The Global Order, With Benn Steil (Episode 25)

Right.

So if we go back to the 1940s, I think that's where you have to start in order to understand what the United States set out to do and why it's evolved the way it has.

During the Second World War, the FDR administration quietly developed a rubric for international order comprising elements focused mainly on economics and security that they hoped would, once this war was successfully won, prevent a future world conflagration.

Obviously, at the centerpiece of this new system was the United Nations, but there were many other institutions that played an important role, particularly since the FDR administration believed that it was economic confrontations in the early 1930s that actually set the world off on the course for war.

So we had the so-called Bretton Woods institutions, the International Monetary Fund, and the World Bank.

And on the trade side, we had the GATT, the General Agreements on Tariffs and Trade.

And I argued in my Wire China interview that the GATT was highly successful, more successful than we had initially expected it to be, given that it was not nearly as elaborate as the initial vision, which was for an international trade organization.

But I argued in that interview that because it had limited aims, We were able to maintain a systemic compatibility within the system that allowed liberalization to go forward at a robust but sustainable pace.

After the end of the Cold War, when the GATT was transformed into the much more ambitious World Trade Organization, then I argue we began to get into difficulties.

So it was a modest aim to begin with and a much more grandiose vision in the second round with WTO.

Well, in particular, in the second round, we fully intended it for it to be a universal system.

Right.

Whereas with the GATT, we made it a priority that the countries that participated were going to be willing to make a commitment to to having trade flows driven by prices and production capability in a free market.

When the Soviets could not meet the requirements, we were satisfied with going forward without them, despite the fact that the larger ambition of the FDR administration was to have a universal framework, but it was not the priority.

Which

brings us to China brought into the World Trade Organization.

When I think about China, I think about in three parts, really.

Its decision to engage the US during the Nixon administration, although it's often reported the other way around, but it seems to me that it was China that made the initiative or took the initiative.

The second piece is the liberalization over time of its economy.

And the third thing, obviously, is its arrival as an established economic superpower.

The remarkable thing about points two and three is that they were enabled by the United States, which would seem to be one of the great miscalculations in modern geopolitics.

But can you talk us through the decision essentially to integrate the Chinese economy into the global economy, and then the China shock, so to speak.

I'm particularly interested to hear what you have to say about the China shock of the 2000s, and then where we are now, and are we, these are too many questions at once, but are we in a second China shock with AI?

Sure.

Well, I think it's necessary when we transport ourselves back to the 1990s to remember the mindset at the time, very much dominated by Francis Fukuyama's The End of History, his famous article and subsequent book.

Right.

So if we go back to the 1940s, I think that's where you have to start in order to understand what the United States set out to do and why it's evolved the way it has.

During the Second World War, the FDR administration quietly developed a rubric for international order comprising elements focused mainly on economics and security that they hoped would, once this war was successfully won, prevent a future world conflagration.

Obviously, at the centerpiece of this new system was the United Nations, but there were many other institutions that played an important role, particularly since the FDR administration believed that it was economic confrontations in the early 1930s that actually set the world off on the course for war.

So we had the so-called Bretton Woods institutions, the International Monetary Fund, and the World Bank.

And on the trade side, we had the GATT, the General Agreements on Tariffs and Trade.

And I argued in my Wire China interview that the GATT was highly successful, more successful than we had initially expected it to be, given that it was not nearly as elaborate as the initial vision, which was for an international trade organization.

But I argued in that interview that because it had limited aims, We were able to maintain a systemic compatibility within the system that allowed liberalization to go forward at a robust but sustainable pace.

After the end of the Cold War, when the GATT was transformed into the much more ambitious World Trade Organization, then I argue we began to get into difficulties.

So it was a modest aim to begin with and a much more grandiose vision in the second round with WTO.

Well, in particular, in the second round, we fully intended it for it to be a universal system.

Right.

Whereas with the GATT, we made it a priority that the countries that participated were going to be willing to make a commitment to to having trade flows driven by prices and production capability in a free market.

When the Soviets could not meet the requirements, we were satisfied with going forward without them, despite the fact that the larger ambition of the FDR administration was to have a universal framework, but it was not the priority.

Which

brings us to China brought into the World Trade Organization.

When I think about China, I think about in three parts, really.

Its decision to engage the US during the Nixon administration, although it's often reported the other way around, but it seems to me that it was China that made the initiative or took the initiative.

The second piece is the liberalization over time of its economy.

And the third thing, obviously, is its arrival as an established economic superpower.

The remarkable thing about points two and three is that they were enabled by the United States, which would seem to be one of the great miscalculations in modern geopolitics.

But can you talk us through the decision essentially to integrate the Chinese economy into the global economy, and then the China shock, so to speak.

I'm particularly interested to hear what you have to say about the China shock of the 2000s, and then where we are now, and are we, these are too many questions at once, but are we in a second China shock with AI?

Sure.

Well, I think it's necessary when we transport ourselves back to the 1990s to remember the mindset at the time, very much dominated by Francis Fukuyama's The End of History, his famous article and subsequent book.