The Economist - USA (2021-10-09)

4 SpecialreportWorldtrade TheEconomistOctober9th 2021

cludedthata 1%riseinparticipationinglobalvaluechainsis

linkedwithanincreaseinincomeperheadofmorethan1%inthe

longrun.A surveyoftheliteraturebyDouglasIrwinofDartmouth

Collegefoundthatpoorcountrieswhichliberalisedtradeenjoyed

highergrowthof1­1.5percentagepoints,cumulatingto10­20%

aftera decade.TheUnitedStatesInternationalTradeCommission,

anindependentgovernmentagency,reckonsAmerica’sbilateral

andregionaltradeagreementshaveraisedrealincomesby0.6%.

Stretchandprotect

Somemovestowardsfurtherliberalisationhavecontinued.InNo­

vember 202015 Asia­PacificcountriessignedtheRegionalCom­

prehensiveEconomicPartnership,theworld’sbiggesttradeblock.

TradingintheAfricanContinentalFreeTradeArea,a dealratified

by 38 countries,beganonJanuary1stthisyear.Post­BrexitBritain

istryingtocover80%ofitstradewithpreferentialdeals,albeit

aftererectinglargenewbarrierswithitsclosestneighbour,the

EuropeanUnion.AndAmericaandtheeuarediscussingcommon

internationalstandardsforthedigitaleconomy.

Yettheappetiteforfreertradeisnotwhatit was.Therehasnot

beena generalroundofliberalisationsincethemid­1990s.Other

dealmakinghasalsoslowed.Partlythatisdowntoa widespread

perceptionthattheideologyoffreetradehasfailedtodeliverits

promises.Intherichworld,politicianshaveseenfuriousback­

lashesagainsttradeagreementsandcomplaintsthatliberalisa­

tionhascreatedlosersaswellaswinners,leavingmanyworkers

behind.President DonaldTrump embodiedarejection ofthe

rules­basedtradesystem.AlthoughtheBidenadministrationno

longerhandsoutrandomtariffthreats,fewthinkAmericaisinca­

pableofelectinga protectionistlikeMrTrumpagain.

Meanwhilethewtofacesgridlock.ManybelievethatChina

tookmostofthebenefitstheywerepromisedwithoutoffering

enoughinreturn.Ithasbecomeimpossibletoupdatetherulesin

a groupwith 164 membersthatallneedtoagree.Andthesystem

thatismeanttostoptradedisputesspirallingoutofcontrolno

longerworks.Thecovid­19pandemichasrevealedhowquickly

panickednationalismcangumupglobalsupplychains.Overtwo­

thirdsofcountriesapplyingexportcontrolsonmedicaldevicesin

2020 stillhadrestrictionsinplaceinAugust2021.

Forallthepost­warembraceoffreetrade,politicalsupportfor

itseemsto restonfragilefoundations.Thatcouldjeopardise

growth.Accordingtoonestudy,theuncertaintyassociatedwith

MrTrump’stradewarsmayhavedepressedglobalgrowthby0.75

percentagepointsin2019.Thewto’seconomistsreckonthatbe­

tween 2000 and 2016 thecostoftradeassociatedwithpolicyfell

fromtheequivalentofa 9%tariffin 2000 toa 6%tariffin2016,but

thisincludesanupticksince2012.Asimulationfromtheimf

foundthattheequivalentofa 10%tariffwouldreduceglobalout­

putbyaround1%afterthreeyears,andby1.5%if productivityloss­

esfromtheprotectionofinefficientfirmsareadded.

Asfreertradelosesfavour,otherprioritieshavecrowdedin.

Therewassomuchfocusonliberalisationandwhatit wouldbring

that,astimewenton,“tradebecamea negotiatingthing—tradefor

tradeitself,”saysNgoziOkonjo­Iweala,director­generalofthe

wto. Now,shenotes,non­tradegoalsthathadlostouttothecause

ofgreaterliberalisationarecomingback.Thisspecialreportex­

ploreshowtradepolicyisbeingusedtoachievenon­tradeobjec­

tives,includinggreaterresilience,humanrightsanda healthier

planet.Anditaskswhethertheopentradingsystemcansurvive

thisshift.Theplacetostartiswitha lookatthestrainscreatedby

America’sturnawayfromtherules­basedmultilateraltradingsys­

temthatit didsomuchtocreate.n

Liberal logic

Sources:“TwoCenturiesofBilateralTradeandGravityData:1827-2014”,

byM.FouquinandJ. Hugot(2016);OurWorldinData;WorldBank

*Newseries

†1990-2017 ‡1992-2019

*

25

20

15

10

5

0

1827 501900 2020

World,merchandiseexports

%ofGDP

-20-40-60 200

Trade-weighted average tari rate

1990-2019, percentage-point change

Tariff rate, 2019 or latest, %

6.6

2.5

8.0

2.6

1.8

1

.8

India

China‡

Brazil

World†

EuropeanUnion

UnitedStates

India

China‡

Brazil

World†

European Union

United States

Trade law

A fraying system

M

itchell taylor, an Australian winemaker, got advice from

his agent when he tried to uncork the Chinese market in the

1990s: “it’s all about relationships.” But after Australia became Chi­

na’s top wine supplier in 2019, this fruitful relationship soured. In

November 2020 the Chinese government imposed tariffs on wine

from Australia of more than 200%, allegedly because it was being

“dumped” on its market at excessively low prices, but in reality as

a response to the Australian government’s call for an investigation

into  the  origins  of  covid­19.  Mr  Taylor  lost  a  third  of  his  export

sales.  He  reckons  the  Chinese  were  sending  a  message  to  the

world: “don’t upset us.”

This is by no means the first time that China has flaunted its

market power. But today’s context is different. Over the past few

years, even as China has defied the spirit, if not the letter, of the

wto’s rules, America has also broken the organisation’s dispute­

settlement mechanism, brandished tariffs against allies and im­

posed  trade  restrictions  for  national  security.  As  the  two  giants

have  become  locked  in  economic  conflict,  both  have  flouted  the

underlying  principle  of  the  multilateral  system,  which  is  that

trade should be governed by rules not power. 

America has long been central to the system, as both an archi­

tect  and  an  enforcer.  Despite  flirting  with  unilateralism  in  the

1970s and 1980s, it accepted that a more stable trade system served

its interests. After helping to write the wtorules in the early 1990s,

it beckoned China into the club in 2001. And it worked to preserve

the wto’s core principle of non­discrimination. Between 1995 and

early 2017 American governments filed 114 complaints against oth­

er countries at the wto, over four­fifths of them for problems that

affected other members too. (For comparison, over half of the 434

disputes filed by other countries were purely bilateral.)

Yet critics always said this permissive approach hurt American

workers. And in 2017 they came to power. Robert Lighthizer, a for­

mer United States Trade Representative (ustr), reckons one of the

Trump administration’s big contributions to trade politics was its

interest  in  matters  other  than  maximising  company  profits.  In

2017, rejecting the idea that rules­based dispute settlement serves

In global trade, power increasingly trumps rules