Summary

• Multilateralism may, in theory, put countries on an equal economic footing. But in practice the concept has often relied on an anchor government to create and preserve global norms. Under the presidency of Donald Trump, the US has accelerated its move away from leadership in global economic governance. This shift threatens the monetary and trading systems that have long underpinned globalization. Does the global economy need – and can it find – another leader to take America’s place?
• In the monetary sphere, the US role in providing an internationalized currency has endured relatively well, even though the US’s formal anchoring of the global exchange rate system collapsed nearly half a century ago. Governance of the US dollar and of the dollar-based financial system has largely been left to competent technocrats.
• Recent US political uncertainty has encouraged other governments, particularly in the eurozone and China, in their long-standing quest to supplant the dollar. But these economies’ internal weaknesses have prevented their respective currencies from playing a wider role. Arguments for a multipolar system exist, yet network effects plus the dollar’s superior institutions mean it has retained its dominance.
• In trade, the US role as anchor of the global legal order was already looking unreliable before Trump’s election. Washington has faced growing resistance at home to its global responsibilities. This, together with the idiosyncratic rise of countries such as China, has made the US an increasingly unreliable and narrowly transactional leader.
• More recently, hard-to-regulate issues such as foreign direct investment, technology transfer and data flows, often with national security implications, are increasingly undermining the ideal of multilateral global governance. Institutions such as the World Trade Organization, focused on cross-border trade in goods and services, are becoming less relevant.
• Recent US actions against the Chinese technology firm Huawei show the Trump administration’s willingness to decouple the US market from China and try to drag other economies with it. As far as possible, other governments should resist taking sides. A complete separation of the global economy into rival spheres is probably unfeasible, and certainly highly undesirable.
• Although future US administrations may be less wantonly destructive, it is not realistic to expect them to resume America’s former role. Nor can the US simply be replaced with another power. Instead, coalitions of governments with interests in international rules-based orders will need to form. These coalitions will need to show due deference to issues like investment and national security, especially where attempts to bind governments by multilateral rules are likely to provoke a severe backlash from domestic constituencies.

With the IMF forecasting a 6.1% fall in advanced economy GDP in 2020 and world trade expected to contract by 11%, there is intense focus on the question of how and when to re-open economies currently in lockdown.

But no ‘opening up’ plan has a chance of succeeding unless it commands the confidence of all the main actors in the economy – employees, consumers, firms, investors and local authorities.

Without public confidence, these groups may follow official guidance only sporadically; consumers will preserve cash rather than spend it on goods and services; employees will delay returning to work wherever possible; businesses will face worsening bottlenecks as some parts of the economy open up while key suppliers remain closed; and firms will continue to delay many discretionary investment and hiring decisions.

Achieving public confidence

Taken together, these behaviours would substantially reduce the chances of a strong economic bounce-back even in the absence of a widespread second wave of infections. Five key steps are needed to achieve a high degree of public confidence in any reopening plan.

First, enough progress must be made in suppressing the virus and in building public health capacity so the public can be confident any new outbreak will be contained without reverting to another full-scale lockdown. Moreover, the general public needs to feel that the treatment capacity of the health system is at a level where the risk to life if someone does fall ill with the virus is at an acceptably low level.

Achieving this requires the government to demonstrate the necessary capabilities - testing, contact tracing, quarantine facilities, supplies of face masks and other forms of PPE (personal protective equipment) - are actually in place and can be sustained, rather than relying on future commitments. It also needs to be clear on the role to be played going forward by handwashing and other personal hygiene measures.

Second, the authorities need to set out clear priorities on which parts of the economy are to open first and why. This needs to take account of both supply side and demand side factors, such as the importance of a particular sector to delivering essential supplies, a sector’s ability to put in place effective protocols to protect its employees and customers, and its importance to the functioning of other parts of the economy. There is little point in opening a car assembly plant unless its SME suppliers are able to deliver the required parts.

Detailed planning of the phasing of specific relaxation measures is essential, as is close cooperation between business and the authorities. The government also needs to establish a centralised coordination function capable of dealing quickly with any unexpected supply chain glitches. And it must pay close attention to feedback from health experts on how the process of re-opening the economy sector-by-sector is affecting the rate of infection.  

Third, the government needs to state how the current financial and economic support measures for the economy will evolve as the re-opening process continues. It is critical to avoid removing support measures too soon, and some key measures may have to continue to operate even as firms restart their operations. It is important to show how - over time - the measures will evolve from a ‘life support’ system for businesses and individuals into a more conventional economic stimulus.

This transition strategy could initially be signalled through broad principles, but the government needs to follow through quickly by detailing specific measures. The transition strategy must target sectors where most damage has been done, including the SME sector in general and specific areas such as transport, leisure and retail. It needs to factor in the hard truth that some businesses will be no longer be viable after the crisis and set out how the government is going to support employees and entrepreneurs who suffer as a result.

The government must also explain how it intends to learn the lessons and capture the upsides from the crisis by building a more resilient economy over the longer term. Most importantly, it has to demonstrate continued commitment to tackling climate change – which is at least as big a threat to mankind’s future as pandemics.

Fourth, the authorities should explain how they plan to manage controls on movement of people across borders to minimise the risk of new infection outbreaks, but also to help sustain the opening-up measures. This needs to take account of the fact that different countries are at different stages in the progress of the pandemic and may have different strategies and trade-offs on the risks they are willing to take as they open up.

As a minimum, an effective border plan requires close cooperation with near neighbours as these are likely to be the most important economic counterparts for many countries. But ideally each country’s plan should be part of a wider global opening-up strategy coordinated by the G20. In the absence of a reliable antibody test, border control measures will have to rely on a combination of imperfect testing, quarantine, and new, shared data requirements for incoming and departing passengers.  

Fifth, the authorities must communicate the steps effectively to the public, in a manner that shows not only that this is a well thought-through plan, but also does not hide the extent of the uncertainties, or the likelihood that rapid modifications may be needed as the plan is implemented. In designing the communications, the authorities should develop specific measures to enable the public to track progress.

Such measures are vital to sustaining business, consumer and employee confidence. While some smaller advanced economies appear close to completing these steps, for many others there is still a long way to go. Waiting until they are achieved means higher economic costs in the short-term. But, in the long-term, they will deliver real net benefits.

Authorities are more likely to sustain these measures because key economic actors will actually follow the guidance given. Also, by instilling confidence, the plan will bring forward the consumer and business decision-making crucial to a strong recovery. In contrast, moving ahead without proper preparation risks turning an already severe economic recession into something much worse.

The Egyptian military accounts for far less of the national economy than is commonly believed but transformations in its role and scope since 2013 have turned it into an autonomous economic actor that can reshape markets and influence government policy and investment strategies. Will the military economy contract to its former enclave status if Egypt achieves successful economic growth or has it acquired a permanent stake that it will defend or even expand?

This roundtable will mark the London launch of a Carnegie Middle East Center report on Egypt’s military economy. The report author, Yezid Sayigh, will begin the discussion with remarks on Egypt’s military economy model and offer thoughts on how external actors can engage the country’s formal and informal networks. David Butter will serve as discussant and the roundtable will be moderated by Lina Khatib.

To attend this event, please e-mail Reni Zhelyazkova. 

On Tuesday 23 June, Chatham House will publish Syria's Economy: Picking up the Pieces, a comprehensive account of the state of the Syrian economy and its prospects. The paper, by David Butter, associate fellow on the Middle East and North Africa Programme, finds that:

• Syria's economy has contracted by more than 50 per cent in real terms since 2011, with the biggest losses in output coming in the energy and manufacturing sectors. Agriculture has assumed a bigger role in national output in relative terms, but food production has fallen sharply as a result of the conflict.
• Inflation has averaged 51 per cent between January 2012 and March 2015, according to the monthly data issued by the government, and the Syrian pound has depreciated by about 80 per cent since the start of the conflict.
• In the first half of 2015, the regime has shown increasing signs of strain on both the military and the economic fronts. The regime has lost ground to rebel forces, and the Syrian pound has depreciated at the fastest rate since the conflict began.
• Continued support from Iran, in the form of oil supplies and import credits, will come with political and economic conditions.
• The question arises as to whether a dramatic worsening in the economic situation might be the catalyst for the regime’s military collapse or for an externally imposed political settlement against Assad’s wishes; or whether further military setbacks might be the trigger for the government’s economic collapse.

Creon will join Chatham House from the Cabinet Office where he served as director for international economic affairs in the National Security Secretariat and G7/G20 ‘sous sherpa’, advising on global policy issues such as climate change, natural resource security, global health threats and the future of the international economic architecture.

Creon first joined the Cabinet Office in 2013 as director in the European and Global Issues Secretariat, advising prime minister David Cameron on international economic and financial issues, ranging from country-specific developments in China and Germany to global challenges such as antimicrobial resistance and anticorruption.  He designed and organized the UK’s global Anti-Corruption Summit in May 2016.  Earlier in his career, he served in the Bank of England, HM Treasury and in the Foreign and Commonwealth Office, where he was director for economic policy and chief economic adviser.  He was also deputy high commissioner in New Delhi from 2006 to 2009.

Robin Niblett, director of Chatham House, said: 'We are delighted that Creon Butler will join Chatham House at such an important moment, when geoeconomic competition and technological disruption are changing the structure of the global economy, and as governments and societies across the world must develop more sustainable pathways to economic growth. Creon brings precisely the right combination of knowledge and experience to enable Chatham House to conceive inclusive solutions for the future.'

Creon Butler said: “Chatham House’s high quality, independent and focused policy research has never been more important in helping policy makers to chart the best path given today’s extraordinary economic and political uncertainties. I am very pleased to have the opportunity to lead the institute’s Global Economy and Finance programme at this critical time.'

The speaker will outline the importance of economic cooperation in the transatlantic relationship and consider recent developments in the global economy.

Europe and the United States have dominated global institutions for over 70 years. However, as the emerging markets take up a greater share of the global economy it is becoming increasingly difficult for the transatlantic powers to maintain the current system. This event will examine the changes needed in order to avoid a collapse of the current system.

The workshop is held as part of the Transatlantic Strategy Group on the Future of US Global Leadership run jointly with the German Marshall Fund of the United States. Over the course of a year, this group will discuss how US policy is changing on key issues and the implications for Europe. This project is supported by the Fritz Thyssen Foundation, with support for this event provided by the Bertelsmann Foundation.