An Era of Possibility: Renewing Economic Order and Shared Purpose - Per Jacobsson Foundation Lecture by President Tharman Shanmugaratnam on 15 October 2025 at the International Monetary Fund in Washington DC

Economic nationalism is resurgent. From all indications, it will run a long course. 

So too, the open, rules-based order is at its weakest point in 80 years.  

The rules were never fully equitable. Major powers, including the architects of the order, were prone to selective adherence. Poorer nations were often given the short end of the stick. Yet, the rules were broadly accepted, and an integrated world economy lifted a billion people out of poverty and brought prosperity everywhere. 

But the enthusiasm for openness and international cooperation has dimmed, not least in the advanced economies.  

What went wrong?

One reason was the shift in the structure of international trade. In the first decades after World War II, trade grew mainly between richer nations. Over the last three decades, however, North-South trade – between economies with vastly different income levels – expanded sharply. It amplified both the gains and losses from international trade, within the advanced economies themselves. 

While overall gains in real incomes – including among ordinary working people – vastly exceeded the losses, the pain among those displaced by trade or new technologies was more deeply felt. And the fact that job losses were concentrated in local communities magnified the sense of injustice.  

The critical failure was domestic. Many governments and elites neglected those who were losing out. In some cases, domestic political gridlock led to cutbacks in support at the very time when trade was being liberalised and more were losing out.

Avoiding growing disorder

The signal shift has been the steady retreat of the United States from its role as defender of open markets and international cooperation - on climate change, global health, and efforts to uplift the world’s poorest.

To be sure, the US-led postwar order was not driven by charity. Its genius was in shaping a cooperative order that promoted global prosperity while serving America’s interests. As the dominant power, the US paid large dues to underwrite the system, but reaped even larger dividends through its economy, financial markets, and its unmatched soft power.

There is little prospect of a return to the world of a dominant power acting with an expansive and enlightened sense of self-interest.

It is commonplace to observe that we are past a unipolar world, at least in economic affairs. But the transition to a multipolar world will not happen quickly or smoothly. And, in itself, multipolarity gives no assurance of stability and mutual prosperity between nations.

The transition makes it all the more vital that we renew multilateralism and develop new forms of international cooperation. We otherwise risk a long and messy interregnum in global leadership - and a self-reinforcing slide into global disorder. 

We must breathe new life into multilateralism, not merely for its appeal to our common humanity - although we should never lose sight of that deeper reality - but because without international cooperation, no country can avoid the global problems we face, and secure the interests of its people.

Three challenges are fundamental to renewing this cooperative international order.

First, doing better to create good jobs, and in supporting displaced workers.

Second, the US and China managing their relationship differently - to prevent a multipolar world from becoming more polarised and dangerous.

Third, reforming the key multilateral bodies themselves, especially the World Trade Organisation, while building coalitions of nations to create the scaffolding for a new multilateralism.

Putting good jobs at the centre 

Gen Z youth around the world confront an unprecedented challenge. 

In the developing world, 1.2 billion young people will enter working age over the next decade. On current projections, 800 million of them will lack jobs. In advanced economies too, new job entrants face a weakening job market, including fewer entry-level roles in the most AI-exposed sectors.

The challenge is not temporary. It requires a generational response, with good jobs being at the centre of public policy. 

First, better prepare the young during their years in education. Not surprisingly, the Gen Z youth rising up, from Africa and Asia to Latin America, are themselves calling for better education systems. We must invest more effectively in the young everywhere to help them acquire both applied know-how and the deeply human, soft skills they need in life, and cut back on the overly academic education in most systems. 

We must also build intelligent systems that help connect workers at every stage of their careers to opportunities for training and micro-credentials in skills in demand, and match them to employers. Promising models exist – from Singapore’s SkillsFuture to South Africa’s Harambee Youth Employment Accelerator that has already helped 1.2 million people - but there is still much to be done.

Equally, we need more proactive and serious efforts to help workers displaced by technology and competition. Sweden’s job transition programme is amongst the best examples, with over 90 per cent of displaced workers getting back into jobs within a year.

Industrial policies may be back in vogue, with governments seeking to give their countries  competitive advantage, or to ‘recreate’ lost jobs. But success in job creation requires social policy on an industrial scale. It means developing every human talent and skill through life, and close collaboration between the public authorities, enterprises, unions, and community organisations. It is a large-scale and patient endeavour, too often neglected in the rush to economic interventions.

US and China: finding stability

The US-China relationship is the most worrying fault line in international affairs. It is widening, as national security and economics become increasingly intertwined.

The US remains well ahead of China in overall productivity, and retains a significant technological lead. It also has the world’s deepest capital markets, and the US dollar dominates global payments and finance.

But the US has never before faced a competitor of such scale and capability as China. It has reshaped the political zeitgeist within the US.

China, already the world’s largest manufacturer, also leads in leads green technologies, robotics, and digital infrastructure – and likely soon in biotechnology. While it remains behind the US in AI model development, it is moving faster to embed AI across industries.

The US may delay China’s catch-up in certain key technologies, and could in particular preserve leadership in the most advanced chips for some years. But it is already evident that China is progressing with its own capabilities, that help it to overcome US controls. It will keep making better chips.

The real question is not whether China will eventually catch up in key technologies, or even take the lead in some. It is whether China advances while maintaining interdependence with other major players, or is constrained to advancing through self-reliance. The two options in US-China relations imply a different order of risks to global stability.  

Interdependence will have to be actively managed, to prevent the weaponisation of key technologies or materials. But it will surely be a more profoundly dangerous world if we end up with a decoupling of technologies, supply chains, payment systems, and whole AI stacks. 

Ecology offers a useful lens on how the US and China can interact in ways that benefit both nations and the world.

In nature, the most dynamic places are often not deep within one ecosystem or another, but in the zones where they meet. Where the forest merges into grassland, or in the estuaries where freshwater and seawater systems meet. They are zones of both tension and overlap, where hybrids and even new life forms emerge and flourish. 

The US and China have two different economic ecosystems. Yet, their interface has been, and can yet be, greatly productive. Through trade, two-way investments, and networks of research and academia among the two – and with other nations engaged with them as  partners - we can take the best ideas, use them to meet the world’s largest needs, and drive down the costs of new solutions. 

The point is basically this: interaction and competition between the two superpowers is not a threat to be eliminated, but an opportunity to be managed. If managed well, US-China interactions will be a source of prosperity for both nations — and the world’s greatest source of innovation. If we fail, and progressively decouple the two systems, we face mutually assured loss and growing global danger.

Renewing multilateralism

The WTO has taken body blows, but is up before the count. Its members want the WTO to live on and succeed. They should respond to crisis by tackling the issues that bedevil the system.

First, the convention of consensus decision-making, a long-treasured principle, has become a recipe for paralysis. A number of proposals, including Singapore’s ‘Responsible Consensus’, China’s ‘Pareto Improvement’, and decision-making by qualified or double majorities, aim to allow the WTO to move ahead without compromising nations’ core interests. They deserve serious consideration. 

Second, while most developing countries need access to Special and Differential Treatment, several no longer do. To keep trade fair, the concession should be based on a country’s needs, with objective criteria for eligibility. 

Third, we need a new discipline to check the proliferation of export restrictions. States need a margin of manoeuvre on matters of national security, but they should not be exempted from the rules by the mere wave of a flag. To start, there has to be more transparency when claims are made for exemption to Article XI of GATT, so the WTO can understand a country’s justification and assess the impact of its proposed export restrictions.

Fourth, we need sensible guard rails to prevent an arms race in industrial subsidies. Some of these subsidies may have good reason, such as to accelerate investments and achieve scale economies in clean energy. But here too we need greater transparency of subsidies, and updated WTO rules, to prevent unfair competition and retaliatory measures that will harm trade. 

Fifth, we must craft coalitions of like-minded nations, who can serve as pathfinders for multilateralism on emerging issues. The 91 WTO members led by Australia, Japan, and Singapore who agreed on rules for digital commerce across borders are a good example.  Crucially, these plurilateral agreements must continue to reinforce, not diminish, trade liberalisation in line with WTO precepts.

But one unintended blessing of the new US tariffs is that the rest of the world is being spurred to expand trade with each other. For example, the CPTPP and the European Union - which together account for over 40 per cent of world trade - have begun conversations to see if they can align standards and expand cooperation.

Governing AI safety 

We must enable AI to unleash gains across societies while averting its greatest dangers - such as powerful, hard-to-thwart scams and cyberattacks; runaway misinformation that undermines democracy; AI-designed bioweapons; and autonomous warfare without agreed rules. If we wait to see how these risks play out, it will be too late. 

Yet governing AI may be the most complex international challenge we have faced. We first need the AI equivalent of the IPCC on climate change: an independent group of scientists to keep track of fast-changing AI developments and provide objective advice to governments on the opportunities and risks. The United Nations is taking steps to establish such a panel.

We must also move ahead with coalitions that have an active interest in promoting the responsible development and use of AI. But both the US and China must be at the table. They host the leading AI developers. They will also share a common interest in AI safety, not least in preventing AI-triggered conflicts. 

An era of possibility

History shows that in times of crisis, new forms of cooperation can emerge. The Bretton Woods Agreement and the key multilateral organisations came about in the wake of the Second World War.

The challenge today, however, is different - and more complex. We are not faced with a sudden collapse of the system, nor a global war, but with the steady, grinding erosion of an open global order. And unlike at Bretton Woods, we are in the midst of a transition - likely a long interregnum between a unipolar and multipolar world. 

There are reasons to be daunted by the tasks ahead. There are not many grounds for hope in a future grounded in rationality and morality.

But it is our responsibility to make it possible. So we build a future of dignity and sovereignty, and a liveable planet, for ourselves, our children and generations after.

This is no time for timidity.

Originally published in The Straits Times on 25 October 2025. This is an abridged version of the Per Jacobsson Foundation Lecture delivered by President Tharman Shanmugaratnam and organised by the International Monetary Fund on 15 October 2025.