How global trade killed the liberal world order | Business Beyond
What this covers
The United States, once hailed as the leader of the free world, is turning autocratic. While it`s easy to tie the shift specifically to Donald Trump, the conditions that enabled both his rise and that of other authoritarian leaders, have been developing for decades. The seeds of destruction lie in economic institutions established under a false assumption: that freer trade would lead to freer societies. This episode of Business Beyond examines the trend through the rise of China, the decline of US manufacturing, and the emergence of new regional groupings, like BRICS and ASEAN.
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The liberal world order established after WWII, built on institutions designed to promote free trade and democracy, is collapsing because those institutions failed to adapt to a multipolar world where authoritarian regimes can prosper economically without democratizing, and because the United States has abdicated its hegemonic responsibilities.
- Economic institutions created for a bipolar Cold War world became obsolete in a multipolar era where China could grow to economic parity while remaining authoritarian
- Free trade failed to spread democracy as promised—China joined the WTO expecting democratization but instead consolidated autocratic control under Xi Jinping
- The US, no longer economically dominant enough to enforce multilateral order alone, has retreated from hegemonic duties under Trump, leaving institutions powerless to resolve disputes
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During the Cold War, it was bipolar politically and militarily, but not economically—only the West was a true free market and was much much bigger economically than the Eastern Block.
“It was a bipolar political world and a bipolar military world during the Cold War, but it really wasn't a bipolar economic world because only the West was actually a free market. Um, and economically it was just much much much bigger than the Eastern Block ever was.”
The balance of power on the world stage has been quietly shifting for decades, enabling the rise of authoritarian leaders and the decline of liberalism, driven more by economics than politics.
“the balance of power on the world stage has been quietly shifting for decades, enabling the rise of authoritarian leaders and the decline of liberalism as a guiding force. Economics, more than politics, has been the driving force.”
One vision in particular from the Atlantic Charter—free trade—changed everything and became central to the post-WWII world order.
“One vision in particular, free trade, changed everything.”
Because the IMF, World Bank, and WTO were effectively American-led, the dollar emerged as the world's dominant currency, giving the US two major advantages: the ability to borrow money more cheaply than other countries, and the power to impose financial sanctions and play a policing role on the world stage.
“Because the IMF, World Bank, and what became the WTO were effectively Americanled, the dollar emerged as the world's dominant currency. This offered the United States two big advantages. First, it could borrow money more cheaply than other countries, which helped fuel growth. Second, because the dollar was so dominant in international trade, the United States could impose financial sanctions on other countries, giving it a policing role on the world stage.”
In 2001, China joined the WTO. A year earlier, US President Bill Clinton gave an address saying the agreement was a one-way street requiring China to open its markets while the US maintained present access, and that by joining the WTO China would agree to import democracy's most cherished value—economic freedom—which would lead Chinese people to demand greater political say.
“In 2001, China's moment came. A year earlier, US President Bill Clinton gave an address on China's WTO entry at the John's Hopkins University... This agreement is the equivalent of a one-way street, requiring China to open its markets. All we have to do is maintain the present access which China enjoys... By joining the WTO, China is not simply agreeing to import more of our products. It's agreeing to import one of democracy's most cherished values, economic freedom, which he predicted would lead the people of China to demand a greater say.”
The Atlantic Charter signed in August 1941 by Franklin D. Roosevelt and Winston Churchill outlined four core principles for the post-WWII world: no country should seek territory beyond its borders, democracy should prevail, nations should trade freely, and hostile countries should disarm.
“It outlined a vision for how the world should look after World War II... No country should seek territory beyond its borders. Democracy should prevail, nations should trade freely, and hostile countries should disarm.”
Brexit supporters framed the EU as a shackling force that was stifling British independence, speaking of sovereignty as the primary motivation for leaving.
“Those in favor of leaving spoke of sovereignty, likening the EU to a shackling force that was stifling British independence.”
The multilateral institutions created after WWII—the World Bank, IMF, General Agreement on Tariffs and Trade (GATT, later WTO), and the European Coal and Steel Community—represented two distinct poles: the American democratic West and Soviet-led autocracies, creating a bipolar political and military world.
“Major economic bodies like the World Bank, the IMF, the General Agreement on Tariffs and Trade, which later became the World Trade Organization, were founded, as was the European Coal and Steel Community... Together, these institutions were the world order, and they represented two distinct polls. The American Democratic West on one side and Sovietled autocracies on the other.”
When the Soviet Union collapsed in 1991, the world became unipolar with the United States of America as the sole big power and leader of the institutions it had created.
“When the Soviet Union collapsed in 1991, the world for a time became unipolar. There was one big power, the United States of America and crucially the institutions it led.”
The World Bank initially offered loans that helped European countries rebuild after WWII, the IMF focused on stabilizing the financial system with currencies pegged to the US dollar tied to gold, and GATT/WTO enhanced trade by removing business barriers and introducing common rules.
“In its early years, the World Bank offered loans that helped European countries rebuild after the war. Meanwhile, the IMF focused on stabilizing the financial system. Major currencies were pegged to the US dollar, which in turn was tied to gold... Then there was the general agreement on tariffs and trade, the body that since 1995 has been called the World Trade Organization. Its purpose was to enhance trade by removing business barriers and introducing common rules.”
The European Union was formed in 1993 with a single market and later a common currency, designed to make trade even more seamless, and in the 1990s and early 2000s trade continued to expand faster than before in what was called hyper-globalization.
“In 1993, just 2 years after the Soviet Union collapsed, the European Union was formed. With its single market and later common currency, the idea was to make trade even more seamless. In the 1990s and early 2000s, trade continued to expand even faster than before. Hyper globalization was taking hold.”
More than 1.5 million American manufacturing jobs were lost as a direct result of trade with China between 1990 and 2007, at a time when the share of middle-income earners was shrinking and wage increases were much greater among high earners than low and middle earners.
“According to a paper published in the American Economic Review, more than 1.5 million American manufacturing jobs were lost as a direct result of trade with China between 1990 and 2007. This at a time when both the share of middle inome earners was shrinking and wage increases were much greater among high earners than low and middle earners.”
New multilateral non-Western financial institutions have emerged—the New Development Bank (BRICS Bank) established in 2015 and the Asian Infrastructure Investment Bank (AIIB) based in Beijing established in 2016—designed to offer alternatives to Western-led institutions like the World Bank and IMF.
“Alongside the weakening of the WTO and the growing questioning of the dollar as the world's default currency, we've also seen new multilateral non-western financial institutions spring up. In 2015, the New Development Bank, commonly known as the BRICS Bank, was established. A year later came the Asian Infrastructure Investment Bank, the AIIB, based in Beijing. These new multilateral lenders aimed to offer an alternative to Westernled institutions such as the World Bank and the IMF.”
Purchasing power parity is an important measurement because it removes the distorting effect of exchange rates—things cost less in China, making it cheaper to build and provide services—though it doesn't mean individual Chinese people are better off since GDP per capita is still significantly lower than in the US.
“That measurement, purchasing power par is important because it removes the distorting effect of exchange rates. Things cost less in China, which makes it cheaper to build and provide services. But that doesn't mean that individual people are better off. GDP per capita is still significantly lower in China than in the United States.”
Since 1990, the US share of global economy and the West's share have gotten much smaller, while China's economic power grew as its economy opened up and the country sought a bigger role in world trade.
“What's changed since 1990 is that the US share of the global economy and the west broadly defined its share of the global economy has got much much much smaller. The reason China's growing might as its economy opened up and grew the country wanted a bigger role in world trade and that meant joining the WTO.”
In 2016, Trump was voted in for his first term and Britain voted to leave the European Union in the same year, with both Brexit supporters and Trump voters rejecting the liberal world order.
“In 2016, the same year that Trump was voted in for his first term, the people of Britain voted to leave the European Union.”
The share of world population living in autocracies rose from half to almost three-quarters in just 20 years, with liberal democracies becoming the least common regime type in the world, representing only 29 countries in 2024, according to a report by the University of Gothenburg.
“According to a report by the University of Goththingberg, the share of the world's population living in autocracies has risen from half to almost three quarters in just 20 years, with the authors declaring that liberal democracies have become the least common regime type in the world, representing a total of just 29 countries in 2024.”
In response to Trump's tariffs, usually when there is volatility investors buy US government debt as one of the safest bets, but this time the cost of American borrowing rose instead, undermining one of the core privileges the post-WWII economic order afforded the United States.
“The recent upheaval on the bond markets in response to Trump's tariffs is a case in point. Usually in times of volatility, investors buy US government debt, seeing it as one of the safest bets for a reliable return. Not this time. Instead, the cost of American borrowing has risen, undermining one of the core privileges the postworld war II economic order afforded the United States.”
In the decades of growing trade after WWII, there was a general perception that life was getting better—people lived longer, the world became more peaceful, and democracy rose, especially after the Soviet Union collapsed.
“In those few decades of growing trade after World War II, there was a general perception that life was getting better. People were living longer, the world was becoming more peaceful, and democracy was on the rise, especially following the collapse of the Soviet Union.”
People are not happy with what establishments are offering; they're rejecting the same old solutions and saying 'you failed, we need something different.'
“People aren't happy. Uh establishments are offering the same old solutions. People are getting sick of it and saying, "Well, you haven't you failed. We need something different."”
The weakening of American hegemony was happening already, but the rise of Donald Trump marked a new chapter—America actively absolving itself of the duties it had self-imposed in the wake of WWII.
“So the weakening of American hegemony was happening already. But the rise of Donald Trump marked a new chapter. America actively absolving itself of the duties it had self-imposed in the wake of World War II.”
The United States, the most powerful country in the world, has been turning autocratic, marking a turning point away from its role promoting democracy for decades.
“The United States, the most powerful country in the world, the one that for decades took on the role of promoting democracy, is turning autocratic.”
In the decades after WWII, international trade rose rapidly, with the US representing around 40% of global GDP by 1960, while hugely populous countries like China and India made up only tiny fractions of the global economy.
“In the decades after the war, international trade rose rapidly. The United States was by far the most important economy. By 1960, it represented around 40% of global GDP. European countries like West Germany and France were also doing quite well, but nowhere near as powerful. Meanwhile, hugely populous countries like China and India made up a tiny fraction of the global economy.”
After joining the WTO, China's economy became really powerful really fast—by some measures (purchasing power parity), it already overtaken the United States as the world's largest economy.
“After joining the WTO, China's economy became really powerful really fast. In fact, if you measure its GDP using something called purchasing power parody, it's already overtaken the United States.”
America's health is declining—life expectancy is going down, making it an outlier among major economies—which is particularly significant when diverging health and economic trends challenge ideas about the relationship between democracy and prosperity.
“Alongside those trends, America's health is declining. Life expectancy is going down, making it an outlier among other major economies.”
Among EU's remaining members, countries like Hungary have been rejecting liberal ideals, increasingly siding with Russia and the Trump administration, and holding up attempts to impose sanctions against Moscow.
“And even among the EU's remaining members, some countries like Hungary have been rejecting liberal ideals, increasingly siding with Russia and the Trump administration and holding up attempts to impose sanctions against Moscow.”
The global trade war currently unfolding is putting at risk both of the US's primary advantages from the liberal world order: cheap borrowing and the power to impose financial sanctions.
“The global trade war that's currently unfolding is putting both of those advantages at risk.”
The last 80 years should not be understood as exceptional or an exception in human history—the shift from bipolar to unipolar to multipolar world represents a pattern where the relationship between liberalism and prosperity is no longer clear.
“I don't want to end up to think that the last 80 years was an exceptional an exception in our history. In the last decades, we've gone from a bipolar to a unipolar and now a multi-olar world. With regional groupings like the BRICS and Azan rising in importance with global supply chains and the digital economy connecting the whole world, the boundaries between authoritarian and democratic regimes are becoming slippier. And crucially, the relationship between liberalism and prosperity is not as clear as it used to be.”
The expectation that free trade would lead to democracy has not materialized in China—since Xi Jinping came to power in 2012, term limits have been abolished, Xi's thoughts have been enshrined in the constitution, state surveillance has increased, and descent has been repressed, all during rapid economic development.
“In China's case, it hasn't worked out that way. At least not in recent times. Since Xi Jinping came to power in 2012, term limits have been abolished. She's thoughts on socialism with Chinese characteristics have been enshrined in the constitution. State surveillance has increased and descent has been repressed. All this taking place against a backdrop of rapid economic development.”
The AIIB in particular helps cement China's influence by investing in infrastructure in the developing world as part of the Belt and Road Initiative.
“And the AIB in particular helps to cement China's influence by investing in infrastructure in the developing world as part of the giant belt and road initiative.”
China's continued reliance on the US dollar for trade reflects that the world's institutions are operating within a system created in a radically different economic landscape, making the arrangement outdated.
“Here we have a country that by some albeit limited measurements, is the biggest economy in the world, trading in a foreign currency as part of a system created in a radically different economic landscape. It all sounds well outdated.”
A hegemon without responsibilities is just a big power; you still have the power because you're the biggest, but you're not really a hegemon if you're not acting in a hegemonic way, and the point is the US is not big enough anymore to do that because China is not quite as big but it's big enough that it's impossible for a single power to whip everyone into line.
“The role without responsibilities is Donald Trump. You still have the power cuz you're the biggest. Uh but you're not really a hedgeimon if you're not acting in a hegemonic way. And the the point is that the US is not big enough to do that anymore because China is not quite as big, but it's big enough that it's impossible for a single person to um whip everyone into line.”
The principles of free trade are unraveling, exemplified by Trump's tariffs and trade war policies.
“the principles of free trade are unraveling”
Shocks like the 2009 financial crisis and the pandemic ignited debates about the perils of hyper-globalization, and as trade became more volatile, populations within liberal democracies began challenging the status quo.
“Shocks like the 2009 financial crisis and more recently the pandemic ignited debates about the perils of hyper globalization. As trade became more volatile, populations within liberal democracies have begun challenging the status quo.”
China, the world's largest exporter, has continued to invoice and settle the vast majority (almost 100%) of its bilateral trade in US dollars, despite being by some measures the world's largest economy—a strange and outdated situation reflecting the legacy of the post-WWII economic system.
“We had for many years this uh um um I would say uh inconsistency of this uh strange situation where the largest exporter in the world used the dollar in his own trade. So again to to invoice and settle bilateral trade in other words trade between China and I don't know South Korea, China and Australia uh China and other countries that was for the majority like almost 100% invoice and settled in US dollars.”
The cult of personality around Donald Trump has accelerated the move towards authoritarianism.
“The cult of personality around Donald Trump has accelerated the move towards authoritarianism.”
The US and its allies assumed that freer trade meant freer societies, a core assumption that continued to gain ground and was reinforced by the apparent success of the post-WWII model.
“For the US and its allies, this trend reinforced a core assumption. Freer trade meant freer societies. This general idea continued to gain ground.”
China sought WTO membership motivated partly by prestige—for an emerging economy, membership in a powerful international body offered credibility—and partly by protection from unfair trade practices.
“One of the motivations was prestige. For an emerging economy, being a member of a powerful international body offered credibility. Membership also conferred protection from unfair trade practices.”
While tying America's troubles solely to China's economic rise would be an inaccurate oversimplification, the diverging trends of economic inequality, manufacturing job loss, and declining life expectancy do matter because they challenge ideas about the relationship between democracy and prosperity.
“Tying all this solely to China's economic rise would be inaccurate and a total oversimplification. But these diverging trends do matter because they challenge ideas about the relationship between democracy and prosperity.”
Multilateral institutions are powerless if their members are divided, as exemplified by the World Trade Organization, which has members at odds over issues including China's designation as a developing country and power structures, and currently has no way of resolving disputes because the United States has blocked the appointment of judges to its top court.
“Multilateral institutions are powerless if their members are divided. There's no better example of this than the World Trade Organization. For years, its members have been at odds over a number of issues, including China's continued designation as a developing country and the power structures within the organization. But it currently has no way of resolving disputes because the United States has blocked the appointment of judges to its top court.”
Reform of institutions like the World Bank and IMF would require giving more weight and voice to large developing countries, particularly China, but the main stakeholder and shareholder in both institutions is the United States, which has the right of veto, creating a stalemate that threatens to undermine the principle upon which these institutions were founded.
“the reform in in in some in in a nutshell uh should really give more weight and more voice to the large developing countries in particularly China. Now what is the problem with those two institutions? I mean the World Bank is the IMF. The main stakeholder, the main shareholders is the United States and the United States has the right of veto. And so we're in a stalemate, one which threatens to undermine the very principle upon which these institutions were founded.”
In the multipolar world, with regional groupings like BRICS and ASEAN rising in importance and global supply chains and digital economy connecting the whole world, the boundaries between authoritarian and democratic regimes are becoming blurred.
“In the last decades, we've gone from a bipolar to a unipolar and now a multi-olar world. With regional groupings like the BRICS and Azan rising in importance with global supply chains and the digital economy connecting the whole world, the boundaries between authoritarian and democratic regimes are becoming slippier.”
The cracks in the liberal world order have been apparent for years, but the acceleration under Trump makes the collapse visible in ways that cannot be ignored.
“But the cracks in the liberal world order have been apparent for years.”
If post-war multilateral institutions are to live up to their founding purpose, they need to face reality—the world they were formed to serve no longer exists, and the ideals they represent are under serious threat.
“If the post-war multilateral institutions are to live up to their founding purpose, they need to face reality. The world they were formed to serve no longer exists, and the ideals they represent are under serious threat.”
The four core principles of the Atlantic Charter—no territorial expansion beyond borders, democracy, free trade, and disarmament of hostile powers—are all under threat or violated in the contemporary world.
“Remember that document we looked at at the beginning, the Atlantic Charter, and its core principles, democracy, territorial integrity, the disarmament of hostile powers, and free trade. Today, we live in a world where democracy is in decline... On the question of territorial integrity, a war is once again raging in Europe after Russia's full-scale invasion of Ukraine. Meanwhile, the United States under Trump has been threatening to take over Greenland and to make Canada the 51st state and Europe, no longer able to rely on the United States, is rushing to rearm.”
The belief that China would democratize following WTO entry had a basis because democratization had followed prosperity in cases like Japan, South Korea, and Taiwan, making it logical to expect China would follow the same pattern.
“I think there was a basis to believe it would happen because it had happened everywhere else up until then. So if you looked at the cases of Japan or South Korea or Taiwan, those were all cases where democratization followed prosperity, particularly South Korea and Taiwan. And so it was quite logical, I think, to believe that China would go the same way.”
Democracy is hard work—it requires constant fighting, discussion, and compromise because people have different needs—so the idea that we should switch to authoritarianism to avoid that work is losing something very precious and important.
“Democracy is a lot of work and that's the other thing that is not magic. And the idea then, oh yeah, let's switch to an authoritarian regime so we don't have to fight all the time, discuss all the time, find compromises because we all have different needs and then we need to find a compromise and it's good to for everybody. You know, losing this is losing something that is very important and very precious.”
What is happening in the United States right now is shocking to many and should be—people are being illegally deported, judges' orders are being ignored, government departments and universities are being gutted, media outlets are being silenced, scientific consensus is being disregarded, and security protocols are not being adhered to.
“What is happening in the United States right now is shocking to many, and it should be. People are being illegally deported. Judges orders are being ignored. Government departments and universities are being gutted. Media outlets are being silenced. Scientific consensus is being disregarded. Security protocols are not being adhered to.”
On paper, the chaos unleashed by Trump's tariffs is exactly when a multilateral institution would ordinarily step in, but without reform it's an impossible task.
“On paper, the chaos unleashed by Trump's tariffs is exactly when a multilateral institution would ordinarily step in. But without reform, it's an impossible task.”
The WTO's resounding silence on the current global trade war is strange and depressing—the WTO should be enforcing rules and exemplifying multilateralism at its best, but it's not.
“And what is quite strange and and and and depressing if you like is the resounding sound resounding silence of the WTO. The WTO should be saying yeah right now we are all uh under these rules and it should be multilateralism at its best. That's not the case.”