- 7/17/2025
As the liberal world order, established after World War II, is crumbling, the seeds of destruction lie in economic institutions established under the false assumption that freer trade would lead to freer societies.
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00:00We are at a turning point. The United States, the most powerful country in the world, the one that
00:05for decades took on the role of promoting democracy, is turning autocratic. The change may
00:11feel like it's come very suddenly, but the balance of power on the world stage has been quietly
00:16shifting for decades, enabling the rise of authoritarian leaders and the decline of
00:21liberalism as a guiding force. Economics, more than politics, has been the driving force.
00:27In this video, we'll unpack what we mean by the liberal world order, how the institutions created
00:33to sustain it ultimately undermined it, and why ballooning trade failed in its promise to spread
00:40democracy. Finally, we'll ask what next? The seeds of what we mean by the liberal world order are in
00:47this document, the Atlantic Charter. It was signed in August 1941 by then US President Franklin D.
00:54Roosevelt and British Prime Minister Winston Churchill. It outlined a vision for how the
00:59world should look after World War II. At the time, the Nazis were in control of large parts of Europe
01:05and had begun their invasion of the Soviet Union. The world was on the brink of a major power shift,
01:10either towards authoritarianism or democracy. Knowing what side they were on, the two leaders
01:16agreed on some principles for how the world should look after the war ended. No country should seek
01:22territory beyond its borders, democracy should prevail, nations should trade freely, and hostile
01:28countries should disarm. One vision in particular, free trade, changed everything. The end of World
01:36War II gave rise to a number of new multilateral institutions, as well as the United Nations and
01:41NATO. Major economic bodies like the World Bank, the IMF, the General Agreement on Tariffs and Trade,
01:48which later became the World Trade Organization, were founded, as was the European coal and steel
01:53community, which laid the groundwork for what became the European Union. As the Cold War developed,
01:59the Soviet Union established its own institutions of economic influence, like Comic-Con, which
02:05coordinated centrally controlled trade between socialist countries. Then there was the Warsaw Pact,
02:10the Soviet Union's response to NATO. Together, these institutions were the world order, and they
02:16represented two distinct poles. The American-led Democratic West on one side and Soviet-led autocracies on the other.
02:25It was a bipolar political world and a bipolar military world during the Cold War, but it really wasn't a
02:34bipolar economic world because only the West was actually a free market. And economically, it was just much,
02:44much bigger than the Eastern Bloc ever was. That was Robin Harding, the FT's Asia editor. He wrote an
02:52interesting article looking at how the world order is changing. When the Soviet Union collapsed in 1991, the world
02:59for a time became unipolar. There was one big power, the United States of America, and crucially, the
03:06institutions it led. If you're under the age of about 70, you don't know a world without them. So what did these
03:13institutions do? In its early years, the World Bank offered loans that helped European countries rebuild
03:20after the war. Meanwhile, the IMF focused on stabilizing the financial system. Major currencies
03:26were pegged to the US dollar, which in turn was tied to gold. The idea was that currency stability would
03:33enhance international trade. Then there was the General Agreement on Tariffs and Trade, the body that,
03:38since 1995, has been called the World Trade Organization. Its purpose was to enhance trade
03:44by removing business barriers and introducing common rules. The might of these three institutions has
03:51quite literally changed the world. Because the IMF, World Bank, and what became the WTO were effectively
03:58American-led, the dollar emerged as the world's dominant currency. This offered the United States two big
04:05advantages. First, it could borrow money more cheaply than other countries, which helped fuel growth.
04:11Second, because the dollar was so dominant in international trade, the United States could impose
04:16financial sanctions on other countries, giving it a policing role on the world stage. The global trade war
04:23that's currently unfolding is putting both of those advantages at risk, but we're going to get back to
04:28that later. What we want to look at is how these economic institutions shaped global power. In the decades
04:34after the war, international trade rose rapidly. The United States was by far the most important
04:40economy. By 1960, it represented around 40 percent of global GDP. European countries like West Germany
04:48and France were also doing quite well, but nowhere near as powerful. Meanwhile, hugely populous countries
04:54like China and India made up a tiny fraction of the global economy. In those few decades of growing trade
05:01after World War II, there was a general perception that life was getting better. People were living
05:06longer, the world was becoming more peaceful, and democracy was on the rise, especially following the
05:13collapse of the Soviet Union. For the US and its allies, this trend reinforced a core assumption.
05:20Freer trade meant freer societies. This general idea continued to gain ground. In 1993, just two years
05:29after the Soviet Union collapsed, the European Union was formed. With its single market and later common
05:35currency, the idea was to make trade even more seamless. In the 1990s and early 2000s, trade continued
05:42to expand even faster than before. Hyperglobalization was taking hold. But something had changed.
05:50What's changed since 1990 is that the US share of the global economy, and the West broadly defined its
06:02share of the global economy, has got much, much, much smaller. The reason? China's growing might. As its
06:08economy opened up and grew, the country wanted a bigger role in world trade. And that meant joining the WTO.
06:16One of the motivations was prestige. For an emerging economy, being a member of a powerful international
06:22body offered credibility. Membership also conferred protection from unfair trade practices. In 2001,
06:29China's moment came. A year earlier, US President Bill Clinton gave an address on China's WTO entry
06:36at the Johns Hopkins University. Reading his words today is fascinating. Economically, he said,
06:42This agreement is the equivalent of a one-way street, requiring China to open its markets.
06:49All we have to do is maintain the present access which China enjoys. He went on to say,
06:55By joining the WTO, China is not simply agreeing to import more of our products. It's agreeing to
07:01import one of democracy's most cherished values, economic freedom, which he predicted would lead the
07:08people of China to demand a greater say. In other words, America believed that accepting China into
07:14the WTO meant exporting democracy to Beijing. I think there was a basis to believe it would happen
07:20because it had happened everywhere else up until then. So if you looked at the cases of Japan or South
07:29Korea or Taiwan, those were all cases where democratization followed prosperity, particularly
07:40South Korea and Taiwan. And so it was quite logical, I think, to believe that China would go the same way.
07:48Some 25 years later, we're in a position to say what happened. After joining the WTO, China's economy
07:55became really powerful, really fast. In fact, if you measure its GDP using something called
08:01purchasing power parity, it's already overtaken the United States. That measurement, purchasing power
08:07parity, is important because it removes the distorting effect of exchange rates. Things cost less in
08:13China, which makes it cheaper to build and provide services. But that doesn't mean that individual people
08:19are better off. GDP per capita is still significantly lower in China than in the United States.
08:25We had for many years this, I would say, inconsistency of this
08:37strange situation where the largest exporter in the world used the dollar in its own trade. So again,
08:45to invoice and settle bilateral trade, in other words, trade between China and, I don't know,
08:51South Korea, China and Australia, China and other countries. That war was, for the majority,
09:01like almost 100 percent, invoiced and settled in US dollars.
09:06That was Paola Subaci, an international economist and professor of political economy at the University of
09:12Bologna. The point she's making is fundamental to this story. Here we have a country that, by some,
09:18albeit limited measurements, is the biggest economy in the world, trading in a foreign currency as part of
09:24a system created in a radically different economic landscape. It all sounds, well, outdated. But what
09:31about that other idea that more trade would lead to more democracy? In China's case, it hasn't worked out
09:38that way. At least not in recent times. Since Xi Jinping came to power in 2012, term limits have been
09:44abolished. Xi's thoughts on socialism with Chinese characteristics have been enshrined in the
09:50constitution. State surveillance has increased and dissent has been repressed. All this taking place
09:56against a backdrop of rapid economic development. Remember that pie chart from 1960? Well, here's how the
10:03share of total GDP breaks down now. The U.S. is still the biggest player. But China, driven by a huge
10:10growth in manufacturing and the combined countries of the EU, are not far behind. Meanwhile, according
10:16to a paper published in the American Economic Review, more than 1.5 million American manufacturing jobs were
10:23lost as a direct result of trade with China between 1990 and 2007. This at a time when both the share of
10:31middle-income earners were shrinking and wage increases were much greater among high earners
10:38than low and middle earners. Alongside those trends, America's health is declining. Life expectancy is
10:45going down, making it an outlier among other major economies. Tying all this solely to China's economic rise
10:53would be inaccurate and a total oversimplification. But these diverging trends do matter because they
10:59challenged ideas about the relationship between democracy and prosperity. Shocks like the 2009
11:05financial crisis and more recently the pandemic ignited debates about the perils of hyper-globalization.
11:12As trade became more volatile, populations within liberal democracies have begun challenging the status quo.
11:18People are unhappy. Establishments are offering the same old solutions. People are getting sick of it and
11:26saying, well, you failed. We need something different. In 2016, the same year that Trump was voted in for his
11:32first term, the people of Britain voted to leave the European Union. Those in favour of leaving spoke of
11:38sovereignty, likening the EU to a shackling force that was stifling British independence. And even among the EU's
11:45remaining members, some countries like Hungary have been rejecting liberal ideals, increasingly siding
11:51with Russia and the Trump administration, and holding up attempts to impose sanctions against Moscow.
11:57And that brings us to the crux of this story. Multilateral institutions are powerless if their
12:03members are divided. There's no better example of this than the World Trade Organization. For years,
12:08its members have been at odds over a number of issues, including China's continued designation as a
12:14developing country and the power structures within the organization. But it currently has no way of
12:20resolving disputes because the United States has blocked the appointment of judges to its top court.
12:26This is especially apparent right now as the world is engulfed in a trade war.
12:30And what is quite strange and depressing, if you like, is the resounding sound, resounding silence of the WTO.
12:40The WTO should be saying, yeah, right now we are all under these rules and it should be multilateralism at its base.
12:48That's not the case. Alongside the weakening of the WTO and the growing questioning of the dollar as the
12:53world's default currency, we've also seen new multilateral, non-Western financial institutions spring up.
13:00In 2015, the New Development Bank, commonly known as the BRICS Bank, was established. A year later came the Asian
13:07Infrastructure Investment Bank, the AIIB, based in Beijing. These new multilateral lenders aim to offer
13:13an alternative to Western-led institutions such as the World Bank and the IMF. And the AIIB in particular
13:19helps to cement China's influence by investing in infrastructure in the developing world as part of
13:25the giant Belt and Road Initiative. So the weakening of American hegemony was happening already. But the
13:31rise of Donald Trump marked a new chapter. America actively absolving itself of the duties it had
13:37self-imposed in the wake of World War II. The role without responsibilities is Donald Trump. You still
13:43have the power because you're the biggest. But you're not really a hegemon if you're not acting in a
13:50hegemonic way. And the point is that the US is not big enough to do that anymore because China's not
13:58quite as big, but it's big enough that it's impossible for a single person to whip everyone into line.
14:06The recent upheaval on the bond markets in response to Trump's tariffs is a case in point. Usually in
14:12times of volatility, investors buy US government debt, seeing it as one of the safest bets for a reliable
14:18return. Not this time. Instead, the cost of American borrowing has risen, undermining one of the core
14:25privileges the post-World War II economic order afforded the United States. On paper, the chaos
14:31unleashed by Trump's tariffs is exactly when a multilateral institution would ordinarily step in.
14:36But without reform, it's an impossible task. The reform, in a nutshell, should really give more
14:45weight and more voice to the large developing countries, in particular China. Now, what is
14:52the problem with those two institutions? I mean, the World Bank and the IMF. The main stakeholder,
14:57the main shareholders, is the United States. The United States has the right of veto.
15:01And so we're in a stalemate, one which threatens to undermine the very principle upon which these
15:07institutions were founded. Remember that document we looked at at the beginning? The Atlantic Charter
15:12and its core principles, democracy, territorial integrity, the disarmament of hostile powers,
15:19and free trade? Today, we live in a world where democracy is in decline. According to a report
15:24by the University of Gothenburg, the share of the world's population living in autocracies has risen
15:30from half to almost three quarters in just 20 years. With the authors declaring that liberal
15:36democracies have become the least common regime type in the world, representing a total of just
15:4129 countries in 2024. On the question of territorial integrity, a war is once again raging in Europe
15:49after Russia's full-scale invasion of Ukraine. Meanwhile, the United States under Trump has been
15:54threatening to take over Greenland and to make Canada the 51st state. And Europe, no longer able to
16:00rely on the United States, is rushing to re-arm. The liberal international order, as it was initially
16:06conceived, appears to be dead. Democracy is a lot of work. And that's the other thing, that is not magic.
16:13And the idea then, oh yeah, let's switch to an authoritarian regime so we don't have to fight all the
16:18time, discuss all the time, find compromises, because we all have different needs. And then we need to
16:25find a compromise and it's good too for everybody. You know, losing this is losing something that is
16:31very important and very precious. I don't want to end up to think that the last 80 years was an
16:37exceptional, an exception in our history. In the last decades, we've gone from a bipolar to a unipolar
16:44and now a multipolar world. With regional groupings like the BRICS and ASEAN rising in importance. With global
16:52supply chains and the digital economy connecting the whole world, the boundaries between authoritarian
16:57and democratic regimes are becoming slippier. And crucially, the relationship between liberalism
17:03and prosperity is not as clear as it used to be. What is happening in the United States right now
17:09is shocking to many. And it should be. People are being illegally deported. Judges' orders are being
17:16ignored. Government departments and universities are being gutted. Media outlets are being
17:21silenced. Scientific consensus is being disregarded. Security protocols are not being adhered to.
17:29And the principles of free trade are unravelling. The cult of personality around Donald Trump has
17:34accelerated the move towards authoritarianism. But the cracks in the liberal world order have been
17:40apparent for years. If the post-war multilateral institutions are to live up to their founding purpose,
17:46they need to face reality. The world they were formed to serve no longer exists. And the ideals they
17:52represent are under serious threat.
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