Study sees US, China as global economic referees (2)

Kennedy and He wrote that global governance has "stalled", citing examples such as the WTO's long-suspended Doha round of trade negotiations and a less-active role by the Group of 20 countries in addressing frictions in the world economy. The leadership vacuum has led to protectionism, a reliance on bilateral or regional trade agreements, and nations' increased willingness to use "monetary expansion" — sometimes called "printing money" — to deal with crises.

Tensions between the US and China have kept them from asserting a joint role in overseeing global economic rules, they said.

"Global governance isn't about just making everyone agree with each other. It's about coming up with rules to manage, in a systematic way, competition as well," Kennedy said.

The authors recommend four ways for the US and China to provide better global economic stewardship: "clean up their own houses", which for Washington means resolving political gridlock over fiscal policies, and for Beijing, avoiding the "middle-income trap", promoting innovation, improving the quality of healthcare and education, and strengthening the social safety net; elevate their Strategic and Economic Dialogue to a forum at which the countries' presidents regularly meet to solve problems, not just talk; "proceed with caution" in negotiating regional trade zones so they don't impede broader trade; and create a roadmap for China's entry into the 34-member Organization for Economic Cooperation and Development, based in Paris.

As for bilateral investment, He pointed out that despite Chinese investors putting a record $6.5 billion in US enterprises last year, the US share of foreign direct investment into China is steadily shrinking.