Introduction
The modern world is changing at a considerably high rate because of globalisation. The world has become integrated. According to Detomasi (2002), globalisation interlinks different countries and covers a considerable distance. Globalisation has been fuelled by innovation in information technology (Williams, Lobell & Jesse 2012). Globalisation occurs in relation to different components of the global economy, which include the economic, political, and cultural dimensions. International trade has grown at an unprecedented rate because of globalisation (Gupta 1997). Globalisation is viewed differently by different parties. Some parties consider globalisation as a threat to a country’s political sovereignty (Rupert & Solomon 2006).
Detomasi (2002) asserts that globalisation poses a challenge to governments because of the likely dilution or destruction of the international and domestic governance mechanisms. Economic integration has led to a remarkable reduction in national governments' effectiveness in controlling different aspects of the national economy, such as setting the rate of interest, determining wage rates, and controlling money supply. This poses a challenge in their effort to stimulate domestic economic growth (Palan 2013). In addition to this, globalisation has resulted in the loss of sovereignty. Gupta (1997) emphasizes that globalisation has contributed to the transfer of political power from elected national governments to un-elected and unaccountable international institutions.
Countries’ national interests are considered less important compared to global markets, while national political responsibilities are being incorporated into international institutions (Moller 2009). According to Duffield (2007), international institutions play a critical role in international relations. International institutions are charged with the responsibility of monitoring and regulating different aspects of the global economy; for example, the World Bank, International Monetary Fund (IMF), and the World Trade Organisation (WTO) are experiencing challenges in the quest to enact governance authority. According to Steans, Pettiford, Die, and El-Anis (2013), globalisation has significantly reduced the independent authority inherent in traditional governance institutions. This has arisen from an increase in political power by some countries, such as the US, which has become a ‘hyperpower’ (Heywood 2015). This paper assesses whether the World Trade Organisation has in any way needed United States hegemony in order to be an effective institution. The argument is based on the neo-liberal notion of hegemony.
Analysis
Relationship between the state and markets
The high rate of globalisation currently being experienced is progressively transforming the relationship between markets and the state. One of the impacts of globalisation is evidenced by the loss of states’ sovereignty (O’Riain 2000). States play a critical role in ensuring that markets are established and sustained. One of the ways through which states influence the construction of markets includes ensuring that effective operational rules and regulations are constructed. Moreover, states play a fundamental role in determining the market actors and the strategies to be employed in running the market (O’Riain 2000). States also play an essential role in determining the allocation of resources in an economy, which subsequently impacts the success of markets (Przeworski 2003). The link between the state and markets results in the establishment of an international economic order, such as international institutions (Dubbink 2003).
According to Nnia and Ukamaka (2013), politics, the state, and the economy are closely interrelated. The state constitutes the primary political unit of the global economy. The success of the global economy, which arises from the interconnection between sovereign countries into a single economic system, is influenced by the prevailing political economy (Heywood 2015). Nnia and Ukamaka (2013) argue that the political economy involves the interconnection between different aspects of a country that include law, politics, economics, and the economic and social institutions established. Moreover, the political economy involves the evaluation of how public policy is employed and implemented. The political economy involves competing interests such as the utilization of scarce resources.
In line with this aspect, power is essential in ensuring that the scarce resources are optimally allocated. The process of allocation of resources is influenced by the power held by the state. Depending on the amount of power that a single state possesses in the global economy, it can get other states to act in a particular manner, something that would be relatively difficult to do in the absence of power (Ozcelik 2005).
The neo-realist notion of hegemony hypothesizes that states pursue power in an effort to protect their national interest (Ozcelik 2005). To achieve hegemony, a country must possess power with regard to three core elements that include sources of financial and human capital, markets, and raw materials. Additionally, a country must possess an adequate comparative advantage in the production of high-quality goods. Through such powers, the hegemonic state is capable of influencing the activities of the established international systems.
The United States is one of the global economies that has attained global dominance, hence making it a hegemon (Williams, Lobell,& Jesse,2012). The United States has undergone remarkable progress with regard to economic, cultural, and political dimensions, hence making it a superpower. According to Heywood (2015), the US has, over the past couple of decades, proved to be economically and politically resilient. The US government is extensively concerned with maintaining its global dominance. The massive power that the country holds has increased the US capacity to influence other countries (Steans et al. 2013).
The US influence over institutions and other sovereign countries can be explained under the neo-realist notion of hegemony, which, according to Steans et al. (2013), entails a situation in which a single country attains supremacy in the international system. The neo-realist view of hegemony stipulates that under the right conditions, it is possible for international institutions to achieve optimal performance. This assertion is founded on the belief that the existing hegemon is capable of positively inducing other states to cooperate (Foot, MacFarlane & Mastanduno 2003).
Impact of WTO on the global economy
As an international institution, the WTO plays a fundamental role in the global economy. From its inception in 1995, the WTO has been focused on achieving its primary goal, al entails fostering global trade and development. The organisation (WTO) has achieved remarkable success, as evidenced by the increase in its membership (Ravenhill 2017). In the quest to promote global trade, the WTO has formulated extensive rules and regulations that govern its operation. One of the central rules emphasizes economic liberalisation. The rationale of liberalisation is to enhance economic competition between member states. However, competition between states is guided by two main principles, amongst them the requirement for states to ensure fairness in international trade (Hurrell 2006). Subsequently, the member countries are obliged to ensure that they provide WTO member states with favourable terms of trade. Thus, in line with the concept of economic liberalisation, WTO member states are required to implement an open economic regime by eliminating trade barriers such as tariffs (Mena 2004).
The review shows that the WTO plays a critical role in promoting the growth of the global economy. In spite of the WTO’s being an independent international institution, its effectiveness in governing issues related to the global economy may require support from the United States. Chen, Gu,o and Cao (2016) asassert the WTO experiences challenges in ityitryingpromote compliance with the rules and regulations. Under such circumstances, support from the United States may be essential in ensuring that WTO member states comply with the stipulated international trade guidelines. The rationale of seeking support from the United States is underlined by the fact that the US would be able to impose sanctions on a non-compliant state because of its extensive political and economic power. Steans et al. (2013) assert that, in addition to their ability to induce cooperation by other states, hegemons are also capable of imposing different types of sanctions on states that are non-compliant. Thus lack of hegemony may make international institutions weak and hence less effective. This assertion indicates that hegemony plays an essential role in improving the effectiveness of international institutions.
The US hegemony may be very valuable in enhancing the WTO’s effectiveness. For example, the US has, over the recent past, been concerned about China’s currency regime. In spite of its ascension into the WTO, China is yet to fully comply with the requirement of economic liberalisation and an open-door policy. One of the areas of the economy in which China has failed to comply with in line with the WTO rules and regulations relates to the exchange rate regime. China continues to maintain a fixed exchange rate regime by pegging the Renminbi to the US dollar (Chen, Guo & Cao 2016). The Organisation for Economic Cooperation and Development (2002) states that adopting a fixed exchange rate regime protects a country from wide economic fluctuation as a result of internal or external shocks. Thus, the country’s current policy is controlled by the Chinese government as opposed to market forces.
On the basis of the fixed exchange rate regime, China either devalues or appreciates its domestic currency depending on the prevailing global economic situation, hence cautioning the country from adverse global economic effects. According to Market Realist (2016), China’s fixed exchange rate regime is aimed at maintaining the country’s competitiveness in the international market. However, continued currency devaluation by the Chinese government may have adverse effects on the trade deficit of other countries. The Chinese fixed exchange rate regime has had adverse effects on the US trade deficit. In addition to this effect, the Chinese currency devaluation is against the WTO’s rules and regulations.
In line with its goal to promote the global economy through international trade, the WTO has a duty to ensure that China complies with the stipulated rules and regulations. In pursuing this outcome, the WTO may require the support of the United States. As a result of the fixed exchange rate regime, the US has been greatly impacted through an increase in trade deficit arising from a loss in competitiveness of US goods in the local and international markets. In responding to this situation, the US may employ its power by in imposing sanctions to China under the 1974 Trade Act of the US (Section 301), which stipulates that the US has the power to impose unilateral trade restrictions against a trade partner that acts in a manner that may be harmful to the US economy (Hamamoto, Sakai & Shibata 2015). The ability of the US to impose trade sanctions originates from the fact that it possesses massive political and economic power.
Alternatively, the US may compel the WTO to employ its Dispute Resolution Mechanism in dealing with the Chinese currency devaluation issue because it contravenes the WTO's rules and regulations. If the WTO finds China guilty of failing to comply with the stipulated rules, China would be forced to align its currency in accordance with the WTO’s guidelines (Hilbert 2007). The WTO may further require the United States to impose additional trade sanctions in the event that China does not comply with the WTO’s ruling. This aspect indicates that US hegemony would play a critical role in enhancing the WTO’s effectiveness by increasing pressure on non-compliant sovereign states (D’Anieri 2012). Additionally, US hegemony would be essential in fostering the establishment of order within an international system, such as world trade through the WTO.
Conclusion
International institutions play a central role in maintaining global stability with regard to economic, social, and political dimensions. However, the success of international institutions is greatly affected by the input of existing hegemonies. This essay affirms that hegemons play an integral role in determining the effectiveness with which international institutions achieve their goals. This assertion is supported by the findings of this essay, ay which affirm that the effectiveness of the WTO, as an international institution, is dependent on the input of the United States as one of the global hegemonies. For example, by applying its political and economic power, the US is capable of pressuring countries that are non-compliant with the trade rules and regulations stipulated by the WTO. The US may either apply its power unilaterally or collaboratively with the WTO. In summary, the role of the hegemonic states is critical in enhancing the capacity and effectiveness of institutions of global governance. Thus, hegemony and international institutions are positively correlated.
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