In an era of great power rivalry and escalating tensions between the United States and China, how should global economic policymakers approach governance to foster greater cooperation, reduce conflict, and promote equity and shared prosperity? Tread lightly, says Harvard Kennedy School Professor Dani Rodrik. In a new paper in the Journal of Government and Economics titled "How to smooth U.S.-China economic relations for the benefit of the global economy: A light model of global economic governance," Rodrik argues for a less-is-more approach that emphasizes transparency and restricts trade rules to those that are truly necessary. Recent history, he writes, has shown that heavy-handed, one-size-fits-all global economic governance has disadvantaged developing countries and empowered nativist, populist politicians in regions that suffered job losses due to globalization. Rodrik is the Ford Foundation Professor of International Political Economy and co-director of the Reimagining the Economy project at HKS 


Q: In your paper, you argue for a “light” model of global economic governance to smooth U.S.-China economic relations and benefit the global economy. What measures does a light economic governance model include and what does it exclude? 

The basic distinction is between addressing the most egregious policy barriers at the border—especially beggar-thy-neighbor policies—versus a more ambitious agenda of trying to remove all obstacles to the flow of trade and finance even if these encompass domestic regulations. My colleague Robert Lawrence has called this the difference between “shallow integration” and “deep integration.” So countries might negotiate over import tariffs or export restrictions, but industrial policies or financial regulations, for example, would remain largely outside the remit of global rules or trade agreements.


Q: What evidence is there that more intensive global governance and trade rules—a “heavy” or “deep integration” model—have been unnecessary or counter-productive? 

The deep integration model had two undesirable side effects. First, it made it harder for developing countries to engage in industrial policies or other structural policies to diversify and upgrade their economies and to shelter themselves from the destabilizing effects of short-term capital flows, because of real (or self-imposed) constraints on their policy autonomy. It was countries such as China who disregarded such constraints and made full use of industrial policies and capital controls that performed the best. Others who followed the deep integration model and relied on trade agreements and openness to foreign capital as their sole growth strategy, such as Mexico, did quite poorly. 

Second, it prevented policy makers in advanced economies from taking seriously and addressing the adverse labor market effects of growing imports from China and elsewhere. During the 1970s and 1980s, before globalization got supercharged, it was common for countries to put up informal trade barriers—typically “voluntary” export restrictions administered by exporting countries—which limited the shock. These were safety valves for the trade system, and even though economists complained about “protectionism,” such measures did the job of regime maintenance (in the words of our late colleague John Ruggie). After the 1990s, policymakers’ response to these dislocations was to shrug their shoulders and tell the losers this is how globalization worked and there was nothing to be done. This was one of the key failings of mainstream politicians, which in turn empowered the populists. We have plenty of evidence now that regions that lost jobs to imports from China or Mexico became the breeding grounds for the nativist populists.

Dani Rodrik headshot.

“The future of the global economic order depends first and foremost on how the bilateral relationship between the U.S. and China will evolve.”

Dani Rodrik


Q: One of the main building blocks of the light governance model is what you call a “transparency-enhancing process for policymaking.” What is that process and why is increased transparency important? 

In an interdependent global economy, it is inevitable that many policies that target national economic well-being as well as domestic social and environmental priorities will have some undesirable side effects on other nations. This is the case, for example, when nations engage in policies to fix important market failures or address national security concerns. Often such policies are needed and legitimate, and trade partners have to be permissive and understanding. Such policies have to be distinguished from those that are explicitly beggar-thy-neighbor—that is, policies that generate benefits at home because of the harms they produce for other nations.  

If we are going to live in a world where national policymakers have greater autonomy to address domestic priorities, as I think we have to, it will be important for them to communicate their motivations both to their domestic audiences and to other governments. This is to build trust and mutual understanding. For example, when the United States imposes export controls on “sensitive technologies” or imposes restrictions on Chinese investments on U.S. soil on the basis of national security, we need much better explanation on (a) what the national security objective really is, and (b) how the export or investment in question undermines the objective. Otherwise, national security can turn into a blanket justification for all kinds of policies that either do not really address national security or (as in the case of the U.S.) take too expansive view of it.


Q: How would a light governance model smooth U.S.-China relations? And how would it work in the context of the current slowdown in what had been China’s robust growth over the last three decades? 

It would be a good first step if each side were to give up on hypocrisy and recognize the similarity of their approaches. The United States continues to criticize China for allegedly pursuing mercantilist and protectionist policies and violating the norms of a “liberal” international order. For their part, Chinese policymakers accuse the United States of turning its back on globalization and waging economic warfare on China. Neither side seems to be aware of the irony that the United States has taken a page from the Chinese playbook, while U.S. departures from the “liberal order” are readily recognizable to Chinese policy makers from their own practices.   


Q: How would a light economic governance model achieve an overall global economic benefit? 

The future of the global economic order depends first and foremost on how the bilateral relationship between the United States and China will evolve. So anything that smooths this critical relationship would be very good news for the world economy. Second, as these two powers build a certain degree of trust and understanding, this would also contribute to an environment where they play a positive role in providing critical global public goods (such as decarbonizing the world economy and global public health).    

Photograph by STR/AFP/Getty Images

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