Originally published at The New York Times.
As world leaders converge here for their semiannual trek to the capital of what is still the world’s most powerful economy, concern is rising in many quarters that the United States is retreating from global economic leadership just when it is needed most.
The spring meetings of the International Monetary Fund and World Bank have filled Washington with motorcades and traffic jams and loaded the schedules of President Obama and Treasury Secretary Jacob J. Lew. But they have also highlighted what some in Washington and around the world see as a United States government so bitterly divided that it is on the verge of ceding the global economic stage it built at the end of World War II and has largely directed ever since.
“It’s almost handing over legitimacy to the rising powers,” Arvind Subramanian, the chief economic adviser to the government of India, said of the United States in an interview on Friday. “People can’t be too public about these things, but I would argue this is the single most important issue of these spring meetings.”
Other officials attending the meetings this week, speaking on the condition of anonymity, agreed that the role of the United States around the world was at the top of their concerns.
Washington’s retreat is not so much by intent, Mr. Subramanian said, but a result of dysfunction and a lack of resources to project economic power the way it once did. Because of tight budgets and competing financial demands, the United States is less able to maintain its economic power, and because of political infighting, it has been unable to formally share it either.
Experts say that is giving rise to a more chaotic global shift, especially toward China, which even Obama administration officials worry is extending its economic influence in Asia and elsewhere without following the higher standards for environmental protection, worker rights and business transparency that have become the norms among Western institutions.
President Obama, while trying to hold the stage, clearly recognizes the challenge. Pitching his efforts to secure a major trade accord with 11 other Pacific nations, he told reporters on Friday: “The fastest-growing markets, the most populous markers, are going to be in Asia, and if we do not help to shape the rules so that our businesses and our workers can compete in those markets, then China will set up the rules that advantage Chinese workers and Chinese businesses.”
In an interview on Friday, Mr. Lew, while conceding the growing unease, hotly contested the notion of any diminution of the American position.
“There is always a lot of noise in Washington; I’m not going to pretend this is an exception,” he said. “But the United States’ voice is heard quite clearly in gatherings like this.”
Nonetheless, the challenges keep mounting.
An overhaul of the I.M.F.’s governance structure, negotiated five years ago in large part by President Obama to give China and other emerging powers more authority commensurate with their growing economic strength, has languished in Congress. That, in part, propelled China to create its own multilateral lending institution in direct competition with the behemoths in Washington.
The efforts to secure an ambitious 12-nation Pacific trade agreement, championed by Mr. Obama and recently backed by a handful of key lawmakers, has set off perhaps the biggest fight of his presidency within his own party, with trade unions, environmentalists and liberal activists lining up in opposition to the White House. There is a strong possibility that Mr. Obama could lose the battle.
Even the United States’ Export-Import Bank, a lending agency similar to export financing arms in countries around the world, could be killed in June by conservatives in Congress, leaving would-be foreign customers in the cold and many American exporters at a disadvantage to competitors abroad.
“I’ve been searching for a word to describe it, and the one I use is ‘withdrawal,’ best I can come up with,” said Edwin M. Truman, a former Obama Treasury official now with the Peterson Institute for International Economics. “We’re withdrawing from the central place we held on the international stage.”
In Washington, that concern crosses party lines.
“This is really about a crossroads for America and its leadership for the world,” said Representative Dave G. Reichert, Republican of Washington. “We set the tone, we set the path for the global economy by being leaders. And if we don’t, other countries step in.”
The costs could be real. Failure to bolster the I.M.F. and other institutions weakens the West’s hand in confrontations like the one with Russia over Ukraine, which has begged for multilateral economic assistance. Senator Lindsey Graham, Republican of South Carolina, pointed to conflicts like the one in Syria, suggesting that fears the I.M.F. and World Bank will be unable to help rebuild the shattered country only opens the door to confrontational actors like Iran.
“Sometimes we can only hope it’s China that steps in,” he said.
But China’s rising sway in Africa, South Asia, and even Latin America could blunt efforts by the United States and its allies on a range of issues, from stemming violent extremism to slowing climate change.
For much of Washington and the world’s economic leaders, China’s creation of the Asian Infrastructure Investment Bank crystallized the choice policy makers face. Earlier this month, Lawrence Summers, who was a top economic adviser for both President Bill Clinton and Mr. Obama, declared that China’s establishment of a new economic institution and Washington’s failure to keep its allies from joining it signaled “the moment the United States lost its role as the underwriter of the global economic system.”
For years, China had threatened to establish institutions to rival those dominated by the West, like the I.M.F., World Bank and Asian Development Bank — or even to establish its currency, the renminbi, as a reserve currency to rival the dollar.
In 2010, Mr. Obama brokered a deal to raise China’s stake in the I.M.F. to 6 percent from 3.8 percent, still far below the United States’ vetoing share of 16.5 percent but enough to give Beijing a larger say. Congress has blocked the proposed adjustment.
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Meantime, China’s international lending has soared. Fred P. Hochberg, who heads the Export-Import Bank, said that in the last two years alone, Chinese state-run lenders have lent $670 billion. Ex-Im has lent $590 billion since it was created during the Depression of the 1930s.
With nearly $4 trillion in foreign exchange reserves, China has plenty of resources to project its rising economic power. For example, China’s president, Xi Jinping, plans to offer $46 billion to Pakistan for infrastructure assistance that would open new transportation routes across Asia and challenge the United States as the dominant power in the region.
“The United States has lost its way and is rapidly forfeiting claims to global financial, economic, political and moral leadership,” Kevin Rafferty, a former World Bank official, wrote recently in two leading English-language newspapers in Asia. He blamed the White House: “Not for the first time, Obama has shown he can talk eloquently, but does not have a political clue how to get things done.”
Other experts and historians, however, say too much can be made of the moment. Walter Russell Mead, a professor of foreign affairs at Bard College, noted that the rise of China as an economic force was inevitable, and that its establishment of a rival lending institution was far different from the international behavior of the Soviet Union and communist Chinese during the Cold War.
Then, he said, America’s rivals were trying to destroy and replace the economic order established by the United States and Britain after World War II. Now, emerging powers are emulating it, however imperfectly.
Whatever the ultimate consequences, there is plenty of finger-pointing going on. Senator Bob Corker of Tennessee, chairman of the Foreign Relations Committee and a potential ally on international economics, echoed Mr. Rafferty. In an interview, he said he included the I.M.F. quota adjustment in an aid package last year to beleaguered Ukraine, but Mr. Obama, he insisted, did not personally intervene to push it through.
He fretted that new legislation granting the president “fast track” trade-promotion authority to complete major trade deals with Asia and Europe would stall without enough White House attention.
“I was in Southeast Asia in August, and the countries there know there’s no real capital being expended, and they’re worried,” Mr. Corker said, his voice rising in frustration. “They just cannot pull themselves together to push for something.”
Administration officials disputed the charge.
“I can tell you I have spent dozens if not hundreds of hours talking to central bankers and finance ministers,” Mr. Lew said. “They understand we are sparing no expense.”
The leader of the opposition both to the I.M.F. reforms and the Export-Import Bank has been Representative Jeb Hensarling of Texas, the chairman of the House Financial Services Committee, backed by the Tea Party wing of the Republican Party.
The opposition to international trade alliances, on the other hand, is being led loudly by Democrats who had previously been the president’s most stalwart backers, with an assist from ardent conservatives who oppose anything Mr. Obama does.
Senator Tim Kaine, Democrat of Virginia and an emerging internationalist advocate, suggested that two decades of war were turning elements of both parties inward.
“The network of international rules and institutions is a peculiarly U.S. creation” that has helped foster peace and prosperity for decades, he said. “The U.S. has built this up, not only for our own benefit but for the world. That we are now stepping back from a leadership role is highly, highly problematic.”
Read more at The New York Times.
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