Guest Contribution: “The Threat to US Global Leadership”

Today we are pleased to present a guest contribution written by Jeffrey Frankel, Harpel Professor of Capital Formation and Growth at Harvard University, and former Member of the Council of Economic Advisers, 1997-99. This is an extended version of a column that appeared in Project Syndicate.

President Barack Obama has had a series of foreign policy triumphs over the last 12 months. One of the lesser-known was the passage of legislation for reform of the IMF on December 18, 2015, after five years of obstruction by the US Congress. As the IMF convenes in Washington DC for its annual spring meetings April 15-17, we should pause to savor the importance of this achievement. One could almost say that if Americans had let yet another year go by without ratifying the IMF quota reform, they might as well have handed over the keys of global economic leadership to someone else. That would be China.

The IMF reform was an important step in updating the allocations of quotas among member countries. (Quota allocations in the IMF determine both monetary contributions of the member states and their voting power. They are supposed to be determined by economic weight.) The agreement among the IMF members was to allocate greater shares to China, India, Brazil and other emerging market countries, coming primarily at the expense of European and Persian Gulf countries. The change in IMF quotas is a partial and overdue adjustment in response to the rise of the newcomers. President Obama managed to get the leaders of the other G20 countries to agree to this reform at a 2010 summit in Seoul.

Approving the agreement should have been a “no-brainer” from the viewpoint of the United States: it was neither to pay a higher budget share nor to lose the voting weight that has always given it a unique veto power in the institution. The reform was an opportunity to exercise US global leadership. But one might have thought it was a threat to US leadership if one judged from congressional opponents who blocked passage of the legislation until last December.

If the game is a competition between China and the US for international power and influence, then some damage has already been done. China feels that its economic success merits a greater role on the world stage. If the status quo powers “move the goal posts” by denying China the place at the table of global governance that it has earned, it will look to establish its own institutions. Meanwhile, Asia has been wondering if the US is committed to the region (as its “pivot” claimed). Indeed, the rest of the world has often in recent years wondered if internal politics prevents the US from functioning at all. Asians tend to prefer to have the US engaged. China’s territorial assertions in the South China Sea confirm its neighbors worst fears. But they will look elsewhere if need be.

Thus Asian countries (and others) were happy to join a new China-led institution, the Asian Infrastructure Investment Bank. The AIIB, widely viewed as a serious diplomatic setback for the US, went into operation December 25.

The good news is that the AIIB is off to a good start, with no sign so far of the feared lowering of standards relative to other multilateral development banks (such as the World Bank). But it is even better news that the US can now get back into the game, after a string of international successes.

It has been a busy 12 months for President Obama in the international arena. Consider global achievements in four areas (in addition to the IMF reform):

  • On April 2, 2015, the United States (and five other major powers) reached a long-shot breakthrough with Iran over its nuclear program, which was then consummated in a July 14 agreement diverting Tehran from what had seemed an inexorable march to nuclear weapons. On January 16, 2016, the International Atomic Energy Agency verified that Iran had in fact completed the necessary steps under the agreement to ensure that its program remains exclusively peaceful.
  • On June 24, 2015, Congress was persuaded to give the White House Trade Promotion Authority. It allowed the administration to complete the Trans-Pacific Partnership (TPP) in October.
  • On July 20, 2015, the US and Cuba re-opened embassies in each other’s countries. Last month, on March 20, Obama because the first president to visit Cuba in 90 years. The historic event marked the end of 55 years of an attempted isolation policy that had only succeeded in giving the Castro brothers an excuse for economic failure and in handicapping American relations throughout Latin America.
  • On December 12, against all expectations, representatives of 195 parties to the UN Framework Convention on Climate Change successfully reached an agreement on global action in Paris, spurred in no small part by an earlier breakthrough between President Obama and Chinese President Xi Jin Ping. This month, on April 22, the two leaders are scheduled to sign the Paris Agreement on behalf of their respective countries, the world’s two largest emitters of greenhouse gases. The signing will encourage others to ratify.

These accomplishments are not the kind that come automatically with possession of the Oval Office. A year ago, not one of them was expected. Not only did the international political obstacles appear nearly insurmountable; the domestic obstacles looked even worse. The overwhelming conventional wisdom was that Obama would not be able to accomplish much in his remaining time in office. After all, the Republicans had succeeded in blocking almost all Obama’s proposals since they took the House of Representatives in November 2010. Why should he have any better luck after they took the Senate (in November 2014) and especially now that he was a “lame duck” as well?

The Trade Promotion Authority legislation was declared virtually dead last May. The IMF quota reform legislation was considered so moribund, the press did even consider it worth reporting on.

A lot of the opposition came from Republicans who from the start have been eager to line up on the opposite side of whatever position President Obama takes. But opposition to such internationalism comes from the far left of the political spectrum as well as the far right, and not just in the area of trade. To take the salient example of Bernie Sanders, historically he has joined with congressional Republicans in trying to block efforts to rescue emerging market countries in Latin America and Asia at times of financial crisis. (These rescues are invariably called “bailouts,” even while they cost the US nothing – the Treasury made a profit on the 1995 loan to Mexico that Sanders fought – and even while they sustain economic growth.) To take another example, New York Senator Chuck Schumer joined the Republicans in trying to block the Iran nuclear agreement, an effort that failed on September 8.

The IMF deal is done. Managing Director Christine Lagarde is doing a good job (especially compared to her three predecessors, none of whom was even able to serve out his term). She is right, for example, to tell the Germans that a solution to the Greek problem requires further debt-reduction as one of its components.

But each of the other four initiatives could still be de-railed by US politics, especially if the far left and the far right join together. Congress has yet to repeal the Cuba embargo. It could reject the TPP, in effect telling Asia it is on its own. On June 2, a federal Appeals Court will hear a challenge to the Clean Power Plan whereby the Obama Administration hopes to begin implementing its commitment under the Paris Agreement. Donald Trump and Ted Cruz both say that if elected president they would tear up the Iran nuclear deal. (What would happen then? Probably the same thing that happened when George W. Bush took office in 2001 and tore up Bill Clinton’s “framework agreement” with the North Koreans: they predictably and promptly got a bomb.)

The struggle over whether the US will lead the world continues. It is not a struggle between the US and rivals, but a struggle within American politics.

This post written by Jeffrey Frankel.

14 thoughts on “Guest Contribution: “The Threat to US Global Leadership”

  1. The Rage

    Oh please. The whole “climate breakthrough” between the US/China was over oil. Considering they are using chemtrails to try and stop AGW by blocking the sun rather than actually you know, stop using fossil fuels. The damage is done. Coal may be phased out completely, but with all these alternative oil extraction tech, they can keep the oil thing going on longer than originally thought. I am amazed how Barry uses the center left like sheep. The guy is selling business pure and simple. No different than Trump or Cruz(aka, we will start a war in the middle east for our buddies and Trumps business interest with the MIC is larger than known).

    FWIW, I don’t think putting up toxic chemtrails to stop AGW isn’t going to have repercussions either eh?

    1. PeakTrader

      Just accept fossil fuels as your inevitable fate.

      Why stress yourself?

      Be glad you’re not living in the wood and whale oil burning era.

  2. PeakTrader

    The civilized world should’ve tightened sanctions on Iran, until it got an effective agreement, unlike Clinton’s framework agreement, that makes sure there’s no Iranian progress towards a nuclear bomb.

    Only then would we free its money to cause havoc in the Middle East. We need to stop giving up and away our positions of strengths to Iran, Cuba, Syria, Russia, China, etc..

  3. Manfred

    Obama is the best. Libya is in flames, ISIS, his baby, is slaughtering folks right and left, Assad is alive and well while 500,000 Syrians are dead on the other side of Obama’s red line, the (snicker, snicker) Russian reset has worked great for the people of Crimea and Ukraine, Iran gets a path to a nuclear bomb ensuring a nuclear arms race in the Middle East and billions to finance terrorism throughout the world. Yes sir, peace in our time brought to us by the leadership of President 4-Putt. And because he is a D, we get drivel like this post telling us things would be even better if it weren’t for those nasty Rs. Ahhhhh, the vision and lies of the elite left……

  4. Thomas More

    The threat to U.S. global leadership cannot come quickly enough or grow too large to suit me. The U.S. has repeatedly led the world into sociopolitical chaos and economic ruin, and it’s long past time that America withdrew from invading the middle east in search of nonexistent WMDs or blowing up Africa with its preposterous Pentagon Africa Command in search of nonexistent terrorists or creating failed states that breed terror and chaos in formerly peaceful regions.

    America’s chief contribution to the world over the past 30 years has been globalization, which turns out to mean ever0more frequent and increasingly catastrophic boom and bust cycles combined with an exponentially increasing siphoning off of the planet’s wealth to the top 0.001%. The revelation of the Panama tax haven documents with an estimated 31 trillion of global wealthy stolen from individual nations proves emblematic of America’s economic “contribution” to the global economy.

    The sooner America collapses as an economic power and the sooner America slashes its military budget by 80% and pulls back its 750-odd bases to U.S. soil to repair our crumbling water mains and rotting sewers and rusting bridges and potholed highways, the better.

    1. PeakTrader

      The world has benefited tremendously from America’s economic and military strength. And, people want to live here.

      The U.S. provided jobs to the world’s poor, along with generous aid, and created tremendous value in the information and Biotech Revolutions.

      It’s most powerful military and leadership deterred, contained and eliminated threats to world peace in this chaotic world to protect innocent lives.

      The world would be a much worse place without America’s economic and military strengths. We need stronger leadership to further improve the lives of the world’s masses.

  5. CoRev

    Only history will tell whether these were accomplishments. The value of these efforts are already in question. Can anyone explain the purposes of these efforts, except to bolster Obama’s legacy?
    1) Expect the Iranian deal to be as bad as the Iraq arrangement.
    2) Another trade deal will lose more jobs here.
    3) The Cuba “break through” was inevitable, as was China, and should result in taking tourist trade from FLA and other states.
    4) Other than Ho Hum, the Paris Climate Accord will have ZERO effect on CLIMATE/TEMPERATURES/ACO2.

  6. PeakTrader

    An objective assessment of Obama’s performance on the economy is an F grade. Obama had a 60 vote Senate and the House in 2009-11, and we got a 21st century style depression with a huge increase in federal debt. The path not only continues, it has worsened, since mid-2014. if it weren’t for the oil production boom, smaller trade deficits (which raised GDP), and TARP paid back, we would’ve had even less economic growth with larger budget deficits. Putting the economy back on track should’ve been the top priority. However, I suspect, if Obama focused on the economy, the depression and debt would’ve been even worse.

    1. baffling

      that distinct crash in the chart was due to conservative republican leadership. imagine what gdp would be like if conservatives had not crashed the economy like we see in the chart. it is hard work cleaning up such a mess.

      1. PeakTrader

        Isn’t it a little late to blame Bush, and ridiculous to blame Republicans for everything.

        1. baffling

          if the distinct crash as seen on your graph had not occurred, we would not have to hear you blather on about an ongoing “depression”. that crash is the ongoing legacy of conservative republicans, not obama. it is ridiculous to blame obama for everything, especially the poor policies of the prior regime.

          1. PeakTrader

            Stop protecting incompetence and giving nonsense. We should’ve had a stronger recovery from the deep recession.

          2. baffling

            this was not your typical business cycle recession. your expectation for a similar type of recovery either indicates ignorance of the issue, or you are a hack.

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