08 September 2023

Democratic societies today are on the cusp of partially retreating from what some analysts describe as an era of hyper-globalisation because of national security considerations but also because of its apparent consequences for communities marginalised by the logic of open international markets. But there are many open questions about what could replace the liberal trading order and most answers are unsatisfactory as the open trading system has been so important to global economic growth. Undoubtedly, some form of attenuated economic globalisation will persist, but in the absence of a strong agreement among key powers about the rules of the game, the stability and sustainability of the rules-based international economic order may prove increasingly difficult to maintain. As a result, globalisation will likely become less comprehensive than it was during its heyday, but it will remain a central feature of Allied economies over the coming decades, even as security calculations begin to feed into the architecture of the international trade and financial order.

Europe and the United States are undertaking a fundamental reappraisal of the international trading order, industrial policy and best practice for fostering technological advances in the energy, digital, defence and other critical sectors. Many of the assumptions that once shaped the liberal international trading and financial order no longer adequately capture the new realities of strategic economic competition, climate change, national security, and energy requirements. These factors are altering borders between states and markets, although the impacts vary considerably because of different economic conditions, traditions, and politics.

China’s increasingly aggressive posture and its unambiguous efforts to leverage its economy for geostrategic gain has unsettled the West. Likewise, Russia’s war on Ukraine and its proclivity to exercise energy market power to pursue imperial ambitions is at odds with Western security interests. This has raised more questions about persistent vulnerabilities in the open international economic order. These developments as well as the COVID-19 pandemic have not only contributed to the greatest supply chain crisis in decades but have also exposed serious inadequacies embedded in the liberal international order.

Even though trade and finance in Europe and North America are and will remain powerfully conditioned by the changing character of globalisation, including the growing importance of regional trading blocs, sustained efforts will be needed to deepen trade and financial relations across the Atlantic. There are powerful strategic and economic justifications for doing so, and these have never been as apparent as they are today. But reinforcing this essential economic relationship will demand sustained political and economic leadership and the active engagement of industry and civil society. Important opportunities exist for creative statecraft to find ways to tighten these bonds at a moment when malign actors seem dedicated to unwinding them.  

Read also