A Powerful Message From America’s Frustrated Allies

The new China-initiated Asia Infrastructure Investment Bank is a greater setback for the U.S. than many realize. Despite the Obama administration’s efforts to persuade its longtime allies not to invest in the bank, they are pouring their money in. This is a symptom of wider dissatisfaction with U.S. leadership.

Consider that the U.K., Germany, Canada, France and Singapore, all longtime supporters of the U.S., are competing to work with Beijing to establish yuan clearing centers. Some say China has conspired behind the scenes to seize the global leadership role from the U.S. That is not the case. China has repeatedly stated that the AIIB welcomes the U.S. as a co-founder. When the idea of the AIIB was in its infancy, the Chinese reached out through many channels to the U.S. administration.

In fact, the majority view among Chinese policy makers, academics and opinion leaders is that Beijing should work with the U.S. to gradually reform the existing global economic-governance architecture, including the International Monetary Fund, World Bank and World Trade Organization. China has long been a beneficiary of that architecture, so there is no appetite to fundamentally change it.

But the U.S. has resisted all efforts at incremental reforms, to the irritation of not just China but also traditional U.S. allies. It seems the Obama administration and Congress have been doing everything in their power to undermine America’s global leadership.

When the IMF tried to implement reforms to recognize the importance of emerging markets, including China and India, the U.S. refused. After painful negotiations, even the Europeans, who stand to lose the most in any change of IMF voting rights, agreed to the proposal. But the U.S. Congress was not even willing to consider it.

At the G-20 Global Summit following the global financial crisis, the IMF agreed that it should increase its funding to deal with today’s financial instability. Major countries, including China, pledged more stand-by resources. It’s important to note that stand-by resources is not “real” money, but only a commitment should the need arise. In any case, the amount of money requested from the U.S. paled in comparison to the $3 trillion printed by the U.S. Treasury over the past several years. The Obama administration, however, concerned with objections from Capitol Hill, refused to go along.

Yet the U.S. continues to insist on maintaining its influence over global economic governance, to the consternation of the financial community. When time came to replace the leadership of the IMF and World Bank a few years ago, many had called for the positions to be filled based on merit and not nationality. It’s possible the candidates who were eventually chosen to lead these institutions were still the most qualified, but the White House was unwilling to accept the principle of an open search.

Through their participation in the AIIB, America’s allies are now sending a simple but powerful message to the U.S.: We’re tired of your inaction and reluctance to make much-needed reforms to global economic governance. We’re now willing to buy a Chinese story that, while certainly unproven, at least shows promise.

This is why veteran players of global finance are eager to join the AIIB. In fact, China has been surprised that so many longtime allies of the U.S. would sign up, since Beijing itself is not yet able to articulate the AIIB’s governance structure.

There is legitimate concern, of course, that the yuan’s emergence as a trading currency will threaten the dominance of the dollar, which is essential to America’s economic prosperity.

But if Congress and the White House continue to drag their feet in recognizing the needs of global governance reform and fail to take real action, the U.S. will further alienate allies that have stood by it for the past 70 years. It is especially unfortunate that Congress and the White House are not more proactive considering the steady improvement of the U.S. economy. More unfortunate still, given the general willingness of China to work together with the U.S. to implement the reforms.

The AIIB episode is a wake-up call for the U.S. that its leadership is slipping away. Instead of blaming China and perfidious friends, Congress and the White House should recognize the new reality. They should work with other countries, including China, and support the necessary reforms to the global governance structure.

Mr. Li is the Mansfield Freeman chair professor of economics and dean of Schwarzman scholars at Tsinghua University.