The risks from establishing a third pole in the global economy are manageable, and are far outweighed by the potential long-term benefits.
Much of the debate about how to strengthen global economic and financial governance before the Trump shock focused on universal approaches in which all countries would move together to raise global standards, protect the global commons, provide finance (according to ability to pay) and develop fairer voting systems in international institutions. The initial instinct was to continue with this after the Trump shock as well: whether by framing issues in a way that was thought acceptable to the US administration; by continuing with established policies (but without talking about them); or by using multilateral groups to pursue issues that the US is not interested in and betting on it to stay away and not disrupt the work.
However, it is now clear that this strategy will not work. It weakens the momentum for necessary global action too much, and the US under President Trump is not prepared to stand to one side.
This report has therefore advocated a different approach. It has argued for the establishment of a new permanent economic grouping, consisting of a powerful subset of countries and institutions united by the desire to preserve and improve the global economic and financial governance framework that existed before the Trump second-term shock. This alliance would form a ‘third pole’ in the global economy distinct from the two other major poles, namely the US and China.
The report has described the theoretical benefits of establishing a third pole, and has shown how it could be developed in practice through a rapid broadening and deepening of the existing trade and investment dialogue between the EU and the CPTPP.
Taking this approach is not without risk. First, in order to focus on the third pole, its prospective members will have to reduce the effort they put into other strategies for coping with President Trump and China. Second, the initiative may provoke retaliation from the US or China. And third, starting with the EU-plus-CPTPP grouping proposed in this report may be criticized as lacking inclusivity, even though its actions are likely to bring considerable benefits for members and non-members alike, including LMICs and LICs.
But even though there may be short-term costs, the longer-term benefits would be considerable. In particular, creation of a third pole would establish an economic space – larger than either the US or China – in which members would follow stable, transparent rules and fact-based economic policies, contribute to and benefit from public goods, be free from economic coercion, and be able to negotiate freely with each other to achieve mutual benefits. This would attract investment and human capital, and boost economic growth within the grouping relative to the rates achievable by the US and China. In the long term, such an architecture is also likely to be the best way to re-establish universal norms on economic and financial governance.
While establishing a third pole in the global economy will be challenging to achieve and take time to establish, it is not an idealistic dream. Time and again, the long-term benefits of openness, transparency and diversity of approach have been demonstrated. If EU and CPTPP member states decide to pursue this approach, they will need to keep their eye on these rewards as they battle through what is likely to be a very difficult period.
