By David Barwick – FRANKFURT (Econostream) – European Central Bank President Christine Lagarde on Friday warned that the unraveling of the postwar international legal and economic order risked accelerating retaliation and trade fragmentation, citing estimates that severe fragmentation could cut global output by as much as 7% and by up to 12% in some countries if technological decoupling were added.
In an acceptance speech for Columbia Law School’s Wolfgang Friedmann Memorial Award in New York, Lagarde said talk of a “new world order” was misleading and amounted to a return to “older patterns of coercion and mercantilism.”
“The new world order is not new,” she said, adding, “it is not an order: it is the absence of one.”
Lagarde argued that the international framework built since the late 18th century and formalized after the Second World War was not simply imposed by Western powers, but “co-constituted” by countries large and small, including through post-colonial and non-aligned pressures that shaped rules on the use of force and trade.
She said the system had delivered tangible economic and security outcomes, pointing to the post-1945 expansion in global trade and the broad-based legitimacy it commanded by offering smaller states protections that “raw power never would.”
Lagarde said the consensus frayed as China’s rise exposed limits in a multilateral trade framework designed for “broadly comparable market economies, or small developing ones,” while the United States began to doubt whether the rules still worked in its favor.
Despite that strain, she argued that incentives to cooperate remained strong because interdependence remained deep, with almost half of global trade still embedded in value chains and cross-border financial positions still historically high.
Countries were seeking to reduce vulnerabilities, she said, but she warned that autonomy had limits and that unilateral steps in a low-trust environment could trigger tit-for-tat dynamics.
“When interdependence remains but trust has eroded, unilateral actions can quickly trigger retaliation and countries can end up in an equilibrium that nobody wants,” Lagarde said.
She said the legal order had proved more resilient than critics suggested, arguing that even challengers often pursued aims through existing institutions and that states continued to bring disputes to international tribunals rather than abandon them.
Lagarde pointed to Europe’s response to Russia’s war against Ukraine, saying the decision to immobilize Russian assets rather than seize them outright reflected an effort to preserve legal principles that underpin confidence in sovereign assets and the broader financial architecture.
On trade policy, Lagarde said reform rather than a great-power “concert” was the more durable path, warning that balance-of-power arrangements were stable “only until it is not.”
She said World Trade Organization reform should address fairness, including limiting exemptions claimed by large economies, and should allow smaller groups of members to deepen cooperation in specific areas without being blocked by others, arguing that this could help prevent disputes from escalating.
Lagarde added that multilateral reform would be slow, and said cooperation would also need to advance through bilateral and regional agreements, which she described as laboratories for rules that could later scale more broadly.
“Preserving it means reforming it with honesty, with ambition and with all those who helped build it,” Lagarde said.