Yellen, Lagarde, and the death of the global trade system

May 5, 2022

Occasionally, a prominent official will give a speech that perfectly captures the zeitgeist of the moment. US Treasury Secretary Janet Yellen and European Central Bank President Christine Lagarde have given two such speeches within days of each other.

In remarks to the Atlantic Council and Peterson Institute, respectively, Yellen and Lagarde said what should have been already apparent to anyone paying attention: Rising geostrategic tensions and an increasingly volatile security milieu are rendering the post-World War II global trade system obsolete. New approaches will be required to adequately cope with the world of today rather than the world of 75 years ago. The ideal of a single, deeply integrated global trade system – embodied in the founding of the General Agreement on Trade and Tariffs (GATT) and the World Trade Organization (WTO) – no longer seems realistic.

The old system has been gradually crumbling for the better part of two decades. This has been partially driven by the stresses created by China’s model of state-directed capitalism and a re-examination of the economic and social trade-offs brought by trade. The Ukraine crisis has dealt an additional and potentially debilitating blow to the multilateral trade system, raising complex and divisive questions. How can trade and investment relations be conducted with a nation that is attempting to use military force to reshape international borders?