Ludwig-Erhard-Forum: Since the 2020s we could describe our times within a multiple-crises state, with overlapping emerging confrontations regarding Covid, shrinking economies, a renewed Russian invasion of Ukraine causing the current war, more wars in the Middle East and the African continent etc. – Do you think an international order around economic openness, multilateral institutions, security cooperation and democratic solidarity needs reformation? Which roles do NATO and the WTO play nowadays? Has the importance of the WTO been superseded by NATO? Or do the institutions complement each other in times when economy and security go hand in hand?
Harold James: …and the threats to Taiwan… Yeah. So, I think it’s right to say that the WTO is in a state of crisis, and it’s been in that state for a long time, so the inability to come to a conclusion of the Doha Round is, I think, symptomatic of a deeper problem. And then in the Trump administration, the United States stopped appointing arbitrators to the arbitration handles and so basically overtime them the ability to do arbitration decreased and ground to a complete stop. But in a sense, it doesn’t matter in that there’s still an enormous amount of world trade and world trade continued to grow and, in a sense, also, I think part of the problem with the WTO is that it was focused on the old world, in which people dealt with trade in goods. But trade in services is becoming more and more important. Trade in services raises different questions in respect to intellectual property and I think with the digital revolution trade and services, which continues to grow very, very quickly, is just going to be more and more important. And so, you know the question that the WTO used to think mostly about trade and manufacturers or trade in textiles where there was a special regulation for a long time for poorer countries or developing countries, those are more peripheral, and the trading services is developing quickly.
Would it be better to have a new institution to deal with it? Yes, I think so. But it’s unlikely to come about in the near future and so people are going to muddle on in the way that basically they did in the 19th century with trade in goods that there were agreements that were then extended by MFN clause, which are most favored nation clauses. We’re likely to see the same kind of patchwork. I mean, actually, we see already in the area of financial investment treaties, so you know, I don’t think that.
LEF: What exactly do you mean by patchwork?
James: I really just mean bilateral negotiations, bilateral agreements, investment treaties and so the reform of that doesn’t seem to me to be a really big priority actually.
Then you had a question about different international institutions. So, the Bretton Woods institutions, the IMF, and the World Bank.
LEF: Maybe if we look more into security issues, my question here would be which role does NATO have, nowadays and currently? I think the past years have put NATO in a new spot again, would you agree?
James: Yes. Well, I mean very famously, you know, not very long ago, the French President, Emmanuel Macron, when he started off, he said that NATO was brain dead. And it looks more central than ever. Its classic defense mission is more important than ever. And you know, I mean, I guess we will see over the next years whether Mr. Putin would want to test NATO. It seems to me that there is a possibility, for instance, of a border conflict. You can imagine some Russian intervention in Estonia or somewhere else in the Baltics, in the very local area, just to test, or in the Suwalki corridor, another vulnerable area. But yes, I mean it’s really come back to being in its classic position.
LEF: In reference to your lecture at the Hertie School last week titled “Globalization and the Idea of the West”, you began by focusing on four central leitmotifs of the current phase of globalization. One of these being that we find ourselves in a renewed fragmentation of state interests. Are we transitioning into a post-Western era, in which new coalitions of states will create new governance institutions? Which state blocks would you say are fragmented and are there arising coalitions you observe with a specific interest and if so, why?
James: So, especially in regard to the question of whether there’s a new Cold War between the United States and China it’s a fascinating question because the United States is classically embedded in many security systems and has allies in Western Europe, in the Pacific and new forms of engagement in the Pacific. But China classically doesn’t have any allies, with the exception of North Korea. And so, China is playing a very, very different kind of game and just building up a network of countries that have investment links where Chinese investment is playing a big role and where China is having a better access to raw materials, and so there’s a whole network of countries in Asia, in Africa and South America that have intensified links with China, but they’re not Chinese allies and there’s no security element in that relationship. And in that sense, it’s really a clash of two different visions of how our international order is organized.
LEF: So, you are saying that China has no security alliances!?
James: Chinese policy is about achieving the security of supplies. But clearly also there are vulnerabilities that result from that because the new agreements are always linked to cross oceanic trade and complicated land routes. In the case of the Belt Road Initiative, there are no security alliances. It’s a very different concept of how relationships with other countries are managed.
LEF: How can blocks like these be stable? Is there stability?
James: It’s a good question. It may not be that stable. In part because it relies very much on investment flows and thus on the buildup of debt, but what happens when debt can’t be repaid? And often the Chinese debt is at quite high interest levels. So, repayment becomes burdensome, there are already cases in Pakistan and Sri Lanka of borrowing countries that have got into a classic debt problem, and as interest rates increase, you’re likely to see more of those debt problems arising. And then the debtors are not particularly grateful, and the relationship can become very strange as countries negotiate for debt relief. I mean, in the sense the United States has had lots of experiences like this in Latin America since the 1980s.
LEF: What would you say which is the divergent between advanced and emerging markets as well as developing economies?
James: I think it’s difficult to argue that there’s a single group of interests around emerging economies. For instance, Brazil, particularly under the current president President Lula looks as if it’s very close to China on many issues, including the redesign of the International Monetary System. Brazil is one of the big supporters of the new Development Bank in Shanghai at the so-called BRICS Bank and one of President Lula’s predecessors, his successor after his first presidency in Brazil, Dilma Rousseff, is the head of this new Development Bank. But India, for instance, is much less enthusiastic about that. And the India-China relationship is full of strains. They have a different political model. India as an enormous democracy has been proud of its democratic tradition since independence and China clearly isn’t a democracy, although there are regional votes and there’s some degree of democratic influence in some local appointments. But you don’t have free elections and the Chinese system is much more based on wide range of manufacturing. India is much more concerned with the development of services. Also, India and China have sort of constant border war and there are regularly eruptions in that border war and fatalities on the Indochinese front. In that sense the vision of a completely homogeneous world of emerging markets, that’s kind of opposed to the United States or opposed to Europe, is a phantasma.
LEF: In regard of the fragmentation and these blocks that are building up, especially looking at technology transfers and the regime form, do you think China can be innovative?
James: Well, China is leading in some aspects of AI applications. And so, I think you need to distinguish between basic research and AI and the application. But for instance, the use of AI in security systems is something that China has been pioneering, and that is also attractive for many of the governments that have strong relations with China across the world. So African countries or South American countries like these kinds of applications. I think, despite of what we were talking about and despite the enormous American leadership in terms of basic investment once the processes are developed, they will be pretty universally available, and it’s hard to restrict their use. So, in that sense they’re producing what will be, or what already is, a global resource and can be applied globally. I don’t think AI is particularly suited to be the instrument of a new Cold War. You know the idea of limiting the export of strategic technologies was part of the vision that the United States already had in the real Cold War, in the old Cold War of the 20th century with the Soviet Union – even that was pretty leaky, but this will be just as leaky. And above all, I don’t think that the ideas that some people have of trying to restrict AI applications elsewhere are likely to be feasible.
LEF: According to Gita Gopinath (First Managing Deputy Director IMF) global economic relationships have changed, also due to the tensions between the U.S. and China. She mentions that the U.S. is calling for friendshoring, whilst the EU is seeking the strategy of derisking and China for self-reliance. What is your take on that?
James: Friendshoring was a concept that was introduced two years ago by Janet Yellen. And it always struck me as being a potentially dangerous or unworkable concept. Because we really don’t know in the long term who is a friend and who is not a friend? These things change, and the concept also doesn’t really describe the full extent of the vulnerability. So, one of the critical vulnerabilities that the world has – probably the most notorious case of dependence on one’s supply – is advanced semiconductors from Taiwan, produced by one company, Taiwan Semiconductor Manufacturing Corporation – TSMC. And the problem with Taiwan is not that it’s not friendly, but that it’s vulnerable, and one of the great fears that is permanently sounding around the discussion chambers in Washington is of a war in the South China Sea, or a Chinese invasion of Taiwan. And in that case, there would be an enormous problem in terms of the inability to get semiconductors. And so TSMC is now building a large plant in Arizona. But the construction of that plant is slower than intended. It’s going to take a really long time before you get a more resilient supply system. I think resilience is maybe a better concept to think about and to pursue, but it’s still not going to address some of the vulnerabilities; in particular, the very striking EBRD transition report from last year set this out in great detail that if Europe wants to go ahead with the decarbonization strategy and the green revolution. It’s actually dependent on a lot of mineral supplies from China that are essential, for instance, for battery technology. So, you getting a greener revolution may be incompatible with the idea of making yourself less dependent on China. Derisking is desirable, but it’s costly and you’ve got to recognize the tradeoff that getting more production in the EU is going to involve a higher cost.
LEF: What would you say are Chinese and Russian responses to these concepts? What are their intentions?
James: I mean I think you probably shouldn’t associate China or Russia necessarily, although sometimes President XI and President Putin talk about each other as being best friends. But there’s no alliance, you know, going back to that point about alliance systems, there’s no security alliance between the Russian Federation and China. And China is fundamentally still, and for the foreseeable future will be, dependent on the world market for its goods. But it’s also dependent on technology imports and I think that’s been the theme right through the Xi Presidency as well – that China wants to keep open global markets. Many Americans push back and say that China is abusing its position in open global markets. But China is really insistent on the way that Chinese development for the foreseeable future will really not be possible in a self-contained, self-sufficient way; despite all the China 2025 programs and the attempt to make China more self-sufficient, it simply can’t be. So, there are two very, very different approaches to how the international system is organized. And Russia, I think is playing a game of disruption. The calculation that President Putin has made is that the United States and Europe are both vulnerable, for different reasons, but both vulnerable. And so his hope is that if he can keep up the war that he’s fighting in Ukraine the United States will elect somebody in November 2024 who is sympathetic to his view of the conditions on which armistice or peace should be made between Russia and Ukraine, and that the United States would, in effect violate many of the principles for which the United States has stood since the 1940s in terms of keeping a free and open world. Putin is speculating that he’s going to destroy the American political system, that he’s going to destroy the European political system. And I think it’s a kind of bet, like his original bet in attacking Ukraine, that betrays the fundamental weakness of the Russian position. If he doesn’t succeed, if the EU and the United States survive 2024, Russia is going to be in a very weak position, and I would think that Mister Putin’s own position would be under threat.
LEF: You mentioned before that resilience is an important ability for countries, especially in disruptive times. But how can countries, if we take the example of Mexico, how can countries that are emerging economies develop resilience? Are these countries already resilient?
James: Mexico, I think has an interesting position. There is a recent study that got a lot of attention by Laura Alfaro and Davin Chor analyzing the trade connections between the United States and China. The paper demonstrated, and there have been quite a lot of follow up papers to it now, that Mexico and Vietnam are both buying much more from China and then exporting more to the United States so that Chinese goods are in part being remanufactured or reprocessed in Vietnam or Mexico and then being reexported to the United States. And you know, Mexico clearly has good access to the American market through the North American Free Trade Area. But again that doesn’t mean that Mexico or Vietnam are necessarily sympathetic or more sympathetic to China, when in fact Vietnam is moving very, very firmly in terms of its rhetoric away from China and towards the United States. So, Mexico and Vietnam are never going to be self-sufficient if you mean by resilient self-sufficient, but I think neither the United States nor China can really be self-sufficient in that sense. They’re just cases where you see how dependent everybody still is on the interconnectedness of the world economy.
LEF: So, in this case, resilience would be more of a ability of adaptability.
James: Yep, and making trade with more countries and building bigger trade networks rather than focusing on one particular country.
LEF: If we think about resilience as a concept for social peace and inner stability, does resilience need a certain level of equality, particularly looking at gender equality?
James: Absolutely. Resilience, I think is harder in extremely unequal societies. It’s one of the historic advantages that East Asian countries have had over South America, for instance, that there’s much less inequality and more generally diffused education. In part it’s a legacy of the mid-20th century and the Japanese occupation in Korea, in Southeast Asia, which destroyed many hierarchical systems, and so it left societies that were very poor but actually quite equal, and they could grow very quickly. South Korea at the beginning of the 1960s was a very, very poor country, but then it grew very quickly, and it grew because it’s got a good educational system, but also because it’s characterized by a lesser extent of inequality.
LEF: Do you think it is naïve to say that we have a shared value system globally that we could see as a moral community?
James: No, I don’t think that’s naïve. I think in some ways, the mid-1940s documents like the Universal Declaration of Human Rights, which were the products not just of Western thinkers, but there was a Lebanese philosopher, Charles Malik, and the Chinese politician and philosopher P. C. Chang, who played a big role in formulating that Universal Declaration. So, in some ways, these are documents that still have validity. And I think it’s still attractive. It’s wrong to think of them as being the West imposing itself on somebody else.
LEF: To what extent can globalization become a peace project? Is it intended to be a peace project?
James: Yeah, I think you know that that question hits the fundamental problem, and that indeed, the more interconnected the world is, the more peaceful it’s likely to become. But on the other hand, at the moments when there’s a high level of technical change and there’s a feeling that everything is uncertain, that everything is in flux, affairs become volatile, and that’s also the moment that old-fashioned great power politics come in. Then one country wants to get the advantage and one country starts to think of things in altering the rules of the game… Then the chances of conflict at those moments become greater, but the chances and opportunities that result from overcoming that conflict also become higher. We are, I think, exactly in one of those moments of transition. But there’s an inherent strain, a volatility and uncertainty, an inherent tension. It’s exactly that moment where we’re at right now.
*The interview was conducted by Isabella Agraz on May 7th at the Wissenschaftskolleg zu Berlin.