America’s political leaders overcame political differences to enact $2 trillion in national economic support bill, while the Federal Reserve took historic steps to assure liquidity for the economy to address COVID-19. Important steps for sure, but a bigger challenge lies around the corner. This is a global pandemic causing global economic crisis; the United States must reassert its world economic leadership to protect our citizens and people everywhere from a deep, damaging recession worldwide.
The Trump administration took a small first step last week in a virtual meeting with leaders of major economies, the Group of 20 (G20). Bolder steps and concrete follow-through are needed. Congress can help.
The United States has been the driving force behind global responses to international challenges ever since the Marshall Plan. Bipartisan leadership from U.S. presidents and the Congress was essential in shaping such responses to the Asian financial crisis of the 1990s; to the 9/11 terrorist attacks in 2001; and to the Great Recession of 2008. It is now the turn of the Trump administration and this Congress.
The George W. Bush administration created the G20 to ensure a coordinated response to the Great Recession. G20 cooperation ensured that the United States, China and Europe worked together rather than at cross purposes. The G20 undertook large, coordinated economic stimulus programs, avoided self-defeating trade barriers and supported
International Monetary Fund and World Bank provision of crucial financial resources and policy advice for emerging market and low-income countries. The G20 should again be the epicenter of U.S. leadership.
The Trump administration and Congress must put their political muscle behind a global effort to subdue COVID-19 and head off economic collapse, first by assuring bold, coordinated G20 fiscal policy steps like the United States has now taken, not vague promises. Last week leaders seemed to promise support to vital World Health Organization programs but hedged by saying this would be on a “voluntary basis.” The administration and Congress need immediately to identify and provide the necessary resources to the WHO, and press others do the same, as George W. Bush’s administration did to combat the AIDS epidemic and the Obama administration did in the Ebola crisis. If the administration does not act promptly and decisively, Congress should take the lead. Exerting such bipartisan American leadership will not be easy in the midst of a contentious election cycle and likely tension between Democrats and Republicans. But such leadership will be crucial to inspiring concerted action to restart the global economy on which U.S. prosperity depends.
Similarly, countries must pull together to avoid and reverse unilateral trade protectionism, particularly on critical medical supplies, protective gear and food supplies, and ensure the arteries of trade flow, supply chains and financing for economic activity function smoothly. We welcome proposals that the administration might defer collection of some tariff for 90 days but that is no substitute for much more broadly based reductions in or elimination of trade barriers to spur global economic growth.
For the last three years, all nations benefited from the strong tailwind of a global economic expansion. This mitigated the growth-killing effects of rising trade barriers. Now those tailwinds have been replaced by the powerful headwinds of a global recession. Even before the pandemic, global trade flows were slowing and G20 economies had slapped on new trade barriers. There is a real risk more countries will erect barriers on the export of medical items to fight the health crisis, and even on food. If recovery is to take hold, global trade barriers need to be reduced across the board. Congress should push such an initiative.
The G20 also must also take concrete steps to stop the collapse in oil prices caused by the price war between two G20 countries, Saudi Arabia and Russia, which has needlessly increased global economic uncertainty. Both countries seek to undercut U.S. domestic oil production, including from shale. Sound energy security policies practiced by successive U.S. administrations and Congresses have assured our energy supply security and created thriving U.S. energy industries, which are now threatened by the price war. The United States and other G20 countries should continue to press the Saudis and Russians to end this oil skirmish in the interest of a broad-based global economic recovery, which is also essential to them.
As the largest shareholder, the United States should also vigorously support IMF, World Bank and regional development bank efforts to help emerging countries, who make up a substantial percentage of global GDP, avoid economic devastation. These international financial institutions will likely need capital increases to fulfill this role. The United States should lead the effort to ensure that these institutions have adequate funds. Congress can play a key role in ensuring that this happens.
Every administration and every Congress enters into office with great plans and goals, which often get mugged by unanticipated events. COVID-19 was not expected. Now the question is whether the administration and Congress can adapt to new realities and lead a global coalition to defeat the virus and the threat of a global recession. The resources required are minor compared with the massive U.S. stimulus Congress just provided. The crucial resource required now is global leadership.
Larson and Eizenstat are both former diplomats and ambassadors who served as senior officials in the State Department and Treasury Department of the Clinton and George W. Bush administrations.