The Rebalancing World

Influence can come in the form of a crisis or event but can also develop over time. The same can be said about influence’s decline. The world is entering another fascinating decade of geopolitical and economic change that will certainly rebalance the world’s influencers. International governing bodies are experiencing increasing levels of infighting and ineffectiveness. Low growth and global distrust could very likely persist for years to come.

What must we do to keep a steady footing as the world rebalances?

Rebalancing world - FACTS
  • For the 110 Chinese companies in the Fortune 500, 80% of their revenue is earned domestically.5
     
  • In Germany, an estimated one in three companies has major Chinese customers, and around 80% rely on Chinese suppliers – significant exposure in the event of Chinese disruption.73
     
  • As China’s middle class grows, more consumers will travel abroad, creating even more global dependencies on China for one of the world’s largest sectors: tourism. 

Fracturing international governance

  • 1941 Atlantic Charter establishes postwar vision
  • 1945 United Nations is founded
  • 1947 Global Agreement on Tariffs and Trade (GATT) is signed; precedes WTO
  • 1947 International Monetary Fund (IMF) begins operations
  • 1948 World Health Organization (WHO) is created
  • 1993 European Union established
  • 1995 World Trade Organization (WTO) is founded
  • 2001 China joins WTO
  • 2016 U.K. holds Brexit referendum
  • 2018 U.S. imposes tariffs outside WTO, primarily on China
  • 2020 United States-Mexico-Canada Agreement replaces NAFTA

Current events

From the WTO to trade wars. Until recently, Western governments still had some measure of faith in international governance models to address concerns about global trade dynamics, including China's dealings in the global economy. The WTO is a prime example of this recent trust. The Obama administation was not shy about filing cases against China with the WTO, prevailing in several of them. But multilateral and unilateral pressure on China has become the new norm — leveraging mechanisms outside these structures, especially in the U.S.-China trade war. This dispute and others are evidence that the WTO's most active participant had renounced its allegiance to the trade policy on which the globalized economy was built and instead is focusing on bilateral trade agreements. 

From globalism to nationalism and populism. Nationalist and populist movements have gripped the world. Reasons vary for the rise of these movements: anti-immigration sentiment, job displacement, growing wealth disparities. But the underlying message — from Brexit in the U.K. to Modi's leadership in India and Trump's support in the U.S. — is a growing distrust that slow-moving, bureaucratic international organizations can deliver the national and international prosperity they promise. The Edelman Trust Barometer confirmed this reality, showing that populations globally have lower levels of trust, not only in governments and businesses, but also in nongovernment organizations. 

From international accord to stalemates. The United Nations model for international governance is being viewed as ineffective. The General Assembly is deeply in need of structural reforms, but the rift between developing and developed nations — and among permanent members — has led to stalemates. The U.N.'s consensus-based General Assembly, councils and organs continue in the unfortunate state described in the early 2000s by Secretary-General Kofi Annan: passing resolutions that reflect "the lowest common demoninator" of opinions. The organization continues to lack clear objectives, spreading focus too thin among too many programs, resulting in ineffectiveness.

This observation is not to say these international alliances will completely disappear. Even with the U.S. stance against NATO member states under the Trump administration, there is a grudging realization among all parties that, although not perfect, NATO serves all members' interests more by enduring than not. 

Future expectations

While international organizations are unlikely to disappear in the next five years, several developments may define foreign policy for decades, including: 

  1. A growing state of global power imbalance 
  2. Lack of coordination in global crisis response 
  3. China's deepening engagement with international organizations 
  4. The strengthening of regional partnerships 

The world is returning to a state of power imbalance among countries. The United Nations and WTO historically provided a voice and a platform for countries lacking economic or political strength. But the inability of these bodies to reach consensus or enforce actions against member states will leave them lacking power. Regional powers will once again assert influence in the world as unilateral decisions are made and agreements are renegotiated.

As these organizations weaken, global cooperation may continue to decline, and coordinated responses to crises could be very limited. Even so, there will likely be a reawakening to the benefits of such organizations as nations walk through crises alone. As with NATO members, many countries will be forced to acknowledge the role international organizations play (such as the WHO in the COVID-19 crisis) and revitalize their support for their existence. In the interim – at least the next five years – companies may be strained in global crises as national governments negotiate directly with them rather than through a central global organization.

China will by no means sit on the sidelines of international organizations. As Western countries withdraw from international agreements, China will step in to fill voids that serve the country’s strategic interests. Both China and Russia, for example, are incredibly vocal on the U.N. Working Group on International Governance, which discusses the future of the global internet – something these nations would like to see regulated and facilitated by each country rather than maintained open-source to the world.

While there will not be a move toward regional blocks that isolate from the rest of the world, regional partnerships will strengthen in the years to come. The threads of global trade are too tightly interwoven to completely tear them apart. However, as international organizations and agreements weaken, regional structures will step in to maintain cross-border efficiencies that have led to economic and supply-chain stability in previous decades.