The United States vs. China

The 1930s illustrate what happens when the world economy lacks a leader providing “global public goods.”

History shows that the world economy benefits from having an economically dominant country providing global public goods (GPGs) to the rest of the world. Leaving aside the negative elements of colonialism, the British before World War I undoubtedly provided some GPGs to the global economic system. The United Kingdom helped create a more investment-friendly world economy through a framework based on the gold standard, the pound sterling and the financial services of the City of London.

The best way to illustrate economic GPGs is to look at what happened when they were lacking. By the early 20th century, the US economy had already overtaken the UK’s in size, but America did not, at first, take over contributing to these GPGs enough to maintain a growing and evermore interconnected world economy. After the 1929 stock market crash, President Herbert Hoover’s administration infamously introduced tariffs, triggering a wave of “beggar-thy-neighbor” policies in other countries. President Franklin D. Roosevelt reflected&#...