The Great Economic War (GEW) (Part 14: The middle game –Instability and reset of world order and global governance)

The Great Economic War (GEW) (Part 14: The middle game –Instability and reset of world order and global governance)

Phuah Eng Chye (11 February 2022)

The Russian invasion of Ukraine signalled a transition in the great power conflict from the opening phase into the middle game. The opening phase was characterised by preparatory and choreographed moves generally within the confines of established guardrails. In contrast, the middle game is chaotic with intrusive probing of red lines and creation of new pressure points. In the early parts of the middle game, the conflict is largely asymmetric rather than head-on. The US sharpened its attack on China’s weak spots (Taiwan, India, Xinjiang, technology) whereas China is exploring and exposing weak spots on US flanks (Eurasia/Middle East and currency). The asymmetric nature of the conflict lowers the value of defence and increases the value of attacks. The middle game is a dangerous, confrontational phase with:

  • Military escalation. The global arms race has been triggered. The US is herding allies to boost military expenditures and increase their involvement in Ukraine and Taiwan. Russia is forging cooperation with Iran, North Korea and Turkey. China has stepped up military exercises in the Pacific. Deterrence is not deterring but is escalating. It doesn’t take much for an incident to trigger a stand-off and possibly followed by a head-on confrontation.
  • Economic fragmentation. As US and China move along the path of self-sufficiency, they have become more aggressive in redirecting trade, production and flows away from each other. MNCs and other countries are becoming more conscious of the risks of “doing business with the enemy”. Economic fragmentation along regional lines now appears likely.
  • Crisis of governments. Decades ago, market forces were unleashed to drive globalisation. This period was marked by financial crises which could be traced to crises of governance. In recent years, governments began to reject “market outcomes” for geopolitical, climate and social reasons. Politicians took the opportunity to reclaim the power of running the economy that they lost to globalisation, MNCs, markets and platforms. However, their policy missives are blowing up markets and industries; and crushing animal spirits and increasing public agitation in the process. Today’s crises are a crisis of governments.

From strategic stability to persistent instability

The key feature of the middle game in the shift to a multipolar landscape is persistent instability. During the Cold War, realisation that a nuclear war is mutually destructive caused the US and Soviet Union to explore paths toward achieving strategic stability[1]; i.e. creating conditions that would lessen the threat of a nuclear war. By the end of the 20th century, an extensive architecture of multilateral and bilateral arms control and guardrails were established. At that time, global conditions – Western ascendancy and US overwhelming superiority across nuclear, military and economic domains – were conducive to disarmament. The US could be content with a peaceful approach and bid its time by following a containment strategy. It watched the Soviet Union break up and assisted China’s integration into the US-led global system. Conditions have since changed. Russia’s military revival and China’s astounding economic rise is posing a threat to US unipolar status. In tandem with this, the OECD (aligned to the US) share of the global economy has declined substantially while that of the Global South (non-aligned) has risen. Strategic stability is being undermined by changing geopolitical conditions.  

  • Tripolar and multipolarity. China’s rapid rise is accompanied by its growing military and nuclear capabilities; closing the gap with the US. The existence of three competing great nuclear powers is disrupting bipolar stability. The existence of three nuclear powers magnifies risks related to deterrence, first strike, defences (survivability) and counter-attack. In a tripolar system, it is impossible for each nation to maintain parity with the combined arsenals of the other two. The escalating arms race is triggering nuclear proliferation as other lesser or non-nuclear powers decide they need to build their own capabilities. Growing nuclear power uncertainties will increase geopolitical brinksmanship.
  • Technology, asymmetric warfare and whole-of government. Technological advances are disrupting strategic stability. First, it expands the range of possibilities. Complexity, fuzziness and speed make it difficult to define, verify and operationalise controls. Second, technologies such as AI, biotechnology, internet and robotics extends convergence between military and other domains. Asymmetric warfare will expand the scope of interdependency weaponisation, harden terrains and escalate conflicts. Whole-of-government approaches will extend confrontation across realms.

There is a need to understand “the motivations and actions of states in an inevitably complex world”. Paul Poast suggests realism is a robust framework. There are variants but “what ultimately unifies the branches of realism is the view that states bristling with arms are an inescapable fact of life and that international cooperation is not just difficult but fundamentally futile. In essence, it is foolish to hope that cooperation will provide lasting solutions to the intractable reality of conflict and competition as countries pursue their own interests…Realism sees international politics as a tragic stage in which the persistence, if not the prevalence, of war means that governments must focus on guaranteeing national security, even at the expense of liberties and prosperity…When brought into policy, realist theory becomes realpolitik: the position that states should balance against their adversaries and seek relative gains rather than accept supranational and institutional constraints on their freedom of action in international affairs”. “Realism as policy also manifests itself in debates” on whether great powers should be offensive (seek hegemony to achieve security goals) or defensive (seek security by preventing the hegemony of any single power); albeit without offering obvious answers on what they should do.

George Perkovich argues “if either the United States or China seeks military superiority over the other, then stability will be especially difficult to achieve…If either antagonist seeks to deny the others’ nuclear deterrent, crises will be especially dangerous, and arms racing will be hard to avoid or manage stably. (Regime change in either country probably would not be stabilizing until the longer-term trajectory of either polity were clearer.)” This is made more difficult by the differing perspectives. Former US Defense official Brad Roberts[2] explains “where U.S. experts generally see shared interests in strategic stability, leaders in Russia and China see competing interests (they believe the U.S. to be seeking Absolute Security at the expense of others). Where U.S. experts see mutual benefit in cooperation, they see an America unwilling to cooperate on anything but its own self-serving terms. Where U.S. experts see value in dialogue, the leaders in Russia and China see dialogue blocked by cold war thinking and American hubris…U.S. experts have done a better job of explaining why Russian and Chinese restraint is in the U.S. interest than in setting out ideas about a deal that would be mutually beneficial for all”.

George Perkovich notes “to create an alternative to unbounded arms racing and worst-case insecurity, China and the United States and its allies must first gain basic confidence that they understand each other’s core interests and whether and when they would use military force to pursue them. How does each leadership and national power center perceive the strategic environment, their own objectives, and the intentions and capabilities of their foreign competitors? Neither side is going to negotiate over arms control or otherwise reduce the threats it poses if it does not have some confidence that the answers to these questions are benign or can be made benign through nonmilitary means”.

George Perkovich suggests “one way to invite a more positive Chinese response to strategic stability dialogue could be to pick up on a concept that Chinese experts have emphasized: mutual vulnerability”. “Mutual vulnerability could mean that two countries or blocs cannot physically prevent each other from inflicting destruction of life and property in each other’s territory that is more costly to them than the value of the territory or stakes they are fighting over”. Apart from technical complexities in defining and measuring values, a practical problem is that China has resisted communication and transparency on existing and planned nuclear forces. “Chinese officials have said that providing information on nuclear capabilities and plans would help enable the United States to target China’s small nuclear deterrent force”. On the other side, defence specialists argue “against declaring mutual vulnerability” as “it would encourage Chinese assertiveness and discourage U.S. allies” or even put the US in a position where it would be required “to make significant concessions on its force posture.” Others point out China “will likely become more assertive” anyway since “Chinese officials think the United States aggressively seeks military superiority and maintenance of hegemony along with regime change in China” and declarations of mutual vulnerability are unlikely to revise Chinese leaders’ assessments of U.S. intentions and capabilities.

Against this, George Perkovich argues acknowledging and developing policy based on mutual vulnerability could serve Western national security interests. “First, basing policy on mutual vulnerability is realistic, and ignoring reality is generally not good for national security policymaking. It can foster delusional or reckless brinksmanship, risk-taking, and misdirected expenditure of resources”. “Second, basing policy on the reality of mutual vulnerability is necessary if there is to be any hope of avoiding or limiting arms racing and worsening crisis instability…without clarity on this, the United States cannot devise a strategy for competing on U.S. terms and offering pathways to more stable relations through dialogue in ways that China and U.S. allies can comprehend”. “Third, admitting that mutual vulnerability is now a condition that cannot be escaped should encourage political factions in Washington and Canberra, Seoul, Taipei, and Tokyo to devote more thought, money, and action to strengthening non-nuclear defenses and diplomatic initiatives to restrain China”. “Fourth, basing policy on mutual vulnerability would demonstrate to Chinese audiences and, more importantly, the rest of the world that the United States is willing to pursue dialogue and diplomacy with China – rather than hegemonic diktat – to avert war, including nuclear war, and to stabilize relations…If Chinese leaders want the United States and its allies not to build up their conventional and/or nuclear military capabilities against China, Beijing will need to engage constructively in confidence-building and arms control. And if U.S. and allied leaders want China to do that instead of ever-more arms building, they will need to convince Chinese leaders that they will negotiate more equitable power balances than previously imagined”.

The absence of mutual trust and lack of benefits from compromise in a multipolar environment leads to a scenario of persistent instability. At the end of a day, only a multilateral framework outlining a code of conduct and specifying mediation avenues can pre-empt potential military confrontation.But in the current environment, new multilateral guardrails are hard to come by. As one side strengthens deterrence, it triggers escalation. Under these circumstances, ultimate deterrence is wholly dependent on the knowledge that modern wars are mutually destructive and unwinnable (among equally matched opponents). Perhaps it would require the mounting costs of economic turmoil, civil unrest and proxy wars to reach unbearable levels before the hard process of finding amicable resolution on issues related to a reset of the world order and global governance can begin.

World order reset

The rise of China and dispersion of economic power augurs an imminent reset of the world order. John J. Mearsheimer describes an order as “an organized group of international institutions that help govern the interactions among the member states. Orders can also help member states deal with non-members, because an order does not necessarily include every country in the world. Furthermore, orders can comprise institutions that have a regional or a global scope. Great powers create and manage orders. International institutions, which are the building blocks of orders, are effectively rules that the great powers devise and agree to follow, because they believe that obeying those rules is in their interest. The rules prescribe acceptable kinds of behavior and proscribe unacceptable forms of behavior. Unsurprisingly, the great powers write those rules to suit their own interests. But when the rules do not accord with the vital interests of the dominant states, those same states either ignore them or rewrite them”. “Orders are indispensable in the modern international system because they help the great powers manage the behavior of the weaker states in ways that suit the great powers’ interests. Specifically, the most powerful states design institutions to constrain the actions of less powerful states and then put significant pressure on them to join those institutions and obey the rules no matter what. Nevertheless, those rules often work to the benefit of the weaker states in the system. A good example of this phenomenon is the superpowers’ efforts during the Cold War to build a non-proliferation regime…The institutions that make up an order, however, cannot compel powerful states to obey the rules if those states believe that doing so is not in their interest. International institutions, in other words, do not take on a life of their own, and thus do not have the power to tell the leading states what to do. They are simply tools of the great powers. Still, rules, which are the essence of any institution, help manage the behavior of states, and great powers obey the rules most of the time. The bottom line is that in a world of multifaceted interdependence, a system of rules is necessary to lower transaction costs and help carry out the multitude of interactions that take place among states”.

John J. Mearsheimer notes there are proposals to replace the existing liberal international order with a more pragmatic and modest version that “pursue a more nuanced, less aggressive approach to spreading liberal democracy, rein in hyperglobalization, and put some significant limits on the power of international institutions…would look something like the Western order during the Cold War, although it would be global and liberal, not bounded and realist”. He thinks “this solution is not feasible, however, because the unipolar moment is over, which means there is no chance of maintaining any kind of liberal international order for the foreseeable future”. “The United States would fail if it lowered its sights and attempted to construct a less ambitious liberal order. Indeed, it would end up building an agnostic international order instead…But that is not going to happen, because the system is multipolar and great power politics are once again at play. Thus, the key question is: What kinds of realist orders will dominate the landscape in the new multipolar world?”

John J. Mearsheimer explains “two key features of the new multipolar world will profoundly shape the emerging orders. First, assuming that China continues its impressive rise, it will be involved in an intense security competition with the United States that will be the central feature of international politics over the course of the twenty-first century. That rivalry will lead to the creation of bounded orders dominated by China and the United States. Military alliances will be core components of those two orders, which are now beginning to form and will resemble the Soviet-led and U.S.-led orders in the Cold War”. “The situation on the economic front is much different today than it was in the Cold War, which leads to the second important feature of the new multipolarity that will shape the incipient orders. There is a huge amount of economic intercourse between China and the United States, and between China and U.S. allies in East Asia. China and the United States also trade and invest all over the world. The security competition between the two bounded orders is unlikely to markedly reduce those economic flows. The gains from continued trade are too great. Even if the United States tries to limit its trade with China, Beijing can compensate by increasing its trade with other partners, such as Europe. The future, in other words, is likely to resemble the situation in Europe before World War I, where there was an intense security competition between the Triple Alliance (Austria-Hungary, Germany, and Italy) and the Triple Entente (Great Britain, France, and Russia), yet an enormous amount of economic interaction among those six countries and within Europe more generally. Because the world economy will remain highly interdependent, the emerging international order will play a pivotal role in managing economic relations among countries across the globe. Although China has a deep-seated interest in helping the order facilitate economic cooperation, it will wield its increasing power to reshape the new international order to its advantage. It will seek to rewrite the rules in the order’s current economic institutions to give it more influence, and it will create new institutions that reflect its growing power… In short, the rivalry between the China-led and U.S.-led bounded orders will involve both full-throated economic and military competition, as was the case with the bounded orders dominated by Moscow and Washington during the Cold War. The big difference this time is that the international order will be deeply involved in managing the cooperative aspects of the global economy, which was not the case during the Cold War”.

John J. Mearsheimer foresees three different realist orders: “A thin international order and two thick bounded orders – one led by China, the other by the United States. The emerging thin international order will be concerned mainly with overseeing arms control agreements and making the global economy work efficiently…In essence, the institutions that make up the international order will focus on facilitating interstate cooperation. The two bounded orders, in contrast, will be concerned principally with waging security competition against each other, although that will call for promoting cooperation among the members of each order. There will be significant economic and military competition between those two orders that will need to be managed, which is why they will be thick orders”.

Robert D. Blackwill and Thomas Wright notes Henry Kissinger, in his 2014 book World Order, defines it as “the concept held by a region or civilization about the nature of just arrangements and the distribution of power thought to be applicable to the entire world. World order rests, he writes, on two components: a set of commonly accepted rules that define the limits of permissable action and a balance of power that enforces restraint where rules break down. The Concert of Europe manifested this as a loose set of constraints that moved the major powers beyond a traditional balance of power – no major power would act unilaterally to acquire territory, none would interfere in the domestic governance of others, and none would be humiliated or isolated. The concert was not an agreement of equals. Serving the interests of Great Britain and Russia above all others, it was the mechanism by which the other European powers acquiesced to and sought to influence British and Russian bipolarity”. “In the early decades of the Cold War, Americans did not believe in world order as Kissinger defines it. There was, at best, a Western order locked in a bipolar struggle with the Soviet Union. And yet, that bipolar system became a world order of sorts, if that can be understood to mean the gradual acceptance by both superpowers of each other’s spheres of influence, their joint opposition to the spread of nuclear weapons, and their desire, especially after 1962, to avert nuclear war. During his years in office, Kissinger above all else sought to apply his concept and objectives of world order to the relationship between the United States and the Soviet Union and to prepare for the emergence of China as an eventual world power”. “Beginning in the early 1990s, the Cold War order was reconstituted into an aspiring global commonwealth that enlarged NATO and transformed the United Nations, the IMF and the World Bank, the World Trade Organization (WTO), and the EU. The debates on the health of world order usually hinge on whether the United States, China, Russia, or other powers infringe these global rules”.

Robert D. Blackwill and Thomas Wright elaborates “the world order of the 1990s and early 2000s was rooted in U.S.-led postwar preferences, objectives, and strategies, which were adjusted and further globalized by their successors. To the extent that the major powers agreed on the constraints, limits, and enforcement mechanisms, the world order protected that international system. But now supporters of the old order, including many Americans, should grapple with the implications of shifting balances of power and the transformation of societies. It is not so much that the major powers seek to directly overturn the old order; it is that in many respects the new world and the old rules are in parallel universes…For example, the Belt and Road Initiative does not seek to overturn the World Bank; it simply operates alongside it. As political scientists Alexander Cooley and Daniel Nexon note, Regimes from around the world are unlikely, for better or for worse, to simply accept the kind of liberal ordering that the United States promoted in the 1990s and 2000s. The world has moved away from a standard of world order in which nations work within the same set of constraints and aspire to meet the same set of rules toward a model in which many countries choose their own paths to order, without much reference to the views of others, both near and far. This heterogeneity is not so much a rush to excellence as the projection of the domestic characteristics of the major powers into the international arena. Thus, the corruption, lack of accountability, and absence of freedom in autocratic countries is their version of order”.

Robert D. Blackwill and Thomas Wright points out “the fundamental strategic problem the United States faces with respect to world order is how it should respond to the breakdown in agreed arrangements between the major powers. The United States has a choice. Should it try to reconstitute a world order whereby it forges an understanding with Europe, Japan, India, China, and Russia on the limits of acceptable behavior and how to enforce them, or should it concentrate on improving its own ordering options in accordance with its values regardless of whether China, Russia, or others go along? The answer rests on which course of action best protects and advances U.S. vital national interests. On the face of it, the answer would seem obvious: the United States should try to reconstitute a shared strategic understanding between the major powers based on these national interests – a classic world order bargain, if you will. But such a pathway is problematic. Although it may seem strategically sensible and prudent to many observers, for others the gap between the United States and China is too large to bridge, and a compromise could undermine Washington’s regional alliances. Moreover, there is for the foreseeable future no appetite in Washington on either side of the aisle, or in Beijing, for such a comprehensive effort”.

Robert D. Blackwill and Thomas Wright concludes “these actions are major departures from the shared understandings of the 1990s, and the return of great power rivalry shattered hopes in that multilateral order. China and Russia in particular defend a Westphalian and nineteenth-century model of order organized around balance of power, national sovereignty, and spheres of influence. They oppose the U.S. model of humanitarian intervention, democracy promotion, strengthened alliances, and opposition to spheres of influence. Meanwhile, the United States distances itself from its own world order traditions…The United States finds itself in a world where there is little prospect that the major powers will converge on a single model of world order – with a shared understanding of constraints, limits, and the means of enforcement – as it has hoped for much of the past thirty years…as in the Bismarck period, Americans should expect China, Russia, and several others to pursue their own ordering strategies, both in their regions and on global issues. Some grand bargains in world order could be struck in the distant future, but they appear remote now”. “The United States currently appears to be headed for a full-throated permanent confrontation with China, with little diplomacy, constraints, limits, or prospects of cooperation. The volatile piece of the relationship at present is not security competition, which has been relatively stable and predictable. The problem concerns the vulnerabilities created by interdependence including the timing, shape, and substance of the next U.S.-China trade agreement. The United States should devise a strategy toward China that defines the scale and shape of engagement. Fully coordinated with allies, this needs to be carefully designed and pay particular attention to trade and finance, including joining a reconstituted TPP, international institutions and frameworks, technology transfer, defense, cyber, critical infrastructure such as communications and energy, and development and investment controls. Without such intense collaboration, it seems unlikely that the United States can successfully and peacefully compete with China, which is likely to be a preeminent U.S. strategic challenger for many decades. Inherent U.S. pessimism about this competition is misplaced. With the proper policies, the United States and its allies can successfully compete with China while avoiding combustible competition and defending alliance national interests and values”.

Richard N. Haass, Charles A. Kupchan thinks “the international system is at a historical inflection point…The West is losing not only its material dominance but also its ideological sway…they will not forestall the arrival of a world that is both multipolar and ideologically diverse…History makes clear that such periods of tumultuous change come with great peril. Indeed, great-power contests over hierarchy and ideology regularly lead to major wars. Averting this outcome requires soberly acknowledging that the Western-led liberal order that emerged after World War II cannot anchor global stability in the twenty-first century. The search is on for a viable and effective way forward”.

From a realpolitik perspective, the Global South do not buy into the US and Western ideal of a universal liberal world order[3]. Despite US efforts and strategies, ideological identities around the world have stayed remarkably unchanged. In contrast, the Global South broadly accepts Western ideas (but not specifics) on rules, businesses and markets. As Global South countries gain economic strength, they dilute the West’s soft power. If before Western nations were able to “enforce” their views without “retaliatory consequences”, this is no longer true. China has gained sufficient strengths to retaliate and to act as a backstop or bargaining chip that other Global South countries are using to stand up to the West.

At the moment, there is no great power leading the reset of the world order and global governance arrangements. This is giving rise to open-ended questions such as whether the US would ever compromise on its “take it-leave it” stance and adjust to world that is ideologically diverse and commercially convergent? Whether China and the Global South bridge the credibility gap and put forward a tangible concept of a multilateral order based on non-alignment and non-interference? What would replace military force and ideology as the binding forces reshaping the contours of the new world order? The world should brace itself for an extended period of conflicts and shifting alliances as observed during the era of the Warring States in ancient China.

Global governance

A stable world order is dependent on the institutionalisation of global governance. This was recognised after World War 1 when the Paris Peace Conference established the League of Nations[4] in 1920. Its primary goal was to prevent wars through collective security and disarmament and settling international disputes through negotiation and arbitration. “The credibility of the organization was weakened by the fact that the United States never joined, and Japan, Italy, Germany and Spain quit. The Soviet Union joined late and was expelled after invading Finland. The onset of the Second World War in 1939 showed that the League had failed its primary purpose”. “Even though the League failed to achieve its main goal of world peace, it did manage to build new roads towards expanding the rule of law across the globe; strengthened the concept of collective security, giving a voice to smaller nations; helped to raise awareness to problems like epidemics, slavery, child labour, colonial tyranny, refugee crises and general working conditions through its numerous commissions and committees; and paved the way for new forms of statehood, as the mandate system put the colonial powers under international observation”.

The League was replaced by the United Nations (UN) in 1946. The UN charter set out objectives such as maintaining international peace and security, protecting human rights, delivering humanitarian aid, promoting sustainable development, and upholding international law. Starting with 51 members, almost all countries are members today. The UN is assisted by a host of specialised multilateral organisations in rule-making, surveillance, enforcement and assistance. This includes country-member institutions such as the IMF, World Bank, WTO and WHO; and industry bodies such as the International Accounting Standards Board (IASB), the International Organization for Standardization (ISO), and the International Telecommunication Union (ITU). Hence while ideological beliefs differ widely, the world has generally accepted the need for common global rules and standards that made hyper-globalisation possible.

The escalation in geopolitical conflict is paralysing and causing the existing institutional system of global governance to break. Both sides are unhappy. The US thinks China has taken advantage and is not complying with the spirit of international rules and that that the current arrangements are unfavourable to it. As a result, the US has chosen to ignore many “international rules and agreements”, imposed unilateral actions (to be fair, some are reciprocal) and increasingly favoured bilateral or selective approaches such as friendshoring.

China and Global South countries generally feel they lack a voice in the global institutions. Victor Shih notes “in the IMF, China is pursuing greater representation in the decision-making process while in the WTO China seeks to revise rules so that the United States can no longer dominate the organization’s case flows…the lack or slow pace of substantial reforms in these institutions increases the risk of China becoming disillusioned and disengaging with them”. China has set up parallel multilateral institutions such as the New Development Bank and Asian Infrastructure Investment Bank (AIIB) and are sponsoring new initiatives such as the Global Development Initiative and Global Security Initiative. There is consensus that reforms[5] of the global governance institutions are necessary but views on what to reform are wide apart.

The US-China relationship is at the heart of the tug-of-war rebalancing of geopolitical power. Timothy R. Heath, Derek Grossman and Asha Clark point out “China’s international leadership would bear little resemblance to the forms exercised by previous global leaders such as the United States and Great Britain. Exercising a partial global hegemony centered principally on Eurasia, the Middle East, and Africa, Chinese international leadership would be characterized by a reliance on finance, diplomatic engagement, and security assistance to exercise influence while maintaining a modest overseas military presence”. They suggest “China’s standard for successful competition with the United States thus entails the following conditions by mid-century: (1) War with the United States is avoided, although this does not exclude the possibility of militarized crises or conflicts of a limited scope (e.g., proxy wars); (2) the United States respects China’s authority as the global leader, even as the United States remains a powerful, but clearly inferior, nation; (3) the United States largely refrains from harming Chinese interests; (4) China has established primacy across much of Eurasia, the Middle East, and Africa, principally through patronage of client states; (5) U.S. primacy has been reduced to the Americas, although it may still maintain a military, economic, and diplomatic presence worldwide; (6) the United States and China manage their differences according to norms upheld by China; and (7) the two cooperate on shared concerns on terms defined largely by the Chinese”.

Timothy R. Heath, Derek Grossman and Asha Clark argue “the consequences of Chinese success in strategic competition could be severe for the United States. Sitting astride the heart of the global economy, Beijing would be well situated to privilege its needs and those of its clients over those of the United States and its allies”. “China’s cultivation of client states and influence in the Middle East, Africa, and Latin America could directly affect the ability of the United States to compete in the Indo-Pacific. As one example, Chinese success in consolidating influence with vital energy suppliers in the Middle East could affect the ability and willingness of countries like Japan and India to support measures that constrain Chinese power. The need to bolster the U.S. position in the IndoPacific may need to be balanced by the need to uphold U.S. credibility as a global leader”. They conclude “this situation would likely entail a deleterious downgrading in the prospects for the United States. Poorly positioned to unseat China or easily reverse its own flagging fortunes, the United States could face dwindling economic prospects, international marginalization, and a diminishing ability to shape global affairs”.

In relation to this, Timothy R. Heath, Derek Grossman and Asha Clark note “the convictions that China has outgrown the existing order and that a declining U.S. leadership is fundamentally incompatible with China’s needs as a rising great power suggest that proposals to avoid competition by accommodating China or offering to share global leadership as partners, sometimes called a G-2 approach, are unlikely to work. Because these proposals aim to ensure that the United States retains the upper hand, China is unlikely to be satisfied with arrangements in which Washington retains for itself the power to grant concessions to China and veto policies not to its liking. Only a decisive downgrading of U.S. power and firm establishment of China as the clear international leader appears to offer Beijing the freedom of action that could enable it to realize the China Dream”.

Richard N. Haass and Charles A. Kupchan think “a U.S.-Chinese condominium – in effect a G-2 in which Washington and Beijing would together oversee a mutually acceptable international order…flawed…Even if these two peer competitors could find a way to dampen their intensifying rivalry, much of the world will remain outside of their direct purview. Moreover, predicating global stability on cooperation between Washington and Beijing is hardly a safe bet. They will have enough trouble managing their relationship in the Asia-Pacific region. Farther afield, they will need considerable buy-in and support from others. A U.S.-Chinese condominium also smacks of a world of spheres of influence – one in which Washington and Beijing agree to divide their sway along geographic lines, perhaps apportioning rights and responsibilities to second-tier powers in their respective regions. To give China, Russia, or other powers a free hand in their neighborhoods, however, is to encourage expansionist tendencies and to either reduce nearby countries’ autonomy or prompt them to push back, resulting in more arms proliferation and regional conflict. Indeed, the precise purpose of thinking through how to provide order in the twenty-first century is to avoid a world more prone to coercion, rivalry, and economic division.

It is true that if US and China can resolve their differences, that would set the tone for other countries to follow. But as reflected by recent bilateral summits, it seems difficult to find middle ground for compromise. There is unlikely to be agreement on Russia-Ukraine, Taiwan, security issues (i.e. Indo-Pacific, nuclear) and US sanctions. Is it even possible for US to reverse on technology decoupling and shifting supply chains out of China; or for China to reverse de-dollarisation and to concede ground on “Western” values? With both countries pulling in different directions, multilateral governance models may offer better prospects for global cooperation.

Stewart Patrick outlines four approaches to multilateralism; namely charter, club, concert and coalition. The charter model of multilateralism is built on “treaty-based organizations that reflect the principle of sovereign equality. For all its shortcomings, the UN continues to enjoy unequalled global legitimacy by virtue of its universal membership, binding charter, and sole authority – under the auspices of the Security Council – to authorize the use of force”. The club model are alliances built on solidarity with a set of core values. The US has adopted a club model with the aim “to revive and reconsolidate the Western community of advanced market democracies as the core of an open, rules-based international system” as the foundation for the world order.

An alternative is the capability-based concert model. Richard N. Haass and Charles A. Kupchan suggest “the best vehicle for promoting stability in the twenty-first century is a global concert of major powers. As the history of the nineteenth-century Concert of Europe demonstrated – its members were the United Kingdom, France, Russia, Prussia, and Austria – a steering group of leading countries can curb the geopolitical and ideological competition that usually accompanies multipolarity. Concerts have two characteristics that make them well suited to the emerging global landscape: political inclusivity and procedural informality. A concert’s inclusivity means that it puts at the table the geopolitically influential and powerful states that need to be there, regardless of their regime type. In so doing, it largely separates ideological differences over domestic governance from matters of international cooperation. A concert’s informality means that it eschews binding and enforceable procedures and agreements, clearly distinguishing it from the UN Security Council. The UNSC serves too often as a public forum for grandstanding and is regularly paralyzed by disputes among its veto-wielding permanent members. In contrast, a concert offers a private venue that combines consensus building with cajoling and jockeying – a must since major powers will have both common and competing interests. By providing a vehicle for genuine and sustained strategic dialogue, a global concert can realistically mute and manage inescapable geopolitical and ideological differences….A global concert would be a consultative, not a decision-making, body. It would address emerging crises yet ensure that urgent issues would not crowd out important ones, and it would deliberate on reforms to existing norms and institutions. This steering group would help fashion new rules of the road and build support for collective initiatives but leave operational matters, such as deploying peacekeeping missions, delivering pandemic relief, and concluding new climate deals, to the UN and other existing bodies…The UN is too big, too bureaucratic, and too formalistic. Fly-in, fly-out G-7 or G-20 summits can be useful but even at their best are woefully inadequate, in part because so much effort goes toward haggling over detailed, but often anodyne, communiqués. Phone calls between heads of state, foreign ministers, and national security advisers are too episodic and often narrow in scope”.

Richard N. Haass and Charles A. Kupchan propose “a global concert would have six members: China, the European Union, India, Japan, Russia, and the United States. Democracies and nondemocracies would have equal standing, and inclusion would be a function of power and influence, not values or regime type. The concert’s members would collectively represent roughly 70 percent of both global GDP and global military spending. Including these six heavyweights in the concert’s ranks would give it geopolitical clout while preventing it from becoming an unwieldy talk shop. Members would send permanent representatives of the highest diplomatic rank to the global concert’s standing headquarters. Although they would not be formal members of the concert, four regional organizations – the African Union, Arab League, Association of Southeast Asian Nations (ASEAN), and Organization of American States (OAS) – would maintain permanent delegations at the concert’s headquarters. These organizations would provide their regions with representation and the ability to help shape the concert’s agenda….the concert would also work toward a shared understanding of what constitutes unacceptable interference in other countries’ domestic affairs and, as a result, are to be avoided”.

Richard N. Haass, Charles A. Kupchan notes that “drawing on its nineteenth-century forbearer’s experiences, a global concert should also recognize that great-power solidarity often entails inaction, neutrality, and restraint rather than intervention. The Concert of Europe relied on buffer zones, demilitarized areas, and neutral zones to dampen rivalries and head off potential conflicts. Concert members objecting to initiatives backed by others simply opted out of participation rather than breaking rank and blocking the undertaking….Critics might claim that the concert is too state-centric for today’s world. The Concert of Europe may have been a good fit for the sovereign and authoritative nation-states of the nineteenth century”.

Stewart Patrick thinks the concert model is anachronistic and would “not cure what ails global governance and could well create more problems than it resolves”. “The biggest problem with resurrecting a formal concert is that it would lack political legitimacy in the current global context. Over the past two centuries, the international system has swollen to include nearly 200 independent sovereign nations and, under the auspices of the UN, has developed a dense array of multilateral bodies and treaties that regulate everything from the use of force to the allocation of orbital slots in outer space. This vast institutional architecture is imperfect, but its utility should not be ignored. As was already noted, the UN retains unmatched global authority by virtue of its universal membership and legally binding charter. It is hard to imagine that any new global concert would enjoy the same respect”. The creation of “a new, self-appointed global directorate…would simply reinforce a global caste system pitting the dominance and privilege of great powers against the submission and supplication of weak ones – and, unlike the UN Security Council, it would do so outside of the UN Charter’s legal basis. The concert would also likely encourage the world’s fragmentation into at least tacit spheres of influence, as each great power asserts a right, and is even granted leeway, to police its respective neighborhood, a scenario likely to encourage even more unilateral intervention and the emergence of closed regional blocs”. Another shortcoming is the unwarranted belief that “a standing concert will somehow overcome the fundamental differences of interests and values that currently stymie great power cooperation” and the follow-up question of implementation – “how a concert would leverage the expansive infrastructure of multilateral cooperation that already exists -or surmount the accountability dilemmas that already plague the G20”. While “there is value in having powerful nations meet informally to explore new rules of global governance”, he considers the coalition model a more pragmatic alternative and the club model a more meaningful approach

Stewart Patrick identifies the coalition model, which would tailor ad hoc frameworks to each global contingency, as the most “flexible, à la carte approach to cooperation…the identity and number of parties at the multilateral table in any given instance depends on the nature of the global challenge, the degree of interest among potential participants, and the relevant competencies each actor can bring to bear in resolving it”. However, “a purely coalitional approach to world order risks accentuating the global inequity and injustice that already pervades world politics”. In addition, coalitions lack the ” independent secretariats staffed by international civil servants and technocrats, creating an institutional identity distinct from member states” and this creates accountability gaps and financial and logistical challenges.

Nonetheless, “the rise of à la carte multilateralism reflects the frustrations of operating through outdated, formal intergovernmental bodies that have proven all-too-resistant to reform”. Stewart Patrick explains “policymakers face a world that is dense and encrusted with often-outdated international institutions, each with vested interests. Since the UN was established, the number of sovereign states has nearly quadrupled, in part as former colonized countries became independent. More people around the world achieved their self-determination, but multilateral diplomacy has also become more complicated. U.S. and Western dominance are not what they once were, and there is increasing global divergence on fundamental norms of world order, such as the appropriate boundaries of sovereignty, the criteria that justify intervention, the proper role of the state in the market, and where to strike the balance between political stability and human rights. Compounding matters, many of today’s cross-border problems are even harder to manage than in the past, since they address behind-the-border matters (such as data privacy laws) or require (as in the case of arms control agreements) intrusive methods for monitoring and verification. The implausibility of sweeping institutional reform makes coalitions attractive. Their main advantages include speed, flexibility, modularity, informality, opportunities for discrimination, and possibilities for experimentation. Whereas negotiations in large- or universal-membership bodies tend to be protracted and inconclusive, ad hoc approaches can allow a limited number of parties – including at times nonstate actors – to move with dispatch. Unlike conventional intergovernmental organizations, which often seek to address issues comprehensively, coalitions permit governments to bite off digestible chunks of the global agenda (a disaggregated form of multilateralism that can be described as global governance in pieces). Such modularity is a driving force behind the emergence of so-called regime complexes, which arise when different institutions (such as, in global health, the WHO, the Global Fund, the Joint United Nations Programme on HIV/AIDS, the Coalition for Epidemic Preparedness Innovations, and GAVI, the Vaccine Alliance) share space in the same general policy sphere but focus on discrete problems. Informality is another appeal. Instead of spending years negotiating binding international conventions, coalition participants can rely on voluntary codes of conduct and pledge-and-review sessions, in which they commit to certain nationally determined actions. Given the hurdles to renegotiating the 1967 Outer Space Treaty, for instance, some established spacefaring nations have advocated for an International Code of Conduct for Outer Space Activities, specifying basic norms to address new challenges. Purpose-built frameworks can also help participants – including, in principle, great powers – compartmentalize different aspects of their bilateral relationships, so they can cooperate in some realms while competing in others. Finally, ad hoc coalitions can offer opportunities for experimentation, including for networked, transnational cooperation among technical ministries of different sovereign governments. Given these advantages, coalitions seem destined to become even more prominent in international politics”.

Stewart Patrick notes “there are real drawbacks and risks in creating a new arrangement for every challenge. First, it is unclear whether ad hoc mechanisms are more effective than formal intergovernmentalism at delivering results, particularly when it is difficult to enforce compliance with voluntary commitments. Consider, for example, the multiple, flexible frameworks that constitute the regime complex for climate change. To date, the actual achievements of the MEF have been negligible, just as follow-through has been underwhelming on the nationally determined contributions pledged at the Paris climate conference in 2015. A similar problem has afflicted the G20’s mutual assessment process, which commits governments to submit to one another and the IMF a summary of their national economic plans, including potential negative impacts of those choices on other countries. Instead of a peer review mechanism that holds G20 governments’ feet to the fire, this framework has been impotent, particularly as G20 members have limited the IMF’s independent surveillance and monitoring role…More generally, there is little evidence that flexible minilateralism can overcome tough cooperation problems, particularly in the context of intense geopolitical competition. In 2020, deepening Sino-U.S. frictions paralyzed a more robust G20 response to the outbreak of the COVID-19 pandemic. More recently, fallout from Russia’s invasion of Ukraine – and global debates over whether Russia should be ejected from the forum – have again hamstrung much of the G20’s work. In his address to the UN General Assembly in September 2022, Secretary-General Guterres poured cold water on the notion that à la carte multilateralism can replace the hard work of formal multilateral diplomacy or the standing capabilities of UN agencies. No major global challenge can be solved by a coalition of the willing. We need a coalition of the world. Second, the ad hoc approach to international cooperation risks undermining international organizations. At times, informal bodies can revitalize formal ones, including by encouraging them to adopt new standards. The creation of the G20, for instance, revived the IMF and World Bank and spurred the replacement of the Financial Stability Forum with a more robust Financial Stability Board. Likewise, the money-laundering standards of the Financial Action Task Force (FATF) coalition were subsequently adopted by the IMF, as well as formalized in UN Security Council resolutions. At other times, however, the emergence of alternative institutions has come at the expense of existing bodies, diluting the coherence of the multilateral system. This is particularly true when dissatisfied or revisionist powers seek to challenge the mandates, rules, and practices of established international institutions. Such contested multilateralism can take one of two forms. The more moderate is when states unhappy with the status quo try to shift the setting for multilateral deliberation and policymaking to an alternative, existing institution whose mandate and decision rules they find more congenial. The more radical is when dissatisfied powers try to create an entirely new and competitive arrangement. This brings us to the third potential downside of the coalition approach. It can contribute to rampant forum shopping – and not just by the United States – as governments flit among alternative institutional frameworks based on situational circumstances and exigencies. For decades, the United States seemed best positioned to play the game of contested multilateralism, picking and choosing among flexible frameworks as the situation demands. Although Washington retains a significant ability to pivot among institutions, the diffusion of global power and influence means that other countries can increasingly avail themselves of similar opportunities… In short, other major players are perfectly capable of playing the same game of ad hoc ‘minilateralism’ to their own advantage and America’s detriment. Over time, such dynamics could undermine the coherence of international cooperation and accelerate the world’s fragmentation into competing geopolitical blocs…Fourth, overreliance on purely ad hoc approaches can be ethically and normatively problematic, raising concerns and dilemmas about legitimacy, equity, and accountability. To begin with, informal multilateralism risks undercutting public international institutions that have traditionally sought (or aspired) to provide global public goods, replacing them with new governing frameworks that may restrict access to those same benefits. Since it was created in 2008, the G20 has been criticized by other UN member states – the G175, if you will – for making decisions that affect the rest of humanity. Successive G20 chairs have tried to ameliorate these concerns through elaborate outreach efforts. But the inherent tensions between effectiveness, which implies modest size, and legitimacy, which implies broad representation, persist. Ultimately, this raises an ethical quandary that the UN’s founders had sought to address in 1945 by creating the UN General Assembly: namely, how to prevent poorer countries from being excluded from global decision-making processes that affect them directly”.

Stewart Patrick concludes it is clear is that “no single multilateral structure can possibly serve as the sole foundation for world order or the only platform for international cooperation in the twenty-first century. Global challenges are simply too diverse and complex to be tackled by any single approach”. In practice, the four models co-exist. “The UN, for instance, includes elements of both charter (the General Assembly) and concert (the Security Council). Still, it is possible to identify to all four orientations – UN universalism, democratic solidarity, great power prerogative, and variable geometry -in the Biden administration’s foreign policy to date, including its policy responses to the Russian invasion of Ukraine. As in the past, actual U.S. foreign and national security policy in the remainder of the twenty-first century is likely to involve an ecumenical amalgam of all four approaches. Such heterodoxy makes sense, because the United States has a wide range of objectives and needs to operate on several chessboards at once: it has a simultaneous interest in promoting universal multilateralism within the United Nations; reinforcing the solidarity that exists among its closest democratic allies; negotiating basic rules of great power coexistence and conduct; and exploiting flexible coalitions as circumstances warrant. The trick for the United States will be developing criteria to decide when it makes sense to incline more in one direction rather than another and to seek overall complementarity among these orientations, based on a full appreciation of their historical legacies, normative stakes, and practical implications”. “The United States should approach international cooperation in the first instance as a game of concentric (and sometimes overlapping) circles. All things being equal, the likelihood of intensive collective action, including harmonization on sensitive policy matters, will be greater among the OECD club of advanced market democracies that tend to share fundamental interests and values. Achieving similar agreement on norms and rules of state conduct will remain more difficult in more-encompassing charter frameworks. In such universal settings, the United States and its closest partners should aspire not to remake the world in the Western image but to advance fundamental principles embedded in the UN Charter and other commitments that the vast majority of UN member states have endorsed in numerous multilateral agreements”. He notes Dani Rodrik and Stephen M. Walt’s compelling argument that “the rapid erosion of the Western-dominated global order and the rise of geopolitical competition…necessitates a back-to-basics approach to global governance. Rather than seek sweeping accord on comprehensive standards of conduct, great powers should aim for flexible rules of the road that [presuppose] only minimal agreement on core principles. The world’s most important governments…should commit to avoiding armed conflict (including seizing territory by force), maintaining an open world economy, and, where possible, jointly addressing shared dilemmas and common aversions. Beyond that, they should tolerate independent policy actions that cause no harm to others, including, presumably, when it comes to their domestic political economy choices. Such a live-and-let-live ethos, Rodrik and Walt contend, would help ensure that the deterioration in the rules-based order need not result in great-power conflict.”

Overall, it is imperative to revitalise the role of institutions in global governance; otherwise in a desperate situation, countries would be left to rely on military force to resolve grievances. There are two major challenges. The first is how military escalation can be halted. There is a need for a G4 forum of the major military powers comprising US-NATO and China-Russia who are the main participants shaping the contours of the global security architecture. The second is to recognise and fast-track the evolution of the global governance system to accommodate the transition to multilateralism. It is important that perennial reform issues (relating to the UN, IMF, World Bank and WTO) are not allowed to hijack the creation of a new agenda that reflects the shift to a multipolar landscape.

Despite its flaws, my view is that the G20 is the critical group for discussions on the world order reset because it represents all the major powers. The G20 provided evidence of its robustness when it resisted ostracization of Russia. An effective multilateral forum requires the participation of adversaries if diplomatic breakthroughs are to be meaningful. If the logjam cannot be broken in G20, it is unlikely that it can be achieved on any other platform. Discussions on a new governance regime should focus on areas where the great powers are willing to accept generic rules and constraints on their actions. Towards this end, G20 provides opportunities for the middle powers to use their collective strength to demand restraints on great power behaviour.

Economic and financial governance

Geopolitical instability and global governance uncertainty is deepening economic fragmentation. Changes in the patterns of global flows started to become noticeable during the last quarter of 2022 as the effects of decoupling finally kicked in. The US campaigns to tighten technology transfers, curb China imports and to relocate production chains are having visible effects on China. China is redoubling efforts to reduce dependence on US technology and other imports[6] and accelerating efforts to develop bilateral economic relationships with the Global South. Hence, direct bilateral trade and investment between US and China is likely to shrink and the trend is for global trade to become more regionalised. Changes in trade flows have substantial implications for the recycling of savings (or export surpluses) and, in relation to this, the ability of countries to sustain fiscal deficits and maintain financial stability due to constraints on cross-border intermediation and leveraging.

The extent and costs of economic fragmentation are now assessed to be more substantial than initially anticipated. A recent IMF Staff discussion note[7] estimate “depending on modeling assumptions, the cost to global output from trade fragmentation could range from 0.2 percent (in a limited fragmentation/low-cost adjustment scenario) to up to 7 percent of GDP (in a severe fragmentation/high-cost adjustment scenario); with the addition of technological decoupling, the loss in output could reach 8 to 12 percent in some countries”.

The IMF note points out “the precedence established in recent geopolitical events could prompt countries to seek greater independence in payments infrastructure. This could include promoting national or regional infrastructures that increasingly constitute parallel and competing systems to established international infrastructures. Fragmenting of the global payment system could carry three primary risks”. First, it is likely to reduce the efficiency of the global payments system. “Parallel and competing infrastructures could lead to loss of network effects and interoperability across borders”. Second, fragmentation of the global payment system would severely undermine ongoing multilateral initiatives to increase the efficiency of cross-border payments. “For instance, instead of designing CBDC for wide cross-border interoperability, we could see the formation of multiple CBDC blocs – jurisdictions with CBDC intended for interoperability within the bloc but with little interoperability with CBDCs outside the bloc”. Third, there are negative feedback loops. “A fragmented payment system could introduce trading biases against other blocs, which could then change trade and investment patterns favoring constellations based on geopolitical considerations and contribute to world trade fragmentation”.

In addition, “large and rapid debt reductions – especially if they occur simultaneously in several countries – could affect the global economy. While the extent of deleveraging may vary across countries, a synchronized debt reduction by several large EMs would likely have a tangible impact on the global economy. While lower debt may be positive for some countries, a forced synchronized deleveraging would have implications for future output and social protection and would be particularly painful in the context of limited international risk sharing.” “Geoeconomic economic fragmentation (GEF) could strain the international monetary system and the global financial safety net (GFSN). Financial globalization could give way to financial regionalization and a fragmented global payment system. With less international risk-sharing, GEF could lead to higher macroeconomic volatility, more severe crises, and greater pressures on national buffers. Facing fragmentation risks, countries may look to diversify away from traditional reserve assets – a process that could be accelerated by digitalization – potentially leading to higher financial volatility, at least during transition. By hampering international cooperation, GEF could also weaken the capacity of the GFSN to support crisis countries and complicate the resolution of future sovereign debt crises”.

The IMF note suggests “the rules-based multilateral system must adapt to the changing world economy. The new realities include the changing nature of trade, an increasingly diverse multi-polar world, a widening trust deficit, and the inability of current multilateral mechanisms to prevent negative global spillovers from unilateral actions. These new realities require a fundamental rethinking of how to address global existential threats (such as climate change, pandemics) and avoid runaway fragmentation while upgrading multilateral rules to ensure cooperation on global public goods, fair competition, and adequate protection of the most vulnerable. Some policy measures – even if driven by legitimate security concerns – may deepen and entrench fragmentation and should therefore be mitigated through credible guardrails…Guardrails could include multilateral consultations, as well as commonly agreed norms of conduct (such as agreements on safe corridors to ensure a minimum level of cross-border flows of critical goods, services, and finance). A framework for multilateral consultations could include ex ante notification of the policy intention, an explanation of its rationale and objectives, and a discussion of potential cross-border spillovers and ways to address them. Such deliberations can help identify unintended consequences and, perhaps, alternative ways of achieving the same policy objectives and – over time – help develop commonly agreed rules of conduct”.

Negative spillover effects from fragmentation can be mitigated by reforming economic and financial governance. In this context, since the 1960s the Non-Aligned Movement (NAM) has advocated a New International Economic Order (NIEO)[8] to achieve a more equitable global economy. In 1974, the UN General Assembly adopted the Declaration for the Establishment of a New International Economic Order and this was followed by the adoption of a Charter of Economic Rights and Duties of States. In 2018, the United Nations General Assembly adopted the resolution Towards a New International Economic Order, which reaffirmed the need to continue working towards a new international economic order based on the principles of equity, sovereign equality, interdependence, common interest, cooperation and solidarity among all States. Target reform areas include sovereignty over natural resources, a new commodity order through international agreements and funds for commodity price stabilization, restructuring international trade to improve terms of trades and reform of the international monetary system.

In my view, the NIEO perspective is outdated. Several large developing economies have already done exceedingly well. It is their rise that is destabilising the existing economic order and it is reasonable for OECD economies to react in a manner to prevent their economic position from deteriorating further. This is the source of geopolitical tension in the multipolar environment that needs to be resolved. The geopolitical tension is also why discussions on the tragedy of the commons and the provision of global public goods misses the mark. There is a need for a more straight-forward discussion on resetting the rules of economic competition based on the new multipolar realities. The discussion should focus on finding a better path forward to address fragmentation challenges. This includes:

  • Framework for Globalisation 2.0 that acknowledges the end of the era of unimpeded global flows (it is no longer even supported by OECD). Full fragmentation appears unlikely in the globalised and informationalised economy. Unlike the 1960s, today’s products are complex and components sourced across the globe. This to make it difficult and costly to assert full control over an entire supply chain. In addition, no nation has the military capability to fully secure their supply lines and it would take years to rebuild plants that are destroyed or that lie behind enemy lines. Thus, we need a policy framework to govern economic fragmentation. It would recognise national needs (especially sovereignty, security and self-sufficiency) and accommodate diverse economic models by re-writing the rules of international competition. The framework would be minimalist and generic and based on reciprocity. It should clarify what is fair and foul and aim to safeguard global interoperability to the best extent possible. The objective is to create geopolitical space to defuse conflict, strengthen policy coordination to reduce uncertainty, minimise damage to the private sector and to create a special regime to assist the weakest economies.
  • Guardrails on weaponisation of interdependencies. In an interdependent global economy, everyone loses when a major economy (an adversary) is destroyed. In this context, increasing incidence of sanctions and economic coercion represents the arbitrary removal of rights without due process and nullifies the value of bilateral and multilateral agreements. Deepening fragmentation is leading to a breakdown in the global economy and increasing risks of miliary conflict. If conflict is not to escalate out of control, the great powers need to agree on guardrails (voluntary restraints) and clarify boundaries on the application of government policies relating to technology bifurcation, jurisdictional reach, cross-border investments and ownership rights. In particular, there is a need to provide mutual assurance on safe space and safe assets and to create an incentive structure for fair economic competition and dispute resolution.
  • Manage geopolitically-driven fragmentation risks. The first source of risks is military. The escalation of the arms race is likely to be followed by the outbreak of proxy wars. The second source is economic. Beggar-thy-neighbour policies are causing market malfunctions, demand and supply rationing and dampening private sector investments. Economic disaster may lie around the corner unless economic attacks are moderated and policy certainty re-established. The third and related source is the contractionary impact of economic fragmentation on monetary and liquidity multipliers. The obliteration of safe asset status, de-dollarisation trends, the emergence of CBDCs and cryptocurrencies and the deadlock in resolving debt crises are both causes and symptoms of private sector balance sheet retrenchment and diminishing cross-border intermediation. The recent contraction of US money supply is the canary warning that the downturn will likely be more severe than anticipated. Worse of all, there doesn’t seem to be room for global monetary policy coordination and re-leveraging to address financial stability challenges.
  • Review impact of rising government interventions on private sector and markets. There is very little doubt that the avalanche of government policies is affecting the private sector and markets badly. Governments, rather than markets, now decide output requirements, factory locations, prices and end-markets for a range of strategic and population-sensitive products. Policy uncertainty, compliance and enforcement risk levels are very high. I think governments need to think about providing reassurances to the private sector and markets by scoping the limits of their intervention.
  • Chart a path for the transition from an industrial to a global information society. US hegemony can be attributed to its supremacy in information – its technology leadership, its panopticon advantages (e.g. SWIFT, surveillance, intelligence gathering), soft power (law, multilateral institutions) and information infrastructure. But China has chipped away at the US advantages while building firewalls. China is now capable of providing an alternative information network. In effect, the US information monopoly is being dismantled while the information space is becoming more crowded and contested as developing countries catch up. While we have experience with industrial-based geopolitical contests, we don’t really have a clue how information-based geopolitical contests work. In theory, information should favour convergence and concentration – an economic and market regime based on global norms. Today’s geopolitical reality is that nations are instead backsliding into ideologically and centrally-run economies to defend national sovereignty in a virtual environment. At the same time, we struggle to harness the information society even at the national level. For example, there is confusion and angst over what constitutes misinformation and free speech to the extent democratic societies are leaning towards censorship in an attempt to control narratives. We are still on a learning curve and it will take time to figure how to build a policy framework for the information society. At the global levels, rules on information flows, transparency and interoperability are key areas to address.

Conclusion: The global reset

We have entered the middlegame of the global reset from unipolarity to multipolarity. At this point, there are sharply divergent views on the future of the world order. At one end of the spectrum, the OECD view is to defend the existing unipolar order. At the other end, the Global South advocate multilateralism but has yet to propose a viable governance structure capable of replacing the current unipolar regime. In tandem with this, the great powers have set an implicit goal of achieving self-sufficiency. But it is unclear if this goal is even achievable. At some point, there is a need for a pause in the raging GEW to allow the great powers to assess the damage to the global economy. Otherwise, on the current trajectory driven by deglobalisation, definancialisation and deinformationalisation, the risks are that the geopolitical conflict could descend into a global depression or/and a world war.

There is a need to reconcile the diverging views and review power-sharing arrangements through a global reset. The global reset involves a rebalancing of power imbalances (military, economic, financial, industrial and information). The new world order should be set based on universal ideals such as peace, stability, fairness, diversity and markets in a multipolar landscape rather than by notions of ideological supremacy. Global governance and rules should be reformed to anchor economic competition and, most of all, this requires the great powers to willingly consent to generic rules and autonomous and independent dispute resolution processes.


Bruno Maçães (31 January 2023) “As Western liberalism declines, civilization states return”. Noema Magazine.

George Perkovich (12 October 2022) “Engaging China on strategic stability and mutual vulnerability”. Carnegie Endowment.

John J. Mearsheimer (Spring 2019) “Bound to fail: The rise and fall of the liberal international order”. International Security.

Paul Poast (15 June 2022) “A world of power and fear: What critics of Realism get wrong”. Foreign Affairs.

Phuah Eng Chye (5 June 2021) “Global reset – Two whales in a pond”.

Phuah Eng Chye (4 June 2022) “Theories on war and diplomacy (Part 1: Conflict theories)”.

Phuah Eng Chye (18 June 2022) “Theories on war and diplomacy (Part 2: Integrated and ambiguous warfare)”.

Phuah Eng Chye (30 July 2022) “The Great Economic War (GEW) (Part 1: The beginning)”.

Phuah Eng Chye (13 August 2022) “The Great Economic War (GEW) (Part 2: Strategic concepts and implications)”.

Phuah Eng Chye (27 August 2022) “The Great Economic War (GEW) (Part 3: The financial nuclear bomb)”.

Phuah Eng Chye (10 September 2022) “The Great Economic War (GEW) (Part 4: Battles reshaping the global monetary order)”.

Phuah Eng Chye (24 September 2022) “The Great Economic War (GEW) (Part 5: Global economic breakdown and monetary disorder)”.

Phuah Eng Chye (8 October 2022) “The Great Economic War (GEW) (Part 6: Geopolitics, monetary policy challenges and the collapsing tripod)”.

Phuah Eng Chye (22 October 2022) “The Great Economic War (GEW) (Part 7: Global depression and deglobalisation)”.

Phuah Eng Chye (5 November 2022) “The Great Economic War (GEW) (Part 8: Lawfare)”.

Phuah Eng Chye (19 November 2022) “The Great Economic War (GEW) (Part 9: The geopoliticisation of MNCs)”.

Phuah Eng Chye (3 December 2022) “The Great Economic War (GEW) (Part 10: The semiconductor technology battlefront)”.

Phuah Eng Chye (17 December 2022) “The Great Economic War (GEW) (Part 11: Differences between Cold War 1.0 and 2.0)”.

Phuah Eng Chye (31 December 2022) “The Great Economic War (GEW) (Part 12: Geopolitical Go)’.

Phuah Eng Chye (14 January 2022) “The Great Economic War (GEW) (Part 13: Mapping geopolitical alliances)”.

Renee Bowen, J. Lawrence Broz (October 2020) “Designing an international economic order: A research agenda”. National Bureau of Economic Research (NBER).

Richard N. Haass, Charles A. Kupchan (23 March 2021) “The new concert of powers: How to prevent catastrophe and promote stability in a multipolar world”. Foreign Affairs.

Robert D. Blackwill, Thomas Wright (May 2020) “The end of world order and American foreign policy”. Council on Foreign Relations (CFR).

Shashi Tharoor (2 February 2023) “Civilization states are profoundly illiberal”. Noema Magazine.

Shekhar Aiyar, Jiaqian Chen, Christian H Ebeke, Roberto Garcia-Saltos, Tryggvi Gudmundsson, Anna Ilyina, Alvar Kangur, Tansaya Kunaratskul, Sergio L. Rodriguez, Michele Ruta, Tatjana Schulze, Gabriel Soderberg, Juan P Trevino (15 January 2023) “Geo-economic fragmentation and the future of multilateralism”. International Monetary Fund (IMF) Staff Discussion Notes.

Stewart Patrick (23 January 2023) “Four contending U.S. approaches to multilateralism”. Carnegie Endowment.

Timothy R. Heath, Derek Grossman, Asha Clark (2021) “China’s quest for global primacy: An analysis of Chinese international and defense strategies to outcompete the United States”. Rand Corporation.

Urban C. Lehner (17 January 2023) “US needs new agriculture trade strategy for China”. Asia Times.

Victor Shih (17 October 2022” “How China would like to reshape international economic institutions”. Atlantic Council.

[1] See “Theories on war and diplomacy (Part 1: Conflict theories)”.

[2] See George Perkovich.

[3] Bruno Maçães and Shashi Tharoor debate issues relating to the re-emergence of civilization states and its implications for a universal liberal world order.


[5] See Renee Bowen and J. Lawrence Broz on reforms of governance institutions.

[6] See Urban C. Lehner on risks for US agriculture exports to China.

[7] See Shekhar Aiyar, et al.