Globalization Splitting Into Three Blocs

For all the hype that has made it the defining buzzword of our times, globalization seems to be faltering. Federal Reserve Chairman Alan Greenspan admitted as much last week when he said that the “ability to move forward on various trade initiatives has clearly come to a remarkable stall.” Instead, there is a contrary and more troubling trend. The world is drifting slowly but steadily toward three separate economic and currency zones: the dollar, the euro and the yen-renminbi. If this regional fragmentation continues in the absence of a larger global framework of liberalizing trade, U.S. global interests may be harmed.

Trade liberalization is often compared to riding a bicycle: You either move forward or fall off. When Bill Clinton, after pandering to myopic special interests in the Democratic Party, became the first president to lose his authority to negotiate trade agreements on a “fast track,” global trade liberalization ground to a halt. Under fast tack, Congress can only approve or reject agreements. But when it retained the ability to rewrite any pact Clinton signs, Congress removed presidential authority to reach new trade agreements. As a result, since the North American Free Trade Agreement in 1993, there has been no expansion of free trade in the Americas. Nor is there any new global trade round in sight.

In the absence of global trade regimes keeping pace with a dynamic globalizing private sector, regional and even subregional trade agreements are filling the vacuum. The European Union, for example, deepened its integration when it adopted the euro as its common currency. Furthermore, it’s contemplating adding Turkey and the new democracies in Central Europe to the family.

In Latin America, there are Andean pacts and Mercosur in the Southern cone, which Mexico’s President-elect Vicente Fox is considering joining. In Asia, ASEAN’s Free Trade Area, the Australia-New Zealand free-trade arrangement, new efforts by Singapore to expand its bilateral pacts with Japan and Korea, and a pan-Asian grouping that dreams of becoming an Asian version of the EU are all evolving. Given that Asia represents 25%--and growing--of the world economy, if regional integration occurs at the expense of, rather than as part of, global integration, it could impart a regional bias to the larger system of international relations.

In a recent essay in the Economist, C. Fred Bergsten, director of the Institute for International Economics, worried about the “Asians-only” grouping known as ASEAN+3--the 10-member Assn. of Southeast Asian Nations, plus China, Japan and South Korea. Bergsten blamed the regionalization trend on the 1997-98 Asian financial crisis and the failure to build the Asian Pacific Economic Cooperation group into a functioning institution since its inception in 1989. Asians, delinking their currencies from the dollar, are moving, albeit incrementally, toward an Asian Monetary Fund and perhaps regional trade arrangements modeled on the EU. Already, more than half of Asian trade consists of commerce among Asians.

It would be an exaggeration, not to say premature, to draw analogies between these developments and the breakdown of the global trading system in the 1920s that played a role in ushering in the Depression and spurring World War II. U.S. transatlantic and transpacific trade and investment remain substantial. Europeans are baffled about how to create a fully integrated Europe and still play no unified political or military role separate from those scripted by transatlantic institutions. Latin nations are increasingly considering dollarization and generally prefer Ronald Reagan’s vision of free trade from Alaska to Antarctica. And Asian machinations are barely embryonic. The last thing China wants is a yen zone, and creating a yen-renminbi basket of currencies would be problematic, at best.

Once again, we have a “Pogo” problem, after the cartoon character who exclaimed, “We have met the enemy, and he is us.” A world of three economic and currency blocs could be a harbinger of a world of new antagonisms, with lines being drawn across the Atlantic and the Pacific. The cheese and beef wars with the EU may be just the beginning.

Nor will consequences remain solely economic. Political calculations may increasingly be made on a regional basis. Already, the trend toward regional fragmentation appears a move to counterbalance what is perceived as U.S. arrogance, unreliability and abuse of power. Transatlantic and transpacific cooperation on global problems would likely become still more difficult. U.S. influence outside the Western Hemisphere may be sharply diminished over time.

But such a world is not inevitable. The missing ingredient is U.S. leadership. The Clintonian approach to multilateralism has aped the Woody Allen quip that “90% of life is just showing up.” Rather than project a vision of a post-Cold War order, Clinton representatives show up for such meetings as the G-7 and call it “engagement.” New initiatives, particularly ASEAN+3, are in part a reaction against this masquerade.

The next president must recognize that the U.S. will not forever be the single superpower. Over the coming decades, the world will become multipolar.

The United States can either go with the flow of history--one unlikely to unfold smoothly or conflict-free--or take advantage of its current predominance to help reshape global economic, financial and political institutions so they reflect contemporary trends and realities and safeguard U.S. interests. This is precisely what U.S. leadership accomplished in the aftermath of WWII. A world of three economic blocs might not be a replay of the 1930s, but it would likely set the stage for new confrontations. *