy circles, academia, and beyond, too numerous to detail.³³

There were some dissenting voices. One scholar argued in 2002, a year after Chinese accession to the WTO, that China’s economic re­forms had in fact delayed its democratization by strengthening state authorities and weakening civil society, especially the labor movement.³⁴ Scholars from Hong Kong noted the anomaly that democratization and economic growth had not gone together in modern China, concluding that democracy has at best a very long-term effect on economic growth and may even, in the short term, lower it.³⁵ Following the financial crisis of 2007–8, skeptics of the neoliberal growth story increasingly turned their attention to China and the complexity of its state management of the economy.³⁶ Human rights groups pressed the U.S. government on Chinese abuses throughout these decades, hoping (in vain) to link market access with tangible progress on basic rights protections. From what many international observers have called a “genocide” against the Uighurs to the violation of its treaty commitments on Hong Kong and the elevation of Xi as president without term, the hope that China’s economic growth would produce political liberalism at home seems increasingly untenable.³⁷ Nevertheless, most political and business lead­ers have remained content to tell themselves a story about wealth and freedom based on the stylized experience of Western democracies: because those countries are rich and free, riches and freedom must march together in history.

By contrast with the optimism on China, the early and obvious failure of Russia’s political reforms meant that advocates of integrating it into the global economy produced fewer confident predictions concerning its likely future. The debate in the U.S. Congress at the time of Russian accession to the WTO focused more on gains for American business. American politicians argued that since Russia’s entry to the global economy was inevitable, regardless of whether the U.S. supported it, there was no point in losing profit over a matter of mere principle.³⁸ Yet the world-historical gamble was still invoked on occasion. Then senator John Kerry, who would soon after serve as secretary of state under President Barack Obama, rallied the old hopes in support of normalizing trade relations with Russia:

I lead the two Senate committees that are charged with overseeing the twin pillars of America’s unique role in the world. Our commitment to open, transparent and free markets and our commitment to democracy and open discourse is a force for international peace. We believe our global economic interests and our foreign policy values are closely tied together. They should be closely tied together. That is why we urge our colleagues to seize this opportunity that Russia’s accession to the World Trade Organization presents for both job creation and our ability to bind Russia to a rule-based system of trade and dispute resolution.³⁹

The idea that free markets are a “force for international peace” is an old one. It is traceable back to the French philosopher Montesquieu’s famous arguments concerning the political effects of doux commerce or “sweet commerce” in the eighteenth century.⁴⁰ In an ideal, commercially integrated world, according to this tradition, no party would have an incentive to attack any other. Ongoing economic relations pacify rela­tions among trading partners, and commerce can even become something more, presaging cooperative alliance and international friendship. This doux commerce view is in fact the linchpin of neoliberal foreign policy, for without international peace, none of the gains in wealth (or freedom) that markets are supposed to bring will prove sustainable. In fact, even if all that markets did was deliver international peace, it is hard not to suspect they would be eagerly deployed for that purpose, whatever their knock-on effects on growth, inequality, or domestic governance.

Updating this doux commerce argument, most of the foreign policy talk today about the “rules-based international order” is driven by a hope that such a global order will somehow prove self-sustaining. More formally, that the rules-based international order will be a stable equilibrium—no party participating in it will seek to deviate from it—for reasons that Montesquieu would have recognized. Because the “rules‑based international order” enables commerce to flourish, states will come to see their real interest in protecting and perpetuating it, whatever their other agendas. The trick, then, is just to get everyone into it, and let the rules do their work.

The further hope is that participating in the rules-based order will transform the domestic political landscape. Committing to the “rule of law” outside your borders—by signing a trade treaty—is supposed to galvanize the rule of law within. As then senator Joe Biden put it in the debate over the China Trade Bill in 2000: “getting China into the World Trade Organization, a rules-based organization, will subject China to multilateral pressures on trade and, over time, enhance their respect for the rule of law, or they will not be in.”⁴¹ Senator Kerry made the same point a decade later in support of Russian accession.

Recognizing the nature of these intertwined hopes for wealth, free­dom, and peace allows us to see that neoliberalism was always more than an economic agenda. It was—it remains—a geopolitical agenda, or what some scholars have called a “geoeconomic” one, an economic agenda in the service of a geopolitical direction.⁴² In fact, its own advocates have always made that clear in their discussion of its presumed political effects. The world-historical gamble of the post–Cold War only makes sense, on its own terms, if neoliberalism was intended as a geopolitical strategy.

The Gamble Fails

A generation on, the consequences of this gamble are becoming apparent. The greatest hope was that international rivalry among great powers could be overcome through economic integration. The incorporation of Russia and China into the Western-led international economic system was supposed to generate both internal democratic reforms within these countries and peaceful external relations beyond them. Alas, that hope now looks naïve, but the idea that free trade leads to peace is always popular up to the point that the bombs start falling. Since Montesquieu’s time, it has ebbed and flowed, but it seems too ingrained—perhaps too profitable—to be dislodged by the mere fact of historical tragedy. On the very eve of the First World War, commentator Norman Angell claimed that Germany would never attack Britain, given its many cross-border investments there.⁴³ Keynes later warned against this dangerous naïveté in defending a degree of “self-sufficiency” among nations.⁴⁴ Yet doux commerce remained, in a nutshell, the basis of Germany’s Ostpolitik, until an overt Russian invasion finally upended this strategy. While the people of Ukraine are now paying the price for this once lucrative gamble, Germans, too, are staring at a bleak winter ahead without Russian gas.

Meanwhile, in the Pacific, we must now hope, with Norman Angell, that the yearning for “national rejuvenation” in China will be restrained by economic rationality. As the hope for China’s internal political liberalization has faded, perhaps fatally so following the 2018 declaration of Xi Jinping as president without term—“president for life,” as Donald Trump put it frankly and enviously—the new idea is that China’s economic interest plants it firmly on the side of the international rule of law.⁴⁵ But what this hope reduces to is only that China has an undoubted interest in maintaining those aspects of the international legal system that enable its vast trade surpluses. Whether this economic interest means China can be counted on as a force for international law generally, let alone the cause of global peace, is now being tested daily as the Biden administration threatens, cajoles, and tries in every manner to convince Xi to act responsibly concerning both the Taiwan that he claims and the Ukraine already claimed by his friend “without limits,” Vladimir Putin.

We are thus once again in the process of testing the proposition that commercial integration among nations leads to peace. One might have thought that view was already repudiated by the two world wars of the twentieth century, conducted among the world’s major economic powers, most of them commercial trading partners. But the great convenience of the Cold War that followed was that the geopolitical rivals of the West did not want to pursue economic integration on its terms. In that era, every free trade treaty could be counted as a kind of victory for the American-led order, and U.S. economic and military power could advance together abroad without contradiction. The complexities of navigating a world of geopolitical rivals that are also commercial trading partners did not have to be faced squarely, and so the major problem in geopolitics since the seventeenth century seemed to vanish away. Its return with the end of the Cold War did not present the “end of history” but a reversion to the dangerous historical norm in which warring states have been keen to profit off each other during any pause in their fighting.

The geopolitics of the Cold War were additionally favorable to the United States in two respects, both now gone because of neoliberalism. The first was that the West and its allies were united to an extraordinary degree under American leadership, the result of the Second World War and the later Soviet threat. By contrast, today, the United States and United Kingdom are trying to rally a Europe which is ever more vulnerable to economic blackmail, even in the face of war and arguably genocide returning to the European continent. Our allies on the conti­nent have failed to invest adequately in either their own defense or in the NATO alliance, partly owing to their imbrication in supranational political structures that reflect a post–Cold War “end of history” optimism.

The second was that the Soviets and the Chinese were not essentially aligned despite their shared differences from the West. By contrast, Russia and China are now aligned in a way that never occurred during the Cold War. In addition to military cooperation, China has provided Russia the crucial market access it needs to mitigate the consequences of Western economic sanctions, which have been both surprisingly unified, all considered, and yet still ineffective in stopping Putin’s war. Its centrality to the global economy allows China to serve as a global depot for Russian goods, something like its home market abroad.

This new alliance, however, rests on more than cheap oil in exchange for diplomatic acquiescence or even considerations of realpolitik. It is also ideologically grounded, as attested in the Russian-Chinese joint communique from last February, which denounced Western ideals of democracy and self-determination: “Certain States’ attempts to impose their own ‘democratic standards’ on other countries, to monopolize the right to assess the level of compliance with democratic criteria, to draw dividing lines based on the grounds of ideology, including by establishing exclusive blocs and alliances of convenience, prove to be nothing but flouting of democracy and go against the spirit and true values of democracy . . . [and] pose serious threats to global and regional peace and stability.” By contrast, Russia and China proclaim themselves “world powers with . . . long-standing traditions of democracy, which rely on thousand-years of experience of development, broad popular support and consideration of the needs and interests of citizens.”⁴⁶

This ideological dimension reflects a shared problem of domestic political legitimation in the post-Communist world. Having turned away from a socialist future that never came, Russian and Chinese elites have increasingly sought recourse in the (imagined) past, especially in episodes of historic suffering that would seem to justify present expansionism as a warranted remedy or even mere requirement of self-defense. This turn to the past, in search of imaginary identity and historical grievance, is of course a widespread ideological tendency at present, both in the United States and abroad. Precisely why the global triumph of market culture has coincided with this explosive normative shift—and how it has contributed to it—is a crucial intellectual-historical question beyond my present scope.⁴⁷

Whatever its roots, this unfortunate tendency now drives a geopolitical crisis with Putin and Xi as heads of states that purport to represent whole civilizations. Both can thus dream publicly of achieving civilizational and territorial congruence, a spiritual unity from the past recovered against the political pluralism of the present.⁴⁸ Putin wants Ukraine, and perhaps more; Xi wants Taiwan and has been snuffing out independent Hong Kong. Both are intensely anxious about the liberal democracies on their borders, about free peoples sprung from the same civilizations, which violate this supposed spiritual unity and are thus indicted as beachheads of Western modernization against it. Ukraine and Taiwan prove embarrassments (just as Hong Kong did) because they attest to the irreducible pluralism within any civilizational matrix. They show that the question of democracy in Russia or China cannot be answered by mere declarations of Slavic unity in “holy Rus” or of “Xi Jinping thought” (i.e., “Socialism with Chinese Characteristics for a New Era”), or that old favorite, “Asian values.” Here is an additional reason to resist the terrible poison of anti-Chinese racism and anti-Russian cultural boycotts: they ratify the worldview of authoritarians who urge civilizational conflict against “the West” and want to put themselves at the vanguard.

In the midst of all this obvious geopolitical conflict, the doux commerce thesis would seem once again thoroughly repudiated. Never­theless, confronted with the apparent failure of the world without walls, some defenders of neoliberalism still argue that the integration of our geopolitical rivals into a Western-led economic order has at least contained their sphere of action, even if it has failed to transform them. The argument is that we now have more leverage over them because they are part of the global economy than we would have if they were outside it. This argument focuses on global economic interdependence, which it imagines as at least limiting, if not eliminating, interstate violence.

Our analysis shifts, however, if we focus not on a generic global interdependence but on the asymmetric political vulnerability of liberal democracies to disruptions to that interdependence. This alternative framing does not simply observe that each nation stands to lose from disruptions to the economic order, nor rest content with calculating how much may have been lost by an economically irrational act—for example, how much Russia’s GDP growth has fallen since the invasion of Ukraine, or how many more years of growth will be required, hypothetically, to return to its preinvasion baseline. Instead of these abstract estimates of a future that may never come, we must ask which governments are likely to fall first from the disruption. Ironically, the responsiveness of liberal democracies to popular will makes them more vulnerable to economic pain—including from deliberate decoupling as part of a geopolitical strategy—than their authoritarian rivals, which can press on with disastrous policies up to the brink of revolution. In a geoeconomic conflict, an authoritarian leader can afford to risk more in terms of his people’s welfare than a democratically elected one, at least short of widespread military mobilization on both sides (as in a world war scenario).

This rather straightforward observation should have been the starting point of any foreign policy analysis of the likely effects of global economic integration. It was sidelined, however, by the presupposition that economic integration would undermine authoritarianism, so there was no need to consider whether it could inadvertently empower our adversaries. But reversing Clausewitz’s motto—noting that politics is sometimes war carried on by other means—allows us to hear the rumblings of those great Russian generals, Janvier and Fevrier, who once defeated Napoleon on their own soil, already riding toward western Europe in the form of an energy crisis upending electoral politics.

The asymmetric political vulnerability of liberal democracies to global economic shocks looks starker once we lift the lid on “free trade” and consider the current composition of world commerce. As mentioned above, the global division of labor in production has put necessities—both raw materials such as energy and foodstuffs and the inputs to manufacturing—disproportionately in the hands of authoritarian states, whereas reciprocal flows of high-end services matter much less in any short-term crisis. This global division of labor may also have skewed estimates of the relative size (meaning, importance) of different economies. Economist Jacques Sapir has argued recently that an overvaluation of services relative to manufacturing and commodity pro­duction in cross-country GDP comparisons has led to dramatic under­estimates of the size (and global significance) of the Russian economy.⁴⁹ Turning to the case of China, it is worth observing Xi’s express geopolitical goal of achieving “complete domestic circulation”—that is, domestic self-sufficiency—along with domination of global supply chains. The strategy aims to enhance what he described euphemistically as “China’s ability to compete and cooperate internationally.”⁵⁰

If economic globalization has not delivered international peace, it is worth noting explicitly that it has not led to domestic political reforms either. If anything, it seems to have accomplished the reverse: it has empowered authoritarian forces within our geopolitical rivals as well as augmenting their power abroad. Domestically, both Russia under Putin and, more recently, China under Xi, have moved from rule by one party to rule by one person, thus confounding optimistic predictions that economic liberalization would generate political liberalization, if not outright democratization.

What, at least, of the gamble that neoliberalism would deliver greater prosperity? The evidence on this question is alas mixed and more difficult to parse than might be supposed. The one clear achievement of the neoliberal era has been the economic rise of China, including an improvement in the lives of its poorest people. But any broader conclusion about the effect of neoliberal economic policies on global poverty reduction is difficult to make, owing to deep problems in the measurement of poverty, which currently uses money-metric measures that tend to make poverty estimates formally meaningless.⁵¹ At the same time, inequality of both incomes and wealth seems to have increased over the last few decades in any country under study.⁵² The aggregate economic growth of the neoliberal era has gone disproportionately to the upper brackets within (and across) countries, with political consequences that seem increasingly apparent.

Thus, while over three decades have passed since the fall of the Berlin Wall, the most that can be said for the geopolitics of neoliberalism is that its promises remain to be realized in some far-off time. More pessimistically, but perhaps more realistically, our foreign policy since the end of the Cold War has been a world-historical gamble that failed. All our investment in economic globalization has failed to bridge preexisting historical enmities even while it has undermined the relative strength of liberal democracies vis-à-vis their authoritarian rivals. Or, perhaps more accurately, neoliberalism has gradually generated a new and different kind of geopolitical conflict among countries that were former Cold War antagonists, this time from within the very globalization that was supposed to pacify them.

The Global China Shock

The damaging consequences of neoliberalism go beyond its failure to overcome great power politics. A generation after the world-historical gamble, we are observing not merely the persistence and empowerment of authoritarianism, but a worldwide retreat of democracy, which may prove its most tragic legacy. This problem is particularly acute in the large democracies of the developing world. For while democracy is today being defended by Washington and London, its future is being made in New Delhi, Brasília, and Lagos.

That future looks more uncertain now than at any time over the past few decades. It is perhaps easier to say where “democratic backsliding” is not occurring in the developing world than to detail all those places where it is.⁵³ That this backsliding is coming all at once, in what seems a new antidemocratic “wave,” suggests a common cause—not just a decline of the ideal of liberal democracy but, more fundamentally, an erosion of its underlying socioeconomic foundations.

What is the global regime in which all these developing democracies participate, and how could it have affected their political futures in this common way? In the United States, recent discussions of “democratic backsliding” have focused on the impact of the “China Shock,” the loss of manufacturing jobs after Chinese accession to the WTO in 2001 and the upending of settled electoral patterns that followed. In the two years after China’s accession to the WTO in 2001, it is estimated that the United States lost 1–2.5 million manufacturing jobs, concentrated in the industrial heartland of the upper Midwest, with continuing losses over the next decade.⁵⁴ Economist David Autor and colleagues have studied the shifts in political allegiance, social legitimation, and even family and career trajectories following the China shock, revealing its multifaceted impact.

How much is this American story just one part of a larger global story? Scholars are now beginning—too slowly—to take seriously the possibility that what happened to U.S. industry (and politics) following Chinese entry to the WTO may have parallels in other parts of the world. We have yet to investigate in any coordinated fashion the impacts that Chinese accession had on other developing countries. But it is obvi­ous that economic globalization puts the working classes of the world, both emerging and established, into competition with one another, especially in manufacturing sectors that produce tradable outputs.

To focus on the developing world, this means that emergent and often fragile “middle” classes, reliant on export markets for low-skilled manufactured goods, suddenly came into competition with Chinese production at an unprecedented scale. Initial studies of the aggregate evidence across multiple decades, as well as country-specific analyses, suggest that the China shock has had a disproportionate impact on other developing economies in pushing them toward “deindustrialization.”⁵⁵ Recent evidence from Brazil suggests a negative impact on low-skilled wages in manufacturing as well as an intersectoral shift away from manufacturing toward agriculture,⁵⁶ while evidence from Mexico notes a declining labor income share in the manufacturing sector.⁵⁷ Much more work remains as in-depth, country-specific analyses beyond the United States are only just beginning.

Even with incomplete evidence, we can nevertheless identify the broad dynamics of the global trade regime produced by Chinese entry to the global economy. Foreign direct investment flowed to China’s liberalizing sectors while Chinese exports entered world markets. China began to compete initially in low- and mid-skill industries, exporting at a scale formerly unseen, which meant further employment and output in these sectors within China as well as further inbound investment flows. It progressively advanced toward higher-skilled production, usually in initial corporate alliances with Western (and Japanese) firms with which it later competed.

Its trading partners gradually accommodated its rise by providing it with what it could not make more efficiently at home. To take a few examples: Brazil has had the most dramatic case to date of “premature deindustrialization”—that is, deindustrialization before industrial estab­lishment—and a concomitant shift of focus to agriculture, resource-based manufacturing, and the provision of raw materials and primary commodities.⁵⁸ Argentina and Chile show similar trends.⁵⁹ Major countries in Africa also grew through agricultural, energy, and mineral exports to China, with the China-Africa trade hitting a new high in 2021.⁶⁰ From India, China needed little, as the two countries compete in roughly the same economic space; thus, the India-China trade deficit has widened each year as China supplies an ever-growing proportion of India’s urban retail consumption, generally sending value-added prod­ucts in exchange for raw materials.⁶¹ Breaking down the trade composition with other major developing world countries shows the same trend beyond India: in Nigeria, South Africa, Indonesia, Mexico, and elsewhere, Chinese exports of diversified manufactured goods have been counterbalanced by exports of resource-based manufactures or raw materials (energy, food, minerals), or else by debt. As the “China shock” literature suggests, this trade composition has likely had the effect of undercutting local manufacturing, though further research needs to be done on the full extent of this dynamic.⁶² Meanwhile, OPEC—and Russia—send oil and gas in exchange for Chinese goods. Germany sells China high-end manufactured products in exchange for its component parts, a circular trade among the two export powerhouses. And in the “cool war” within what some commentators call “Chimerica” (the interdependent Chinese-American economic partnership), we see U.S. debt, partly recycled into U.S. real estate purchases, financing consumption from China, undergirded by the dollar-denominated credit lines that secure this new era of globalization.⁶³

The idea of “Chimerica” can be made more precise in this context: while China’s economic rise has been the motor behind the new global economy, the “rules-led international order”—and the parallel U.S.-centric network of capital flows—has been its vessel. It is worth pausing to note that the massive trade deficit that the United States runs—not only with China but with the world as a whole—is itself financed by dollar-denominated debt, which is needed abroad as part of the financial infrastructure of trade. In other words, the United States does not pay for the imports that keep the factories of its trading partners running with reciprocal exports of goods and services. In effect, it constantly buys things “on credit” and it can keep doing so given the financial and military infrastructure on which the “rules-based” order now stands: the role of the U.S. dollar in lubricating global growth and, correspondingly, the centrality of the U.S. military in maintaining global order.

Poverty Reduction in China and Beyond

More than a merely “economic” phenomenon, China’s extraordinary rise is being used to provide a political, even moral, lesson about the virtues of neoliberalism. It also comes up increasingly in debates about the efficacy of democracy as against “technocratic” government. Poverty reduction is understandably central to this story. Despite differences in estimates, it seems that several hundred million people in coastal China are now living richer lives than a generation ago—comprising perhaps the bulk of the new global middle class—and many more, perhaps close to a billion, have escaped from poverty. As this year’s World Bank report puts it: “the speed and scale of China’s poverty reduction is historically unprecedented.”⁶⁴ The report estimates that perhaps 800 million Chinese are no longer “poor” according to its money-metric conceptualization of poverty. Looking instead at consumption figures (such as nutrition statistics) suggests the same broad conclusion.

This dramatic poverty reduction is clearly a humanitarian achievement. Who should get the credit? The World Bank report suggests that, through its export orientation, its “effective governance,” and its anti-poverty programs, the Chinese government deserves it. It is hard to imagine the report’s coauthor, a research arm of the Chinese State Council, accepting otherwise. But even acknowledging what the report calls “effective governance” by the Communist Party, it is clear that Chinese economic growth has come from what it praises as its “export orientation.” That variable, however, has never been in the hands of the Chinese government alone.

Since the 1990s, and dramatically since 2001, Chinese growth has depended on a global economic structure that it did not create and could not sustain on its own. Joining the WTO gave China access to the markets of most countries in the world: 142 other countries at the time of its accession and 163 today.⁶⁵ Accepting China into the WTO was by no means a charitable act; it was obviously self-interested, regardless of whether it ultimately proved prudent. The point, rather, is that an “export orientation” in one country obviously requires an enabling environment outside it. In this respect, Chinese poverty reduction—and the rapid economic growth behind it—was the product not merely of “effective governance” at the domestic level but also, crucially, the geopolitics of neoliberalism.

It is in this overall context that China’s four decades of poverty reduction must be assessed: not only as the outcome of domestic policy but as the product of a global regime that accommodated its export growth. In this respect, the humanitarian achievement of a Chinese middle class must also be credited to the American middle class and to the British, German, French, and Japanese middle classes—indeed, to all classes, but especially the working classes of any countries that accommodated China’s rise in one fashion or another. They have enjoyed the opportunities while also suffering the setbacks that accompanied the global China shock.

In comparative terms, the most crucial question is what effect this shock has had on the politics of other large developing-world countries, especially the developing democratic world. In addition to considering its effect on the industrial Midwest, and hence recent American politics, we should focus on what is now Modi’s India,⁶⁶ Bolsonaro’s (soon Lula’s, though closely divided) Brazil,⁶⁷ Buhari’s Nigeria,⁶⁸ Erdoğan’s Turkey,⁶⁹ and Hamid’s Bangladesh,⁷⁰ among others—countries that were competitors to anchor the low-skilled base of global supply chains. How did the working populations of these countries fare in competition with China’s over the last few decades—and with what political consequences for the future of democracy? How are we to assess the opportunity cost of decades of Chinese poverty-reduction with the recent political experience of these countries in mind?

The defender of neoliberalism has a ready response to this concern in one or another version of the claim that “a rising tide lifts all boats.” There is never an opportunity cost to one party’s gain in a reciprocal trading relationship since trade is a voluntary act (and we assume our voluntary acts are also rational). Thus, the rise of China must, ex hypothesi, help everyone everywhere. The magic of the market is that a gain for someone is a gain for everyone.

Because this familiar view rests on the analytic suppression of economies of scale, it should have been discarded long ago, especially when dealing with the problem of industry location and resulting effects on growth and employment. Its basic fallacies were exposed quite crisply in the nineteenth century, and intimations of an alternative view go back to seventeenth-century debates over the role of the state in promoting manufactures.⁷¹ As mathematician Ralph Gomory and noted economist William Baumol show in their crucial but neglected book, Global Trade and Conflicting National Interests, once you acknowledge the problem of economies of scale in international trade, all standard views go out the window.⁷² In a world of semiconductors, electronics, and pharmaceuticals—in addition to wine and wool—the old model of trade no longer applies. Comparative advantage is given not so much by nature but by industrial policy, which enables countries to establish industries with economies of scale. This means it is possible for one country’s gains to come at the expense of another country, especially if those countries are competing in roughly the same economic space.

In this respect, the claim that the Chinese government has lifted almost a billion people out of poverty is essentially incomplete, and discussion of the “rules-led” order proves ultimately distracting. The Chinese government in alliance with the United States and the many other countries that have guaranteed its market access and financial integration has lifted almost a billion people in China out of poverty. In other words, the legal rules behind neoliberal globalization provided the necessary context for China’s growth. A series of conjoint governmental decisions stabilized vital trade and finance flows in particular respects—this is what the “rule of law” means in this setting—for a long enough period for such development to occur.

To make the obvious point, when China was largely autarkic, it was a failure; only when it gained access to overseas markets could it put an alternative developmental strategy into practice. Its development policy was, moreover, an adaptation of the basic model of export-oriented developmental Asia on its borders. Despite vast differences in their governmental regimes, we see Japan, South Korea, Taiwan, and now mainland China flourishing according to a basic model of state-coordinated production for export. The sine qua non of that export-led growth has always been access to the U.S. market (both retail and credit) provided through the “rules-based international order.” But while this market access had earlier been provided to geopolitical allies—Japan, South Korea, Taiwan, Hong Kong, Singapore—during the neoliberal era, U.S. market access was treated like a global public good to be distributed for economic and humanitarian objectives. It could have been—but was not—extended differentially to geopolitical allies, espe­cially fledgling democracies in the developing world, with the aim of bolstering their internal stability and external standing. Instead, the United States settled on “multilateralism” in its international economic policy, which required separating the “economic” and “political” dimensions of foreign policy.

Democracy’s Crash?

The future of democracy in the United States is now a subject of public concern and debate, following the attack on the U.S. Capitol on January 6, 2021, several contested federal and state elections, and a general sense that “self-government” is failing in practice, whatever remains of it as an ideal. As suggested above, the U.S. story—for all its particularities—may be part of a larger global story, a crash of the postwar “demo­cratic wave.”

For several decades, political scientists have studied what they call “waves” of democracy.⁷³ The simplest version of the argument involves distinguishing countries that are “democracies”—a determination usu­ally made with reference to the state of their governmental elections—from those that are not. A more sophisticated version of the argument involves trying to distinguish constituent elements of “democracy” and then counting these up to assign each country a value on a democracy index (of which there are now several).⁷⁴ Either method then allows you to observe changes in the global pattern of democracy over time and space: where and when new democracies are emerging, and where and when countries are becoming more—or less—democratic.

Leaving to one side the rather obvious methodological difficulties involved in any such coding exercise, the conclusions of this literature are all too clear, and its broad finding can be recognized without putting too much confidence in its empirical precision. The conclusion is that, until very recently, the world was getting more democratic, and that countries have tended to become democracies (or at least “more democratic”) in bunches. These “waves” of democracy suggest that democratization is an interlinked process: it does not arise through country-by-country determinations about the ideal form of domestic regime but is deeply linked to international conditions that favor it.

The most significant “wave” of democracy occurred in the postwar era, when many decolonizing countries and defeated authoritarian states became democratic, at least by the rough measures used in the assessment. From a world in which democracy was relatively restricted—most of it bound up in empires—democracy became something like the norm, excepting the Communist bloc and national dictatorships that were often linked to Cold War competition. By the end of this wave, most of the world’s countries were at least nominally “democratic.”⁷⁵

What was significant, in retrospect, about the postwar democratic wave—and perhaps what made it sustainable—was that it connected the two main forms of political legitimacy and tied both to the American-led international order. Scholars of international governance distinguish “input” and “output” legitimacy: the first looks to the processes by which policies are made (the consent of the governed), the second to whether policies, however produced, generate desirable outcomes (usually wealth and security).⁷⁶ In the postwar world, more people than ever were voting, and more people than ever were enjoying a better standard of living owing to the decades-long economic boom—and there was a significant overlap between those two groups of people. Ideologically, both were tied to the hegemony of the United States and the success of allied liberal democracies. To put it crudely, the rich world was the free world, and joining “the free world” was a good way to get rich.

That dynamic came to an end after the Cold War, when political alliance and commercial integration were decoupled in favor of a new multilateralism tied to “end of history” thinking. The world without walls is one that must rely on the generation of successful outcomes, not shared political processes, since it establishes a framework for private action across borders rather than for collective decision-making within them. Moreover, given the density of economic interdependence, any “success story” in the current world order must be reckoned a success of the whole system, as discussed above in the dramatic case of Chinese poverty reduction.

What we call “globalization,” then, can be understood as an international system in which each country is connected to the rest through an interdependent output-based legitimation. To focus on the “Chimerica” example from above, this interdependent legitimation has led to the rise of China as a geopolitical rival to the United States, while reconfirming, for the moment, the continued centrality of the United States to the operation of the world market. The output legitimacy of any country is a function of access to markets for export and for credit, tied disproportionately to the United States, given its role in securing both at the global level.

This regime of interdependent output legitimation has been particularly difficult for liberal democracies to navigate. It is not obvious how to “balance” input and output legitimacy. Are these to be traded off—a little less popular control over trade or investment policy for a little more GDP growth—and if so, who decides? By contrast, authoritarian development strategies rely essentially on “output” legitimacy and obvi­ously restrict “input” legitimacy. This is why the Chinese government, in its report with the World Bank, is so keen to claim credit for the poverty reduction in China. Poverty reduction can substitute for politi­cal will since a successful policy seems to speak for itself.

It remains to be seen how long this global regime of interdependent legitimation can continue. One way of resolving the tension would be to de-emphasize “input legitimacy,” the processes by which states make policies, the better to focus on whether they deliver desirable outcomes. Indeed, the last decades of decision-making in Washington and Brussels, particularly regarding international economic integration, have already tended in this direction by insulating policymakers from popular pressures and using technocratic decision-making criteria in place of express popular consent. Meanwhile, the indicia of “input” legitimacy have shifted from popular control over politics to the vaguer standard of “participation,” achieved through listening tours and the like. No wonder Russia and China can insist, as in their joint communiqué of last February, that democracy comes in many stripes, and that their regimes are also authentically democratic—and have been, they say, for thou­sands of years. The elevation of “output” legitimacy over democratic decision-making has paralleled the hollowing out of what “input” legitimacy should mean. Ironically, the liberal democracies have given China and Russia the script they are now following in claiming to be democracies too.⁷⁷

The pulling apart of input and output legitimacy after their congruence in the postwar decades has followed the central logic of neoliberal globalization, which siloed the “economic” and “political” dimensions of both domestic governance and foreign policy. By contrast, consider a road not taken in the 1990s—not a move to the multilateralism of the WTO, but a doubling down on the political logic of the General Agree­ment on Tariffs and Trade (GATT). To some readers, this may seem a strange claim given that the GATT was the precursor to the WTO, which adapted it to the twenty-first century (the postwar GATT of 1947 became today’s GATT in 1994). But the two key features of the postwar GATT’s political logic were, first, that it was an alliance among inter­national allies, not just trading partners; and second, that its “weak” dispute resolution system meant that economic integration yielded constantly to the imperatives of domestic politics. The founders of the GATT understood the interdependence of output and input legitimacy very well, even if they would not have put it in those terms. Any government able to undertake economic liberalization would need to be sure that it was not endangering its people (by empowering its geopolitical rivals) or threatening its reelection (through economic shocks due to liberalization).

Adapting this political logic after the end of the Cold War would have meant not a “world without walls” but the identification of a new set of core allies with which to deepen economic and political ties. Following the geopolitical logic of the GATT—while recognizing the advantages of an international division of labor—the obvious candidates here would have been the largest of the democratic developing countries: India, Indonesia, Brazil, Bangladesh, Nigeria, and Mexico. In the year 2000, these countries had populations at or above 100 million and each was holding regular multiparty elections.⁷⁸ Imagine if, instead of con­structing an international system that anchored global production in China, we had made these countries the base of new cross-border supply chains through a treaty architecture that gave them privileged access to the U.S. market. Would the future of democracy now seem brighter—in these countries but also beyond them—if a billion people across these nations had been lifted out of poverty through rapid economic growth?

This road not taken would have required an explicitly “geo­economic” approach to post–Cold War foreign policy and made the future of democracy a priority in the allocation of U.S. market access. It would have highlighted—not downplayed—the problem of international competition for industries that scale, a crucial analytic shift required for thinking clearly about globalization. More important still, it would have required embracing democracy and thus made the aspirations of political majorities central to shaping the economy, at home and abroad. Anchoring global supply chains in countries where workers are also voters might well have meant higher overall costs of production—and thus more expensive imports—compared to the “China price” delivered to the world without walls. But the alleged “efficiency” of anchoring global production in China has put democracies everywhere into competition with a new and highly successful authoritarian capitalism. The road not taken would have forced us to prioritize domestic regimes in which workers matter as citizens, contributing both their labor and their votes to building the economy within their borders and beyond. To see this as a weakness of the road not taken is to give up in advance on democracy. That so many defenders of neoliberalism have wanted a globalized division of labor without the encumbrance of democratic politics tells us most of what we need to know about their sotto voce commitments. They are now rapidly getting the world they wanted.

A New Beginning?

It is not too late to embrace an alternative to the failed gamble of the last generation. A model for what could come is the Biden administration’s new “Indo-Pacific Economic Framework for Prosperity” (IPEF), an accord focused on economic and technological coordination with our allies in the region.⁷⁹ It was the announcement of the IPEF in Tokyo last May that led to the nuclear posturing by Russia and China over the Sea of Japan, though it has so far occasioned little commentary in the United States.

Three features of the IPEF show it to be developing a new direction for U.S. trade policy. First, it is being negotiated among geopolitical allies only—Australia, India, Indonesia, Japan, Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, Vietnam, Brunei, and Fiji. Most of these countries are also democratic, and a few of them are the kind of large developing-world democracies that could anchor a new global division of labor. Yet unlike prior agreements that began with a subset of countries and aimed to leverage initial buy-in into “multi­lateralism,” the geopolitical commitment reflected in this accord is not contingent but essential.

Second, the IPEF has no “market access” provisions, no carrot dangled in front of foreign countries to get them to alter their internal policies in exchange for reduced tariffs or tariff-free access to the U.S. market. Instead, it consists of four “pillars,” each allowing for coordination and shared financing in areas ranging from digital security to transport infrastructure and supply chain resilience to clean tech.

Third, it is an “à la carte” arrangement not a “take-it-or-leave-it” agreement. Countries can sign up for any of the pillars they want provided they undertake its commitments: one might be more able to work in clean tech than in AI regulation; another focusing on transport or supply chain resilience.

This structure will foster cooperation in essential areas: it is a frame­work rather than a blueprint. It thus aims at a multifaceted economic and technological alliance in support of a geopolitical one. While the lack of market access provisions has been criticized—where is the carrot to induce compliance?—the IPEF will galvanize international cooperation for intrinsic reasons, rather than as an exercise in checking the box for market access. It is also worth noting that, given decades of tariff reductions under first the GATT and then the WTO, there is not much market access left to barter away. The IPEF aims instead at generating coordination solutions in vanguard areas of economic and technological development, the emerging sectors of the twenty-first century.

In these respects, the IPEF represents a real shift from earlier thinking on trade, which is perhaps why it has caught the attention of our rivals while remaining hard to grasp for a generation of American commentators raised on neoliberalism. It reflects the insights of Jennifer Harris, senior national security director for international economics and labor, who has worked in two administrations and has published extensively on problems of geoeconomic strategy, including with cur­rent National Security Advisor, Jake Sullivan.⁸⁰ Writing in 2020, before Biden’s election, Harris and Sullivan called it a “geopolitical imperative” to “move beyond the prevailing economic ideology of the past few decades.”⁸¹ Now, in office, it is clear they are trying to do so.

The IPEF also carries forward the agenda of the “Cornwall Consensus” of June 2021, when the G-7 met to revise the standard neoliberal narrative concerning free market globalization, noting its failure to pro­duce “inclusive” growth or to prioritize “resilience”—of supply chains, economies, political systems—in the earlier scramble for “efficiency.”⁸² The contrast from the heyday of the “Washington Consensus” is marked, as is the sense—with both the IPEF and the Cornwall Consensus—that the previous script has not been working. There is understandably less clarity about what should—what could now—replace it.

By contrast, the world-historical gamble of neoliberalism was under­taken with supreme confidence by people who referred to themselves casually as “the adults in the room.” I know this because I was in the room with them in the year 2001 as a student in “International Trade Law” at Yale Law School. The course was cotaught by two international trade lawyers who had helped shape U.S. policy in this area. Judith Bello was a Republican who had been general counsel of the Office of the U.S. Trade Representative (USTR) under President Ronald Reagan and was later a lobbyist for the pharmaceutical industry. Gary Horlick was a Democrat who had been International Trade Counsel for the Senate Finance Committee, held a variety of positions under President Bill Clinton, and chaired working groups at the WTO.

Bello and Horlick liked to emphasize to the class how much they were in fundamental agreement on every trade issue, despite the political differences between the parties of the presidents they had served. To any controversy that came up—dolphins versus tuna at the WTO; manufacturing jobs and nafta; Chinese accession and human rights—the discussion would eventually resolve with one of them asking a student, “OK, and now what should the adults in the room do?” The correct answer was trade liberalization—the cure for the problems of globalization is always more globalization—though a clever windup to that conclusion was appreciated (this being law school). As the adults in the rooms of the future, we were being trained to defend the bipartisan U.S. trade consensus against anyone who failed to understand that the problems with freer trade are just adjustment costs on the way to a better future for all.

Unsurprisingly, under the guidance of these adults in the room, U.S. trade policy has aimed for decades at incorporating more countries into the world trade system and predicating that system on more U.S. market access. As the anchor of the global system, the United States had to play the role of consumer and lender of first and certainly of last resort to keep economic integration going. The year 2001 was a good year to think this system might last forever, if only the adults in the room did their part.

A generation on, of course, none of us have that confidence. After the election of Donald Trump, the supply chain disruptions of Covid-19, and the Russian invasion of Ukraine, no more nails are needed in the coffin of 1990s-style globalization. In the annals of “too little, too late,” even Larry Summers admitted, earlier this year, that “in general, eco­nomic thinking has privileged efficiency over resilience” and that we need to balance “just in case” with “just in time”—though it is now hard to do that from within the system he helped build.⁸³ At the very least, the neoliberalism of the 1990s is now widely acknowledged as a policy gamble, not a prescription for the end of history.

Whether or not they are “in the room,” there are still some “adults” who would urge us to double down on the gamble, keeping faith with the policies we have pursued for a generation. C. Fred Bergsten, founder of the neoliberal Peterson Institute for International Economics, recently told Wang Huiyao, an influential academic advisor to the Chinese State Council: “It would be a dramatic step if our two countries could get together, roll back those tariffs, end the trade war, restore a much larger level of trade between our countries, and in that way restore a huge amount of confidence in the world trading system, the World Trade Organization, and the whole rule‑based system.”⁸⁴ In the same global dialogue series with Chinese officials, former Treasury secretary Henry Paulson claimed this last June that “most tariffs don’t make economic sense, [and are] not good for either country” and “as attacks on US consumers, [are] not good for trade.”⁸⁵

These adults are of course joined by obviously self-interested actors. Just before the 2020 election, Bridgewater hedge fund billionaire Ray Dalio claimed in the Financial Times that the world was “underweight Chinese stocks and bonds” because of “anti-Chinese bias,” explaining that “prejudice and bias always blind people to opportunity” and that the best way to deal with the growing U.S.-China conflict was to “diversify and allocate money to both countries,” since “[n]o one can know how bad these wars will be, which country will win, or how.”⁸⁶ Gerhard Schröder, the Social Democratic chancellor of Germany during its wonder years of neoliberalism (1998–2005) sits even today as the chairman of the shareholders of Nord Stream and has made a fortune representing Russian energy companies after leaving office.⁸⁷

We may find such self-interest ugly, but it does not actually discredit the adults in the room, who always coolly reckoned on it. The neoliberal gamble was precisely to leverage the transformational potential of such self-interest, the old fable of “private vices, public benefits.” The pipelines and the hedge funds—and those who profit from them—are not a problem. They were the plan. The money to be made in global markets was the bait for the “rule of law,” and the rule of law was supposed to carry with it the seeds of liberal democracy and thus international peace. Didn’t blue jeans and rock ’n’ roll bring down the Soviet Union? Give us more time, say the adults in the room (I can hear them still); we have only tried this world without walls for a generation.

Democracy is famously impatient. But if we could muster the patience? If we could ignore the nuclear bombers over the Pacific and the waves of war refugees fanning out across Europe? Should we not still ask the adults in the room: How much longer now? How much more must be endured? Can you let us know when history will really end?

This article originally appeared in American Affairs Volume VI, Number 4 (Winter 2022): 87–121.

Notes