14.4 Challenges to Global Economic Cooperation and Governance

Global economic cooperation faces rising protectionism, nationalism, and geopolitical tensions. These challenges strain international institutions and agreements, creating divergent priorities between nations and eroding trust in global governance.

Reforms are needed to strengthen legitimacy, adapt to the modern economy, and enhance crisis management. This includes updating trade agreements, improving representation of developing countries, and fostering partnerships among diverse stakeholders to address shared economic challenges.

Key Challenges and Factors Affecting Global Economic Cooperation

Challenges to global economic cooperation

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• Rising protectionism leads to increased tariffs and trade barriers (e.g., US-China trade war), preferential treatment for domestic industries, and reduced commitment to free trade agreements (e.g., US withdrawal from Trans-Pacific Partnership)
• Growing economic nationalism prioritizes national interests over global cooperation, increases skepticism towards international institutions and agreements (e.g., Brexit), and emphasizes domestic economic policies and self-reliance
• Geopolitical tensions and rivalries create competing economic interests among major powers (e.g., US-China rivalry), erode trust and cooperation in international relations, and generate spillover effects on global economic governance
• Uneven economic development and inequality result in divergent priorities between developed and developing countries, challenges in achieving consensus on global economic policies, and concerns over the distribution of benefits from globalization

Erosion of international economic support

• Perception of unequal benefits from globalization fuels growing income inequality within and between countries, raises concerns over job losses and economic dislocation due to trade and outsourcing, and triggers populist backlash against perceived winners and losers of globalization
• Lack of transparency and accountability in international economic institutions leads to criticisms of decision-making processes in organizations like the WTO, IMF, and World Bank, perceptions of undue influence by powerful countries and corporate interests, and limited avenues for public participation and stakeholder engagement
• Inadequate adaptation to changing global economic landscape results in slow pace of reform in international economic institutions, challenges in addressing emerging issues like digital trade, services, and intellectual property rights, and difficulty in accommodating the growing economic clout of emerging markets (e.g., China, India)

Effectiveness and Potential Reforms in Global Economic Governance

Effectiveness of economic governance mechanisms

• Limited success in achieving inclusive and sustainable economic growth is evident in persistent poverty and inequality in many regions, inadequate attention to environmental sustainability and climate change, and insufficient support for developing countries in building economic resilience
• Challenges in resolving trade disputes and promoting fair competition arise from lengthy and complex dispute settlement processes in the WTO, difficulties in addressing state subsidies, intellectual property rights, and non-tariff barriers, and limited tools to address unfair trade practices and market distortions
• Inadequate coordination in managing global economic crises and risks stems from insufficient early warning systems and crisis response mechanisms, limited capacity to address systemic risks in the global financial system, and challenges in coordinating macroeconomic policies among major economies

Reforms in global economic governance

• Strengthening the legitimacy and inclusiveness of international economic institutions involves reforming decision-making processes to enhance transparency and accountability, increasing the voice and representation of developing countries and civil society, and promoting greater public participation and stakeholder engagement
• Adapting global economic rules and agreements to the 21st-century economy requires updating trade agreements to address issues like e-commerce, services, and sustainability, developing new frameworks for managing cross-border data flows and digital trade, and promoting international cooperation on taxation of multinational corporations
• Enhancing global coordination and crisis management capabilities entails establishing more effective early warning systems and crisis response mechanisms, strengthening the capacity of international financial institutions to provide liquidity and support, and promoting greater policy coordination among major economies to address global imbalances and risks
• Fostering partnerships and dialogue among diverse stakeholders involves engaging the private sector, civil society, and academia in global economic governance, promoting multi-stakeholder initiatives and public-private partnerships, and encouraging regional and sub-regional cooperation to address shared economic challenges