Trade distortion and protectionism
Time for leadership in trade – not victimhood
Published 07 August 2018 | 4 minute read
The turmoil in today’s global trade system – spawned by perceived unfair trade practices that have led to unilateral US tariff actions – provides an opportunity for leadership that should be eagerly embraced.
But first, countries need to move past a sense of victimhood. Far too much time is being wasted on hand-wringing over the controversial nature of US actions, and a sense that the trade system is under assault by the US. This frame of reference produces an inherently defensive posture at a time when the exact opposite stance is needed.
The point is not whether the various complaints about US trade actions are legitimate, or whether the potential damage to the global trade system could be as severe as some fear. In many cases the complaints – and the fears – are thoroughly justified.
The real issue however is who will exercise the mature, proactive leadership needed to propel us forward towards resolution? The starting point should be to move away from an “us versus them” mentality typified by back and forth accusations, and towards a “we’re all in this together” mindset. Given that open and mutually beneficial trade has driven economic development and higher standards of living across the globe for the past 7 decades, all trading nations have a deep interest in ensuring that trade is sustainable. One need not be in agreement with US trade actions – nor a fan of the US President – in order to recognize that the current trade system is fundamentally broken, and therefore not sustainable.
The US has walked away from its traditional role as leader of the global trade system, and in fact seems more interested in taking a sledgehammer to the system rather than repairing it. The playing field is wide open. Which country can and will assume the mantle of mature leadership?
Depending on which metric you use, China is either the first or second largest economy in the world and by any measure will be the largest within a decade or two. It is the largest trading nation, and access to the global trade system, along with transformative FDI, have powered China’s economic ascent. It would be difficult to find another country or jurisdiction which has benefited as much from the global trade system.
So China is certainly one logical candidate to play a greater leadership role in ensuring we have a sustainable trade system which produces mutually beneficial trade. Since its entry into the global trade system in 2001 however, China has been, for the most part, a follower. And its approach, at least up until now, has been to leverage the trade system in order to maximize narrow national economic development objectives. While it’s perfectly normal for any country to engage in trade in order to promote its national interests, China now needs to take on greater responsibility for the overall viability of the system – a system which has enabled its economic rise, and which will be no less important for China moving forward. A trade system which facilitates China’s unprecedented developmental trajectory, but leaves partners feeling aggrieved, will not be sustainable, and is not in China’s best interests.
China is not the only country which can and should show more leadership. An equally strong case could be made for the EU, Japan, Korea, Australia, and others. With the US on the sidelines, joint responsibility and joint leadership is needed. This is a golden opportunity. The recent EU proposals on modernizing the WTO could be an encouraging indication, although it raises the question of how much progress is possible in the WTO.
Importantly, the problems which are stressing the trade architecture to the breaking point today are not merely bilateral US-China issues. As China continues to grow, the various flash points – on IPR, on technology transfer, on predatory trade practices, and so on – will eventually impact virtually every trading nation. And as more developing countries follow China’s state-directed capitalist model, the friction points will only multiply further. So all leading trade nations have a vested interest in ensuring we have a sustainable trade system which delivers mutually beneficial trade and is resistant to manipulation and evasion.
Don’t get hung up on the vehicle that gets you there. If progress in the WTO is unworkable, progress in a plurilateral or regional setting could also prove to be immensely helpful. But whatever the path, a victimhood mentality or a trade war mindset will never get us to where we need to be.
When confronted with punitive tariffs in response to perceived unfair trade practices, a victim draws up a defensive retaliation list, and hunkers down for a trade war. A mature leader, invested in the sustainability of the trade system, says “There are legitimate problems here; how can we fix them?” The major trade nations now need to take a long, hard look in the mirror and decide whether they prefer to be victims or leaders.
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