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A revived WTO may offer the best defence against Donald Trump’s assault on trade

ALTHOUGH there is some flurry of activity for reviving certain trade initiatives — for example, a modified Trans-Pacific Partnership — the global outlook for trade remains stormy. The first thunders of protectionism could come at any time. Indeed, this may be the proverbial calm before the storm.

Policymakers must realize there is no alternative to the World Trade Organization. While some regional initiatives may be pursued for various reasons, they must be complementary to the WTO, not substitutes.

Former WTO director general Mike Moore once expressed the fear that the WTO might become the “league of nations” of the 21st century world economy — an irrelevant and impotent institution. These words seem prophetic indeed.

Donald Trump’s arrival has put the cat among the policy-making pigeons.

While Trump is undoubtedly an unmitigated catastrophe for the global trade agenda, policymakers and business leaders should realize that, to paraphrase Shakespeare in “Julius Caesar,” “The fault is not just in The Donald/But in ourselves, that we are underlings.”

To get out of this mess, we have to understand how we got into it.

To say that the world changed at the turn of the century is a major understatement.

There was a general sense of euphoria about what US president George H.W. Bush hailed as the new world order. The establishment of the WTO in 1995 seemed particularly emblematic. By 2010, WTO membership was double that of the General Agreement on Tariffs and Trade in 1990.

But while markets, technology and logistics changed profoundly, mentalities among policymakers did not. Two myths need to be exposed.

First, that trade equals peace. Cordell Hull, Franklin D. Roosevelt’s secretary of state and architect of the post-World War II trade edifice, famously said: “Enduring peace and the welfare of nations are indissolubly connected with friendliness, fairness, equality and the maximum practicable degree of freedom in international trade.”

But, in fact, it is clear that it is not trade per se that matters, but only if such trade is friendly, fair and equal.

As chronicled in the book “Power and Plenty,” by Ronald Findlay and Kevin O’Rourke, throughout much of history and certainly since the rise of the European empires, trade has been a key instrument of imperialism — did anyone say “opium?”

Indeed China’s precipitate decline, from 33 per cent of world GDP on the eve of the First Opium War in 1839 to less than 4 per cent at the time of liberation in 1949, is due to a considerable extent to the predatory trade practices of the West and then Japan.

Second is the myth of the “liberal order.” There is no doubt that the trade regime established after World War II is an infinite improvement on the past and, among other things, has contributed to lifting hundreds of millions of people out of poverty.

Significantly, among the North Atlantic nations, where the liberal order has prevailed. There has been no trade war.

In respect to the West versus the Rest, however, trade policies have not been friendly, fair or equal.

Level the playing field

In sectors where the developing world had a comparative advantage, notably agriculture and labor-intensive goods, Western and Japanese trade policies have been protectionist and discriminatory.

The launch of the Doha Development Round in 2001 should have been intended to level the playing field.

The ink was hardly dry on the Doha declaration, however, before it became painfully evident that the Western powers and Japan intended no such thing.

At the 2003 Cancún WTO ministerial meeting, liberal rhetoric gave way to mercantilist hardball.

Rather than being greeted with friendliness and fairness, the emerging economies at Cancún were treated by the Quad (Canada, the EU, Japan and the US) as noisome upstarts that seemed to have forgotten their place.

The meeting collapsed and, effectively, so did the multilateral rules-based global trading system.

The failure of Doha stands out as a deplorable indictment of our times.

Trump, therefore, represents a culmination of a trade policy trajectory, not a departure. The risks of trade wars have dramatically intensified.

Forcing the collapse of the WTO Cancún meeting was emphatically the wrong choice.

Many wrong choices have been made on trade since then that have resulted in the mess we are in: a divisive, fragmented, fragile, friction-ridden trade policy environment.

Continuing on this trajectory could lead us to catastrophe. Trends, however, need not be irreversible.

Economist Arvind Subramanian provides three reasons why the WTO might in fact rise from the ashes: The alternatives, such as the TPP, have imploded; voters are rejecting hyper-globalization and deep integration; paradoxically, Trump’s bombastic protectionist rhetoric may act as a catalyst for the WTO’s rebirth.

Trump may decide not only to ignore, but in fact to leave the WTO. That is a real risk.

But rather than dancing to the US tune by finding alternative bilateral arrangements, developing countries should coalesce around policies to strengthen the WTO. This could reverse the trends of conflict and mayhem.

 

Jean-Pierre Lehmann is emeritus professor at IMD, founder of The Evian Group, and visiting professor at the University of Hong Kong. Shanghai Daily condensed the article.


 

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