The decision by America’s four most important European allies to become founding members of the Chinese-led Asian Infrastructure Investment Bank (AIIB) is no mere diplomatic setback for Washington. It is a body blow to the U.S.-led international order created in the wake of World War II, which is crumbling before our eyes. The world rising to replace it will be a messy system of competing multilateral institutions in which the United States and China vie for supremacy.
When the global distribution of power shifts dramatically, the leadership of international cooperation, and institutional structures, naturally follow. The only question is the length of the time lag. Since 2000, the world has experienced the fastest reallocation of economic might in history. At the head of the queue are the BRICS nations—Brazil, Russia, India, China, and South Africa—which now collectively account for 20 percent of global economic output, up from 8 percent fifteen years ago. China itself, which accounted for only 11 percent of U.S. gross domestic product at the dawn of the millennium, has now overtaken the United States in terms of purchasing power parity. But the power shift goes well beyond the BRICS. Goldman Sachs has identified a group of “next eleven” countries, including South Korea, Mexico, Turkey, and Indonesia that it predicts will eventually rival the G7 in terms of international influence.
The U.S. response to this transformation, as one might expect, has been conflicted. Rhetorically, President Obama came into office pledging to update the creaking architecture of international cooperation, which was “buckling” in the face of global power shifts. His first National Security Strategy promised rising powers an increased voice within international institutions, provided that they assumed responsibility for global burdens. Early on, the Obama administration declared itself open to UN Security Council reform, as well as adjustment of “chairs and shares” (or governance and voting weight) within the International Monetary Fund (IMF) and the World Bank.
But the Obama administration eventually backtracked. After President Obama endorsed eventual Security Council membership for Japan and India in 2010, the administration shelved plans for reform after a lengthy interagency review. In part, the stalled plans for reform reflected skepticism about the potential behavior of the emerging candidates for permanent membership—fellow democracies India, Brazil, and South Africa—as well as doubts that the United States could engineer such a feat. The Obama administration dropped public support for Security Council reform. But by choosing the status quo, the United States tied itself to an institution whose credibility and legitimacy were destined for long-term decline.
The administration took a more constructive stance toward IMF reform, but thanks to congressional obstructionism, these efforts came to naught. In 2010, U.S. officials engineered a historic agreement to adjust the membership and voting weight of the IMF’s executive board, at the expense of European nations. In pushing through this deal, the Obama administration was less fixated on immediate gains than enlightened self-interest: namely, the desire to lock in the support of emerging powers—and particularly China—for the financial and monetary order whose foundations were laid down at the Bretton Woods conference of 1944. Congress repeatedly rejected legislation approving the envisioned governance shifts, and the Obama administration spent its political capital on other crises. GOP legislators and particularly Tea Party supporters, attacked the legislation as an affront to U.S. sovereignty and freedom of action. The consequences of this short-sightedness are potentially catastrophic. Beyond undermining the “credibility” of the Fund, in the words of IMF Managing Director Christine Lagarde, congressional obstructionism has reinforced the perception of emerging economies that the West will resist diluting its prerogatives tooth and nail.
Predictably, rising powers have given up on the Bretton Woods institutions—and created new forums to pursue their national ends. The AIIB is just the latest incarnation. Last year, the BRICS nations also launched a contingency fund and a development bank of their own, intended to compete with the IMF and World Bank, respectively. The result is an increasingly crowded landscape of competing international institutions.
For too long, the United States has reassured itself that it is best positioned to play the game of competitive multilateralism, picking and choosing among flexible frameworks as the situation demands. Thus, after becoming disillusioned with the Group of Twenty (G20), the Obama administration has revived its interest in the G7 grouping of advanced market democracies, in essence resurrecting the old inner sanctum of the global economy, which had been jettisoned after the global financial crisis necessitated cooperation with China.
Resurrecting that lost world, however, is a losing battle. China’s successful AIIB gambit shows that the United States has no monopoly on playing this game, and that the center of gravity for international cooperation is shifting from the West to Asia. It also reveals, in one fell swoop, that the Western solidarity that has underpinned the multilateral system since 1945 is fraying.
This week’s shocking developments provide a useful, if painful, wake-up call to Washington. If the United States is unwilling and unable to revitalize the institutions it founded to accommodate new players, other countries will build new ones in their place.