On Tuesday, Christine Lagarde, the managing director of the International Monetary Fund (IMF), gave a speech to the business community at the United States Chamber of Commerce, propelling the idea that in this interconnected era of globalization, “standing up (only) for American enterprise” like the chamber pledges to do may not be enough.
Nobody should doubt the importance of the role the U.S. plays in the global economy. For instance, America accounts for 11% of global trade, makes up of 20% of global manufacturing value added, and holds about $3 trillion of foreign financial claims. Most recently, when the Federal Reserve decided to continue with its domestic monetary stimulus, a wave of relief swept across the markets of Asia, Europe, and Africa almost instantaneously.
The direction of influence is two-way: Many countries in the developed world, the United States included , were nudged along the path toward recovery thanks to the performance of the emerging markets during the early 2010s, as a report done by the IMF found.
Indeed, as Lagarde succinctly asserted, “a strong U.S. economy and a strong global economy are two sides of the same coin." Acknowledging the risks of deeper interconnectedness, Lagarde still called for further globalization, as the global gain and spillovers from multilateral economic engagement are substantial. However, is free trade really the magic bullet for all economies under this system of global governance?
First of all, it is important to note that the opponents have a point when they say that only the rich is in the position to reap the benefits of free trade. For example, the European Union Free Trade Agreements that are being negotiated ran into serious protests in Thailand, where activists feared that the inclusion of intellectual property rights that go beyond WTO’s obligations would only benefit multinational (a.k.a American and European) pharmaceuticals, while barring Thai consumers from cheap generic medicines.
Secondly, multilateral cooperation for mutual benefits is still far from being the reality of the global economy today. Surprisingly, America the Preacher of Free Trade is not a very religious follower of the practice. Billion of dollars' worth of agricultural subsidies lead to overproduction and chronic dumping on the global food market, hurting what is still the main sector of many low-income countries. Yet free trade is more readily embraced when it comes to tobacco, a product that should have been under stricter regulations because it is “uniquely dangerous." In this case, American stakeholders of the tobacco industry have successfully softened the barriers of entry to foreign markets through the Trans-Pacific Partnership — a proposed trade agreement among the United States, Canada, Mexico, Japan, Australia, South Korea, Vietnam and five other countries — making policymakers turn a blind eye toward the adverse health effects tobacco has on consumers. Truly, free trade should be viewed more as a political tool than an economic concept.
Lagarde devoted the last section of her speech to glorifying the role of the International Monetary Fund (IMF) in the global recovery. However, the story of global governance is more complicated than it seems. Like most other global governing bodies, the IMF is ruled by the “one dollar, one vote” system, giving rich countries a bigger say in the decision-making process than the lower-income ones.
Lagarde concluded her speech with a request for the Chamber of Commerce to help the IMF be a true representative of all countries in the world. But will the chamber extend its helping hand when one of the things the IMF asks is for the U.S. to give greater global governing power to emerging economies? For now, it seems that the solutions that we need to "secure a lasting, balanced, and widely shared" economic prosperity that Lagarde talked about are yet to be found.