What Janet Yellen Gets Right About the World Economic Order


Treasury Secretary Janet Yellen speaks at an event in Washington April 13.


Al Drago/Bloomberg News

The war in Ukraine “has redrawn the contours of the outlook for the world economy,” Treasury Secretary Janet Yellen said in an April 13 speech. She cited the precedent of the 1944 Bretton Woods meeting that designed the current post-World War II economic system.

The Biden administration tends to place undue reliance on multilateral solutions to global problems, but Yellen has proposed a clear and groundbreaking idea officials should seriously consider: a new trade architecture “on terms that work better for American workers.” “. She particularly called on China to support Russia, stating that the new system should be organized by “countries that we know we can count on.”

Given China’s failure to abide by the trade rules it agreed to when it joined the World Trade Organization in 2001, combined with China’s support for Russian aggression and Xi Jinping’s determination to establish economic independence and global dominance, trade reform should be aimed at a work towards a new system that excludes China. What should this new architecture look like and can the WTO help shape the new order?

The unfortunate reality is that the WTO remains paralyzed by longstanding differences. For four years, the US, European Union and Japan have tried to devise better subsidy rules to discipline Chinese practices, but Beijing and other state-dominated economies can easily block any significant improvement, as major changes in most areas require full consensus .

In addition, the pandemic fueled calls from countries like India and South Africa to weaken intellectual property protections, which the Biden administration appears to support in some language. India is at best a selective supporter of WTO rules, mostly tolerating those that allow it economic autonomy and protectionist tariffs.

The Ukraine war has intensified North-South antagonisms in intergovernmental organizations. Brazil, India, Indonesia, Mexico, Vietnam and many African nations abstained in a United Nations General Assembly vote to exclude Russia from the Human Rights Council, fearing a backlash from Russia and China for siding with the West .

As Ms. Yellen suggests, the best way forward for a new trade architecture begins with “plurilateral trade deals” between American allies. A first step would be for the US to rejoin what began as the Trans-Pacific Partnership. This deal was designed by the Obama administration and has good rules on subsidies and digital trade, the latter an area Ms Yellen specifically mentioned. The bipartisan opposition in the 2016 presidential campaign doomed US membership of the TPP. The eleven members of the successor agreement include US allies Japan, Australia, Canada and emerging economic powerhouses in Southeast Asia such as Vietnam and Malaysia, which are at risk of being incorporated into a Chinese-led economic order. With some work done on rules banning imports of products made with parts largely sourced from China, the US should rejoin this partnership and help recruit other countries, notably Indonesia and tech powerhouses South Korea and Taiwan .

Another early goal of a revised trade framework should be a free trade agreement with the UK. A more ambitious variant could be such a deal between the “Five Eyes” group – the US, UK, Australia, Canada and New Zealand – or even work to include these traditional allies in the US-Mexico-Canada deal. Such an initiative would create a zone for what Ms Yellen calls “friend-shoring”. As the US seeks to build more resilient supply chains, Canada’s and Australia’s mineral resources and UK’s specialized technology could be key. These resources would allow the US not to rely solely on subsidized domestic production of rare earth metals, green technologies, or semiconductors.

A goal worth striving for in the USA should be a free trade agreement with the EU. But until the EU decides it must choose decisively between the US and China and reconsider its ambitions to become an independent technological and regulatory superpower, such a transatlantic deal is out of the question.

World business leaders gathering in Washington this week for the annual meeting of the International Monetary Fund and World Bank should focus on the opportunity presented by widespread condemnation of the Russo-Chinese entente and begin to consider a revised trade regime to pull. Some of Ms Yellen’s other ideas, notably increasing funding and modernizing governance for the IMF and World Bank, risk growing Chinese influence. Governance reform implies – and China will insist – that China’s voting power is commensurate with its share of the world economy. On the other hand, the experiences with Chinese influence at the World Health Organization should speak. The interests of America and its democratic allies would be better served by a new economic order without Chinese involvement.

Mr. Duesterberg is a senior fellow at the Hudson Institute. From 1989 to 1993 he was Deputy Secretary of Commerce.

Journal Editor’s Report: The best and worst of the week from Kim Strassel, Jillian Melchior and Holman Jenkins. Images: Reuters/Getty Images/AP Composite: Mark Kelly

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Appeared in the print edition on April 21, 2022. What Janet Yellen Gets Right About the World Economic Order

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