‘America First’ or rules-based global economic governance: A false dichotomy

How a rules-based multilateral order benefits the United States

The U.S.-led multilateral order crafted decades ago underpins today’s global economy. The United States remains at the center of the system and has been its de facto guarantor and insurer, with wide-ranging benefits in return. From expanded markets for American goods and services to the central role of the U.S. financial system in global finance and the U.S. dollar’s dominance as an international currency, the system has been an engine of U.S. prosperity and influence. It has allowed Washington to shape international laws and standards and rely on soft power—partnership, diplomacy, and credibility that comes from leading and standing behind a rules-based order—rather than coercion to advance its interests.

Expanding trade supported by a rules-based trade regime has boosted U.S. economic growth and consumer welfare through rising exports, cheaper imports, and growing trade-related investment. Firms have been able to export into more open foreign markets, to source components needed for production competitively, and to profit from higher productivity. Households have benefited from access to more affordable, higher-quality, and more varied goods, which has contributed to rising living standards.

The international monetary and financial system has fostered the growth of global finance while acting as an anchor for global financial stability. The United States has had a dominant position in the system, epitomized by the dollar’s role as the world’s premier currency and reserve asset. The trust that the world places in the dollar means lower costs on U.S. government debt and strong foreign demand for U.S. assets. It gives U.S. firms access to deep, liquid financial markets where they can borrow at lower rates, invest more, and pay higher wages to American workers. It makes the United States an attractive destination for foreign investment. The U.S. leadership of multilateral institutions gives it considerable influence over global economic and financial policymaking and rule-setting.

The United States’ participation in and leadership of the multilateral system enhances its leverage and legitimacy in global affairs. When it acts through international institutions, it does so with the weight of global opinion behind it. The multilateral system has been instrumental in the widespread adoption of U.S. financial, technological, and legal standards. Multilateral engagement also promotes broad compliance with U.S. sanctions, when they become necessary.

Beyond global economic and financial stability, the multilateral system has served as a stabilizing force among major geopolitical powers. Economic interdependence has raised the costs of conflict and reinforced incentives to cooperate. The system has been an important ally of the United States in providing a stable global environment for raising economic prosperity, both for its own people and for the global community.

The economic and financial strength of the United States, supported by the multilateral system, has been a major foundation of the country’s geopolitical dominance. This extends beyond military capabilities. Perhaps the most understated yet profound benefit has been in the realm of soft power: It enables the United States to lead through cooperation and diplomacy rather than coercion, and through example rather than imposition. That capacity may be the ultimate dividend of a stable, multilateral world.

The rules-based multilateral system is now facing its most severe challenge in the postwar period, not least because of actions by the United States, hitherto its chief protagonist. Global trade is becoming more fragmented, trade barriers are rising, international institutions and rules are being undermined, and economic relationships are increasingly shaped by major power—especially U.S.-China—rivalries. Emerging patterns of “friendshoring” and trade and investment regionalization along geopolitical lines are fraying global economic integration, with wider effects also on the cohesion of international financial markets. There is mounting evidence of geoeconomic and geofinancial fragmentation.

If the multilateral system unravels, all will lose, and particularly the United States. The system needs reform, not abandonment. As global economic and geopolitical conditions shift in an increasingly multipolar world, the system will evolve. The key issue is not whether change will occur, but whether it will occur by careful design or by disorderly default, and whether the United States will continue to engage and proactively lead in shaping the change. Sustained engagement and leadership remain firmly in the U.S. self-interest. To be sure, the new geopolitical context makes U.S. leadership more challenging, but it also makes it more crucial.

Quantifying the benefits

Many benefits of a rules-based, more integrated global system are difficult to quantify, such as the global leadership and soft power advantages the system confers on the United States. But some benefits can be quantified, at least in part. This is the case with two of the major channels through which the benefits of global integration flow: trade and finance.

Trade

Between the early 1960s and 2024, global GDP increased from around $11 trillion to $96 trillion (in 2015 dollars). In the United States, GDP increased from $3.4 trillion to $22.6 trillion, while per capita GDP rose from less than $19,000 to more than $66,000 (in 2015 dollars). While many factors have contributed to this impressive growth, rising trade in a more integrated global economy has been an important part of the story.

In the United States, gains from trade since 1950 are estimated to have added up to $2.6 trillion in 2022, raising GDP by 10%. The gains averaged $7,800 per capita and $19,500 per household. The United States remains the world’s second largest exporter, behind China, with annual exports reaching $3.4 trillion in 2025. Large exporting countries stand to gain more from lower trade barriers. An analysis conducted on the 25th anniversary of the World Trade Organization (WTO) in 2020 estimated that, for the United States, membership in the WTO alone produced a 20% increase in exports and an annual national income gain of $87 billion at constant prices.

An increasingly important component of the trade gains has come through technology and innovation. U.S. leadership in international standards-setting, participation in agreements facilitating trade embodying new technologies, and international intellectual property protections have allowed U.S. firms to scale innovation globally and capture a growing share of value-added in world markets. As the United States has faced stronger competition in manufacturing exports, it has developed new sources of comparative advantage in services, especially technology-based services. Since 1980, the share of services in total U.S. exports has risen from less than 20% to 36%, with services exports amounting to $1.2 trillion in 2025.

Digitally enabled services have been the most dynamic element, with their share in total services exports rising to around 75% in recent years. They are increasingly driving the U.S. surplus in services trade and providing a growing offset to the deficit in manufacturing trade. As the digital revolution and now artificial intelligence (AI) increasingly reshape the global economy, the governance of new technologies and related trade represents an area where leadership by the United States in the multilateral system offers particularly large economic and strategic returns from its technological prowess.

Lowering trade barriers not only increases exports but also produces gains in the form of cheaper imports, boosting the purchasing power of households. The Uruguay Round, the last major multilateral trade liberalization agreement, together with NAFTA (later replaced by USMCA), alone are estimated to have increased the purchasing power of the average American family by $1,300 to $2,000 per year. Lower trade costs disproportionately benefit poorer households, with gains to the poorest one-fifth of the U.S. households estimated at more than 4.5 times as large as those of the richest.

Finance

The dominant role of the U.S. dollar in the international monetary and financial system brings an impressive array of benefits to the United States. The dominance is reflected in a range of indicators. Despite some decline in the dollar’s reserve currency role, it continues to account for around three-fifths of global foreign exchange reserves. The dollar is used in about nine out of 10 foreign exchange transactions. It is the leading invoicing currency for international trade in all regions outside Europe. About 60% of foreign currency debt, and roughly a similar proportion of international and foreign currency banking claims and liabilities, is denominated in dollars.

From low borrowing costs to reduced exposure to exchange-rate risk to enhanced attractiveness of U.S. investments, the dollar’s global dominance translates into sizable gains for the United States. For example, the “exorbitant privilege” of the U.S. public debt being considered safe due to the country’s role as a reserve currency supplier is estimated to increase U.S. maximal sustainable debt by around 22% of GDP. These benefits hinge on global trust in U.S. policies and institutions and its role as an anchor and leader of the international economic and financial system. Actions that undermine this foundation put such benefits at risk and can trigger an exorbitant disruption, with large costs to the United States but also destabilizing implications for the global economy. A recent analysis, for example, finds that rising U.S. tariffs and trade protectionism threaten the dollar’s safe-haven role.

The benefits extend beyond strong demand for U.S debt securities such as Treasury bonds. The United States also has been the beneficiary of large inflows of foreign direct investment (FDI) in more integrated international capital markets. Indeed, it is the world’s largest recipient of FDI. Total FDI in the United States, measured at historical cost, reached $5.7 trillion in 2024. Around 16 million U.S. jobs, or about 10% of total employment, are directly or indirectly attributable to FDI.

Benefits substantial but unequally distributed

While aggregate gains from international integration have been sizable, they have not been evenly shared. Trade inevitably involves adjustment. A particular concern has been the loss of manufacturing jobs to import competition, especially from China. The impact has been particularly strong in America’s Rust Belt on manufacturing industries more exposed to import competition and on workers employed by those industries. Lower-skilled workers typically have faced the brunt of job displacement and reduced earnings.

Protectionism, however, is not the answer. A strong trade policy begins at home: Strong domestic economic management must underpin it. This includes policies to boost competitiveness and to retrain workers for jobs in new industries and services better placed to take advantage of global markets as national comparative advantage evolves, social safety nets to support workers during the adjustment process, and regionally tailored initiatives for concentrated pockets of hardship. Unfortunately, public policy has been lacking in these areas.

Equally important, international trade rules should ensure a level playing field among countries. This includes not only disciplines covering tariff and nontariff barriers at the border but also ways to address behind-the-border anticompetitive practices that give countries an unfair advantage in trade. The latter has been a major cause of trade tensions, especially in relation to trade with China. Competition policy is an area where the WTO has been unable to make much headway, but it must be an important part of the reform of the multilateral trade order. On matters such as competition policy and labor standards, plurilateral arrangements within the WTO framework can lead the way toward wider reform.

If the multilateral system keeps fragmenting

Just as full benefits to the United States from international integration fostered by a rules-based multilateral order are difficult to estimate, so are the costs of an unraveling of this order and the resulting global economic fragmentation. The loss of advantages such as leadership and soft power that are intangible in nature but have important effects on economic outcomes are particularly hard to quantify. Even the loss of tangible benefits such as in trade and finance is challenging to estimate in an uncertain environment and is sensitive to the assumptions made about potential scenarios. Nonetheless, research has attempted to quantify the costs of trade and financial fragmentation and finds such costs to be large for the United States—and for the global economy.

A study modeling the effects of trade disruption in scenarios involving large and widespread tariff increases by the United States coupled with retaliation by other countries and a rise in the U.S. risk premium finds that U.S. economic growth could be slower through the ensuing decade as a result: GDP could fall by more than 2% and remain below trend by the end of the decade, with much larger percentage losses in manufacturing and agriculture. Another study estimates that an escalation of trade barriers and decoupling from China could lead to U.S. GDP losses of 2% to 6%. An analysis focusing on financial fragmentation estimates that U.S. GDP losses could range from 1.2% to more than 5% depending on the severity of fragmentation. Other estimates fall in the same range. In all of these studies, fragmentation causes global losses, with the world economy as a whole ending up much worse off.

Conclusion

The United States has been a huge, arguably the biggest, beneficiary of the postwar rules-based multilateral system that it has led from its inception. The system has also underpinned major advances in global economic prosperity. The system has not been perfect and needs reform, and it must adapt to the profound economic and geopolitical change the world is experiencing. An unraveling of the system will be immensely costly for everyone, not least the United States. National interest and international cooperation need not be in conflict, America First versus a rules-based system of global economic governance is a false dichotomy. It remains in the U.S. interest to continue to provide leadership to the system and steer its renewal for today’s world.